e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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þ |
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended: September 30, 2010
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 0-29709
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
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Pennsylvania
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23-3028464 |
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification Number) |
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271 Main Street, Harleysville, Pennsylvania
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19438 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (215) 256-8828
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Stock, $.01 par value per share
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The Nasdaq Stock Market, LLC |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. YES o NO þ
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 and (2)
has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the Registrants knowledge in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ
The aggregate market value of the 3,229,255 shares of the Registrants common stock held by
non-affiliates (3,699,756) shares outstanding, less 470,501 shares held by affiliates), based upon
the closing price of $13.90 for a share of common stock on March 31, 2010, as reported by the
Nasdaq Stock Market, was approximately $44.9 million. Shares of common stock held by executive
officers, directors and by each person who owns 5% or more of the outstanding common stock have
been excluded since such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
Number of shares of common stock outstanding as of December 3, 2010: 3,699,756
DOCUMENTS INCORPORATED BY REFERENCE
Set forth below are the documents incorporated by reference and the part of the Form 10-K into
which the document is incorporated:
Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders for the year
ended September 30, 2010 are incorporated by reference into Part II, Item 9 and Part III, Items
10-14 of this Form 10-K.
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
i
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward looking statements (as defined in the
Securities Exchange Act of 1934 and the regulations hereunder). Forward looking statements are not
historical facts but instead represent only the beliefs, expectations or opinions of Harleysville
Savings Financial Corporation and its management regarding future events, many of which, by their
nature, are inherently uncertain. Forward looking statements may be identified by the use of such
words as: believe, expect, anticipate, intend, plan, estimate, or words of similar
meaning, or future or conditional terms such as will, would, should, could, may,
likely, probably, or possibly. Forward looking statements include, but are not limited to,
financial projections and estimates and their underlying assumptions; statements regarding plans,
objectives and expectations with respect to future operations, products and services; and
statements regarding future performance. Such statements are subject to certain risks,
uncertainties and assumption, many of which are difficult to predict and generally are beyond the
control of Harleysville Savings Financial Corporation and its management, that could cause actual
results to differ materially from those expressed in, or implied or projected by, forward looking
statements. The following factors, among others, could cause actual results to differ materially
from the anticipated results or other expectations expressed in the forward looking statements: (1)
economic and competitive conditions which could affect the volume of loan originations, deposit
flows and real estate values; (2) the levels of non-interest income and expense and the amount of
loan losses; (3) competitive pressure among depository institutions increasing significantly; (4)
changes in the interest rate environment causing reduced interest margins; (5) general economic
conditions, either nationally or in the markets in which Harleysville Savings Financial Corporation
is or will be doing business, being less favorable than expected;(6) political and social unrest,
including acts of war or terrorism; or (7) legislation or changes in regulatory requirements
adversely affecting the business in which Harleysville Savings Financial Corporation will be
engaged. Harleysville Savings Financial Corporation undertakes no obligation to update these
forward looking statements to reflect events or circumstances that occur after the date on which
such statements were made.
As used in this report, unless the context otherwise requires, the terms we, us, or the
Company refer to Harleysville Savings Financial Corporation, a Pennsylvania corporation, and the
term the Bank refers to Harleysville Savings Bank, a Pennsylvania chartered savings bank and
wholly owned subsidiary of the Company. In addition, unless the context otherwise requires,
references to the operations of the Company include the operations of the Bank.
PART I
General
Harleysville Savings Financial Corporation is a Pennsylvania corporation headquartered in
Harleysville, Pennsylvania. The Company became the bank holding company for Harleysville Savings
Bank in connection with the holding company reorganization of the Bank in February 2000 (the
Reorganization). In August 1987, the Banks predecessor, Harleysville Savings Association,
converted to the stock form of organization. The Bank, whose predecessor was originally
incorporated in 1915, converted from a Pennsylvania chartered, permanent reserve fund savings
association to a Pennsylvania chartered stock savings bank in June 1991. The Bank operates from
six full-service offices located in Montgomery County and one office located in Bucks County,
Pennsylvania. The Banks primary market area includes Montgomery County, which has the third
largest population and the second highest per capita income in the Commonwealth of Pennsylvania,
and, to a lesser extent, Bucks County. As of September 30, 2010, the
1
Company had $857.1 million of total assets, $528.1 million of deposits and $53.4 million of stockholders equity.
The Companys stockholders equity constituted 6.22% of total assets as of September 30, 2010.
The Banks primary business consists of attracting deposits from the general public and
business customers through a variety of deposit programs and investing such deposits principally in
first mortgage loans secured by residential properties in the Banks primary market area. The Bank
also originates a variety of consumer loans, predominately home equity loans and lines of credit
also secured by residential properties in the Banks primary lending area. The Bank is also
engaged in the general commercial banking business, and provides a full range of commercial loans
and commercial real estate loans to customers in the Banks primary market area. The Bank serves
its customers through its full-service branch network as well as through remote ATM locations, the
internet and telephone banking.
Deposits with the Bank are insured to the maximum extent provided by law through the Deposit
Insurance Fund administered by the Federal Deposit Insurance Corporation (FDIC). The Bank is
subject to examination and comprehensive regulation by the FDIC and the Pennsylvania Department of
Banking (Department). It is also a member of the Federal Home Loan Bank of Pittsburgh (FHLB of
Pittsburgh or FHLB), which is one of the 12 regional banks comprising the Federal Home Loan Bank
System (FHLB System). The Bank is also subject to regulations of the Board of Governors of the
Federal Reserve System (Federal Reserve Board) governing reserves required to be maintained
against deposits and certain other matters.
The Companys principal executive offices are located at 271 Main Street, Harleysville,
Pennsylvania 19438 and its telephone number is (215) 256-8828.
Competition
The Company faces significant competition in attracting deposits. Its most direct competition
for deposits has historically come from commercial banks and other savings institutions located in
its market area. The Company faces additional significant competition for investors funds from
other financial intermediaries. The Company competes for deposits principally by offering
depositors a variety of deposit programs, convenient branch locations, hours and other services.
The Company does not rely upon any individual group or entity for a material portion of its
deposits.
The Companys competition for real estate loans comes principally from mortgage banking
companies, other savings institutions, commercial banks and credit unions. The Bank competes for
loan originations primarily through the interest rates and loan fees it charges, the efficiency and
quality of services it provides borrowers, referrals from real estate brokers and builders, and the
variety of its products. Factors which affect competition include the general and local economic
conditions, current interest rate levels and volatility in the mortgage markets.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) eliminated
many of the distinctions between commercial banks and savings institutions and holding companies
and allowed bank holding companies to acquire savings institutions. FIRREA has generally resulted
in an increase in the competition encountered by savings institutions and has resulted in a
decrease in both the number of savings institutions and the aggregate size of the savings industry.
Lending Activities
Loan Portfolio Composition. The Companys loan portfolio is predominantly comprised of loans
secured by first mortgages on single-family residential properties. As of September 30, 2010,
first mortgage
2
loans on residential properties, including loans on single-family, multi-family residential
properties, construction loans and lot loans on such properties, amounted to $344.6 million or
66.6% of the Companys total loan portfolio. Loans on the Companys residential properties are
primarily long-term and are conventional (i.e., not insured or guaranteed by a federal agency).
As of September 30, 2010, loans secured by commercial real estate and commercial business
loans comprised $75.5 and $4.3 million or 14.6% and 0.8% of the total loan portfolio,
respectively. Home equity lines, including installment home equity loans and home equity lines of
credit comprised $90.6 million or 17.5% of the total loan portfolio. Consumer loans, including
automobile loans, loans on savings accounts and education loans, constituted $2.0 million or 0.5%
of the total loan portfolio as of September 30, 2010.
The following table sets forth the composition of our loan portfolio by type of loan at the
dates indicated.
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As of September 30, |
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2010 |
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2009 |
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2008 |
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2007 |
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2006 |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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(Dollars in Thousands) |
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Real estate loans: |
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Residential |
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Single-family |
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$ |
336,081 |
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65.0 |
% |
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$ |
343,155 |
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68.2 |
% |
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$ |
333,885 |
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68.9 |
% |
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$ |
302,420 |
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71.3 |
% |
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$ |
283,745 |
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72.2 |
% |
Multi-family |
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1,807 |
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0.3 |
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1,997 |
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0.4 |
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2,392 |
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0.5 |
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2,589 |
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0.6 |
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2,933 |
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0.7 |
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Construction |
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4,752 |
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0.9 |
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2,912 |
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0.6 |
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8,346 |
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1.7 |
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6,093 |
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1.4 |
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6,987 |
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1.8 |
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Lot loans |
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1,986 |
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0.4 |
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1,141 |
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0.2 |
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1,167 |
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0.2 |
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483 |
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0.1 |
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626 |
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0.2 |
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Home equity |
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90,511 |
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17.5 |
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92,343 |
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18.4 |
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92,254 |
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19.1 |
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95,453 |
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22.5 |
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95,865 |
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24.4 |
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Commercial real estate |
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75,450 |
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14.6 |
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54,341 |
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10.8 |
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37,799 |
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7.8 |
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12,869 |
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3.0 |
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922 |
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0.2 |
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Total real estate loans |
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510,587 |
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98.7 |
% |
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495,889 |
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98.6 |
% |
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475,843 |
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98.2 |
% |
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419,907 |
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99.0 |
% |
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391,078 |
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99.5 |
% |
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Non-real estate loans: |
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Commercial business loans |
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4,327 |
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0.8 |
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4,982 |
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1.0 |
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6,584 |
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1.4 |
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2,440 |
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0.6 |
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0.0 |
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Consumer
non-real estate loans |
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1,980 |
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0.5 |
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2,242 |
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0.4 |
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1,955 |
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0.4 |
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1,881 |
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0.4 |
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1,815 |
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0.5 |
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Total consumer loans |
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6,307 |
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1.3 |
% |
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7,224 |
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1.4 |
% |
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8,539 |
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1.8 |
% |
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4,321 |
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1.0 |
% |
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1,815 |
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0.5 |
% |
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Total loans receivable |
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516,894 |
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100.0 |
% |
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503,113 |
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100.0 |
% |
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484,382 |
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100.0 |
% |
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424,228 |
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100.0 |
% |
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392,893 |
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100.0 |
% |
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Less: |
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Loans in process |
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(3,426 |
) |
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(1,873 |
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(5,108 |
) |
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(2,794 |
) |
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(4,941 |
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Deferred loan fees |
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(871 |
) |
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(755 |
) |
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(428 |
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(448 |
) |
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(546 |
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Allowance for loan losses |
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(2,504 |
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(2,094 |
) |
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(1,988 |
) |
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(1,933 |
) |
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(1,956 |
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Total loans receivable net |
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$ |
510,093 |
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$ |
498,391 |
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$ |
476,858 |
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$ |
419,053 |
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$ |
385,450 |
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3
Contractual Maturities. The following table sets forth scheduled contractual maturities
of the loan and mortgage-backed securities portfolio of the Company as of September 30, 2010 by
categories of loans and securities. The principal balance of the loan is set forth in the period
in which it is scheduled to mature. This table does not reflect loans in process or unamortized
premiums, discounts and fees.
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Principal Balance |
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Principal Repayments Contractually Due in Year(s) Ended September 30, |
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at September 30, |
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2013- |
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2025-and |
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2010 |
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2011 |
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2012 |
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2015 |
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2016-2019 |
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2020-2024 |
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Thereafter |
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(In Thousands) |
Residential real estate loans: |
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Single-family
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$ |
336,081 |
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$ |
5,040 |
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$ |
5,376 |
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$ |
18,145 |
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$ |
41,330 |
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$ |
59,138 |
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$ |
207,052 |
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Multi-family
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1,807 |
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27 |
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29 |
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98 |
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222 |
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318 |
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|
1,113 |
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Construction
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4,752 |
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|
71 |
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76 |
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|
257 |
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|
585 |
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836 |
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2,927 |
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Lot loans
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1,986 |
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|
107 |
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117 |
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401 |
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|
900 |
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|
461 |
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Mortgage-backed Securities
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131,628 |
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1,974 |
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2,238 |
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7,371 |
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16,585 |
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|
|
23,298 |
|
|
|
80,162 |
|
Home equity lines of credit
|
|
|
9,511 |
|
|
|
8,786 |
|
|
|
9,330 |
|
|
|
17,301 |
|
|
|
41,485 |
|
|
|
13,609 |
|
|
|
|
|
Commercial real estate
|
|
|
75,450 |
|
|
|
2,717 |
|
|
|
2,943 |
|
|
|
10,339 |
|
|
|
23,922 |
|
|
|
35,529 |
|
|
|
|
|
Commercial business loans
|
|
|
4,327 |
|
|
|
156 |
|
|
|
61 |
|
|
|
402 |
|
|
|
37 |
|
|
|
433 |
|
|
|
3,238 |
|
Consumer and other loans
|
|
|
1,980 |
|
|
|
244 |
|
|
|
261 |
|
|
|
906 |
|
|
|
446 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$ |
648,522 |
|
|
$ |
19,122 |
|
|
$ |
20,431 |
|
|
$ |
55,220 |
|
|
$ |
125,512 |
|
|
$ |
133,745 |
|
|
$ |
294,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
With respect to the $629.5 million of loans with principal maturities contractually due after
September 30, 2011, $569.2 million have fixed rates of interest and $60.3 million have
adjustable or floating rates of interest. |
Contractual principal maturities of loans do not necessarily reflect the actual term of
the Companys loan portfolio. The average life of mortgage loans is substantially less than their
contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses,
which give the Company the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase when current mortgage loan rates
substantially exceed rates on existing mortgage loans and, conversely, decrease when rates on
existing mortgage loans substantially exceed current mortgage loan rates.
Interest rates charged by the Company on loans are affected principally by the demand for such
loans and the supply of funds available for lending purposes. These factors are, in turn, affected
by general economic conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and government budgetary matters. The interest rates
charged by the Company are competitive with those of other local financial institutions.
Origination, Purchase and Sale of Loans. Although the Company has general authority to
originate, purchase and sell loans secured by real estate located throughout the United States, the
Companys lending activities are focused in its assessment area of Montgomery County, Pennsylvania
and surrounding suburban counties.
The Company accepts loan applications through its branch network, and also accepts mortgage
applications from mortgage brokers who are approved by the Board of Directors to do business with
the Company. The Company generally does not engage in the purchase of whole loans. The Company did
engage in the acquisition of participations of commercial loans on a limited basis during fiscal
years ended September 30, 2010 and 2009.
4
On occasion, we have sold participation interests in loans originated by us to other
institutions. When we have sold participation interests, we generally have sold them to mitigate
our risks in certain situations. During the year ended September 30, 2010, we sold no loans.
The Companys total loan originations decreased by $17.8 million or 11.7% in fiscal 2010 and
increased by $9.4 million or 6.6% in fiscal 2009. Of the $135.2 million and $153.0 million of
total loans originated in fiscal 2010 and 2009, respectively, $56.0 million and $66.0 million were
originated to fund single-family residential properties, $8.3 million and $12.7 million were loans
originated to fund multi-family and construction properties and $66.2 million and $68.0 million
were to fund commercial real estate and home equity lines of credits which are secured by real
estate. The Companys total real estate loan originations in fiscal 2010 decreased by $16.4
million or 11.2% from the prior year. The non-real estate loans originated totaled $4.9 million and
$6.4 million in 2010 and 2009, respectively. Management intends to continue to emphasize
origination of consumer loans which may have adjustable rates, and generally have shorter terms
than residential real estate loans.
The following table shows total loans originated, sold and repaid during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands) |
|
Real estate loan originations: |
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
Single-family |
|
$ |
55,744 |
|
|
$ |
65,740 |
|
Multi-family |
|
|
|
|
|
|
|
|
Construction |
|
|
8,268 |
|
|
|
12,685 |
|
Lot loans |
|
|
|
|
|
|
|
|
Home equity |
|
|
35,098 |
|
|
|
38,217 |
|
Commercial real estate |
|
|
31,076 |
|
|
|
29,966 |
|
Commercial business loans |
|
|
4,327 |
|
|
|
5,508 |
|
Consumer non-real estate loans (1) |
|
|
671 |
|
|
|
916 |
|
|
|
|
|
|
|
|
Total loan originations |
|
|
135,184 |
|
|
|
153,032 |
|
Purchases of mortgage-backed securities |
|
|
14,986 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loan originations, and purchases |
|
|
150,170 |
|
|
|
153,032 |
|
Principal loan and mortgage-backed securities repayments |
|
|
168,848 |
|
|
|
180,999 |
|
Sales of loans and mortgage-backed securities |
|
|
|
|
|
|
1,905 |
|
|
|
|
|
|
|
|
Total principal repayments and sales |
|
|
168,848 |
|
|
|
182,904 |
|
|
|
|
|
|
|
|
Net increase in loans and mortgage-backed securities |
|
$ |
(18,678 |
) |
|
$ |
(29,872 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes installment vehicle loans, secured and unsecured personal loans and lines of credit. |
Loan Underwriting Policies. Each loan application received by the Company is
underwritten to the standards of the Companys written underwriting policies as adopted by the
Companys Board of Directors. The Companys Board of Directors has granted loan approval authority
to several officers and employees of the Company, provided that the loan meets the guidelines set
out in its written underwriting policies. Individual approval authority of $500,000 has been
granted to the Companys Chief Executive Officer, the Companys Chief Operating and Financial
Officer, and the Companys Chief Lending Officer. Joint approval authority of $1.0 million has
been granted to a combination of at least two of the above named individuals. Individual lending
authority of $250,000 has been granted to the Banks Vice President/Loan Administration Manager,
the Vice President/Loan Customer Service Manager and to the Banks Consumer Loan and Residential
Mortgage Underwriter, employed by the Company. Additional consumer loan lending authority of
$50,000 has been granted to several delegated underwriters, employed by the Bank. Loans with
policy
5
exceptions require approval by the next highest approval authority. Loans over $1.0 million
must be approved by the Companys Senior Loan Committee or the Board of Directors.
In the exercise of any loan approval authority, the officers of the Company will take into
account the risk associated with the extension of credit to a single borrower, borrowing entity, or
affiliation. The Company has an aggregate loans to one borrower limit of 15% of the Companys
unimpaired capital and unimpaired surplus in accordance with federal regulations. At September 30,
2010, the largest aggregate amount of loans outstanding to any borrower, including related
entities, was $3.7 million, which did not exceed the Companys loan to one borrower limitation.
Single Family Residential Real Estate Lending. The Company is permitted to lend up to 97% of
the appraised value or sales price of the security property for a residential real estate loan,
provided that the borrower obtains private mortgage insurance on loans that exceed 80% of the
appraised value or sales price, whichever is less, of the security property. The Company will
generally lend up to 95% of the lesser of the appraised value or the sale price for the purchase of
single-family, owner-occupied dwellings which conform to the secondary market underwriting
standards. Refinancings are limited to 90% or less. Loans over $417,000 and other non-conforming
loans, secured by 1-4 residential, owner-occupied dwellings, are limited to 90% of the lesser of
the purchase price or appraised value. The purchase of non-owner occupied, 1-4 unit dwellings may
be financed to 80% of the lower of the appraisal or sale price; a refinance is limited to 80% of
the appraised value if the borrowers FICO score is 680 or higher.
All appraisals and other property valuations are performed by independent fee appraisers
approved by the Companys Senior Loan Committee. On all amortizing real estate loans, the Company
requires borrowers to obtain title insurance, insuring the Company has a valid first lien on the
mortgaged real estate. Borrowers must also obtain and maintain a hazard insurance policy prior to
closing and, when the real estate is located in a flood hazard area designated by the Federal
Emergency Management Agency, a flood insurance policy is required. Generally, borrowers advance
funds on a monthly basis together with payment of principal and interest into a mortgage escrow
account from which the Company makes disbursements for items such as real estate taxes and
insurance premiums as they fall due.
The Company presently originates fixed-rate loans on single-family residential properties
pursuant to underwriting standards consistent with secondary market guidelines, and which may or
may not be sold into the secondary mortgage market as conditions warrant. Adjustable rate
mortgages (ARMs), as well as non-conforming and jumbo fixed-rate loans in amounts up to $2.0
million, are held in the portfolio. It is the Companys policy to originate both fixed-rate loans
and ARMs for terms up to 30 years. As of September 30, 2010, $340.8 million or 65.9% and $346.0
million or 68.8% of the Companys total loan portfolio consisted of single-family (including
construction loans) residential loans, respectively. As of September 30, 2010, approximately
$330.8 million or 96.5% of the Companys total mortgage loans consisted of fixed-rate,
single-family residential mortgage loans. As of such date, $11.8 million or 3.5% of the total
mortgage loan portfolio consisted of adjustable-rate single-family residential mortgage loans.
Most of the Companys residential mortgage loans include due on sale clauses.
During the years ended September 30, 2010 and 2009, the Company originated $417,000 and $2.1
million of ARM mortgages, respectively. ARMs represented 0.3% and 1.4% of the Companys total
mortgage loan portfolio originations in fiscal 2010 and 2009, respectively. The ARM mortgages
offered by the Company are originated with initial adjustment periods varying from one to 10 years,
and provide for initial rates of interest below the rates which would prevail were the index used
for repricing applied initially. The Company expects to emphasize the origination of ARMs as
market conditions permit, in order to reduce the impact of rising interest rates in the market
place. Such loans, however, may not adjust as rapidly as changes in the Companys cost of funds.
6
Multi-family Residential Real Estate Lending. The Company originates mortgage loans secured
by multifamily dwelling units. At September 30, 2010, $1.8 million, or 0.3% of our total loan
portfolio consisted of loans secured by multifamily residential real estate. The majority of our
multifamily residential real estate loans are secured by apartment buildings located in the Banks
local market area. The interest rates for our multifamily residential real estate loans generally
adjust at five- to ten-year intervals, with the rate to be negotiated at the end of such term or to
automatically convert to a floating interest rate. These loans generally have a five-year term with
an amortization period of no more than twenty years. At September 30, 2010, we had no multifamily
residential real estate loans that were delinquent in excess of 30 days.
Construction Loans. The Company offers fixed-rate and adjustable-rate construction loans on
residential properties. Residential construction loans are originated for individuals who are
building their primary residence as well as to selected local builders for construction of
single-family dwellings. As of September 30, 2010, $4.8 million or 0.9% of the total loans
consisted of construction loans.
Construction loans to homeowners are usually made in connection with the permanent financing
on the property. The permanent loans have amortizing terms up to 30 years, following the initial
construction phase during which time the borrower pays interest on the funds advanced. These loans
are reclassified as permanent mortgage loans when the residences securing the loans are completed.
The Company will make construction/permanent loans up to a maximum of 90% of the fair market value
of the completed project. The rate on the loan during construction is the same rate as the Company
will charge on the permanent loan on the completed project. Advances are made on a percentage of
completion basis with the Companys receipt of a satisfactory inspection report of the project.
Historically, the Company has been active in on-your-lot home construction lending and intends
to continue to emphasize such lending. Although construction lending is generally considered to
involve a higher degree of risk of loss than long-term financing on improved, occupied real estate,
the Company historically has not experienced any significant problems.
The Company also offers mortgage loans on undeveloped single lots held for residential
construction. These loans are generally fixed-rate loans with terms not exceeding 15 years; they
are not a significant part of the Companys lending activities. Additionally, the Bank has not
been active in residential subdivision lending and has no acquisition/development loans in the
portfolio.
Home Equity. Home equity loans and lines of credit continue to be a popular product and
represented $90.6 million or 17.5% of the loan portfolio at September 30, 2010. After taking into
account first mortgage balances, the Company will lend up to 80% of the value of owner-occupied
property on fixed rate terms up to 15 years. This amount may be raised to 100% when considering
other factors, such as excellent credit history and income stability. At September 30, 2010, the
Company had outstanding 2,837 home equity loans of which 1,107 were installment equity loans and
1,730 were line of credit loans. As of such date, the Company had an outstanding balance on line
of credit loans of approximately $54.4 million and there was approximately $52.9 million of unused
credit available on such loans.
Commercial Real Estate Loans. The Company originates mortgage loans for the acquisition and
refinancing of commercial real estate properties. At September 30, 2010, $75.5 million, or 14.6% of
the Banks total loan portfolio consisted of loans secured by commercial real estate properties,
owner occupied commercial real estate loans and non-owner occupied commercial real estate loans.
The majority of our commercial real estate loans are secured by office buildings, manufacturing
facilities, distribution/warehouse facilities, and retail centers, which are generally located in
our local market area. The interest rates for our commercial real estate loans generally adjust at
one- to five-year intervals, and are typically renegotiated at
7
the end of such period or automatically converted to a floating interest rate. The loans generally have
a five-year term with an amortization period of no greater than twenty five years. At September 30,
2010, the largest such loan had a balance of $3.1 million.
The Company generally requires appraisals of the properties securing commercial real estate
loans. Appraisals are performed by an independent appraiser designated by the Company and all
appraisals are reviewed by management. The Company considers the quality and location of the real
estate, the credit of the borrower, the cash flow of the project and the quality of management
involved with the property when making decisions on commercial real estate loans.
Loan-to-value ratios on our commercial real estate loans are generally limited to 80% of the
appraised value of the secured property. As part of the criteria for underwriting commercial real
estate loans, we generally impose a debt service coverage ratio (the ratio of net operating income
before payment of debt service compared to debt service) of not less than 1.2-to-1. It is also our
general practice to obtain personal guarantees from the principals of our corporate borrowers on
commercial real estate loans.
Loans secured by commercial real estate typically have higher balances and are more difficult
to evaluate and monitor and, therefore, involve a greater degree of credit risk than other types of
loans. If the estimate of value proves to be inaccurate, the property may not provide us with full
repayment in the event of default and foreclosure. Because payments on these loans are often
dependent on the successful development, operation, and management of the properties, repayment of
these loans may be affected by adverse conditions in the real estate market or the economy. The
Company seeks to minimize these risks by limiting the maximum loan-to-value ratio and strictly
scrutinizing the financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The Company also generally obtains loan guarantees
from financially capable parties based on a review of personal financial statements.
Commercial Business Loans. Our commercial business loans amounted to $4.3 million or 0.8% of
the total loan portfolio at September 30, 2010. The Company originates business loans typically for
small to mid-sized businesses in our market area and may be for working capital, equipment
financing, inventory financing, or accounts receivable financing. Small business loans may have
adjustable or fixed rates of interest and generally have terms of three years or less but may go up
to 10 years. Our commercial business loans generally are secured by equipment, machinery or other
corporate assets. In addition, we generally obtain personal guarantees from the principals of the
borrower with respect to all commercial business loans.
Commercial lending generally involves greater credit risk than residential mortgage or
consumer lending, and involves risks that are different from those associated with commercial real
estate lending. Although commercial loans may be collateralized by equipment or other business
assets, the liquidation of collateral in the event of a borrower default may represent an
insufficient source of repayment because equipment and other business assets may, among other
things, be obsolete or of limited use. Accordingly, the repayment of a commercial loan depends
primarily on the creditworthiness and projected cash flow of the borrower (and any guarantors),
while liquidation of collateral is considered a secondary source of repayment.
Our commercial lenders actively solicit commercial business loans in our market area.
Commercial business loans generally are deemed to involve a greater degree of risk than
single-family residential mortgage loans. Repayment of our commercial business loans is often
dependent on the cash flows of the borrower, which may be unpredictable, and the collateral
securing these loans may fluctuate in value. Credit support provided by the borrower for most of
these loans and the probability of repayment is based on the liquidation of the pledged collateral
and enforcement of a personal guarantee, if any exists. As a result, in the case of loans secured
by accounts receivable, the availability of funds for the repayment of these loans may be
substantially dependent on the ability of the borrower to collect amounts due from its customers.
The
8
collateral securing other loans, such as inventory or equipment, may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Consumer Non-Real Estate Loans. The Company actively originates consumer loans to provide a
wider range of financial services to its customers and to improve the interest rate sensitivity of
its interest-earning assets. Originations of consumer loans as a percent of total loan
originations amounted to .5% and 0.6% during fiscal 2010 and 2009, respectively. The shorter-term
and normally higher interest rates on such loans help the Company to maintain a profitable spread
between its average loan yield and its cost of funds. The Companys consumer loan department
offers vehicle loans, personal loans and personal lines of credit. Loans secured by deposit
accounts at the Company are also made to depositors in an amount up to 90% of their account
balances with terms of up to 15 years.
Consumer loans generally involve more risk of collectibility than mortgage loans because of
the type and nature of the collateral and, in certain cases, the absence of collateral. As
continued payments are dependent on the borrowers continuing financial stability, these loans may
be more likely to be adversely affected by job loss, divorce, personal bankruptcy or by adverse
economic conditions.
Loan Fee and Servicing Income. The Company receives fees both for the origination of loans
and for making commitments to originate and purchase residential and commercial mortgage loans.
The Company also receives servicing fees with respect to residential mortgage loans it has sold.
It also receives loan fees related to existing loans, including late charges, and credit life
insurance commissions. Loan origination and commitment fees and discounts are a volatile source of
income, varying with the volume and type of loans and commitments made and purchased and with
competitive and economic conditions.
Loans fees generated on origination of loans under accounting principles generally accepted in
the United States of America are deferred along with direct origination costs. Deferred loan fees,
net and discounts on mortgage loans purchased are amortized to income as a yield adjustment over
the estimated remaining terms of such loans using the interest method.
As of September 30, 2010, the Company was servicing $1.8 million of loans for others, which
related to loans sold by the Company to the Federal Home Loan Bank (FHLB), in the amount $1.8
million, respectively. The Company receives a servicing fee of 0.25% on such loans.
Non-performing Loans and Real Estate Owned. When a borrower fails to make a required loan
payment, the Company attempts to cure the default by contacting the borrower; generally, after a
payment is more than 15 days past due, at which time a late charge is assessed. Defaults are cured
promptly in most cases. If the delinquency on a mortgage loan exceeds 60 days and is not cured
through the Companys normal collection procedures, or an acceptable arrangement is not worked out
with the borrower, the Company will institute measures to remedy the default. This may include
commencing a foreclosure action or, in special circumstances, accepting from the borrower a
voluntary deed of the secured property in lieu of foreclosure with respect to mortgage loans and
equity loans, or title and possession of collateral in the case of other consumer loans.
Substantial delays may occur in instituting and completing residential foreclosure proceedings due
to the extensive procedures and time periods required to be complied with under Pennsylvania law.
All interest accrued but not collected for loans that are placed on nonaccrual status or
charged off is reversed against interest income. The interest on these loans is accounted for on
the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are
returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured. Interest income is recognized using
the interest method when the collection is reasonably assured.
9
The Company had $2,138,000 of non-accrual loans at September 30, 2010 and $335,000 of non-accrual
loans at September 30, 2009.
If foreclosure is effected, the property is sold at a public auction in which the Company may
participate as a bidder. If the Company is the successful bidder, the acquired real estate
property is then included in the Companys real estate owned (REO) account until it is sold.
When property is acquired, it is recorded at the market value at the date of acquisition less
estimated cost to sell and any write-down resulting is charged to the allowance for loan losses.
Interest accrual, if any, ceases on the date of acquisition and all costs incurred in maintaining
the property from that date forward are expended. Costs incurred for the improvement or
development of such property are capitalized. The Company is permitted under Department
regulations to finance sales of real estate owned by loans to facilitate, which may involve more
favorable interest rates and terms than generally would be granted under the Companys underwriting
guidelines.
Foreclosed Real Estate. Real estate acquired through, or in lieu of,
loan foreclosures are carried at the fair value of the property, based on an appraisal less cost to
sell. Costs relating to the development and improvement of the property are capitalized, and those
relating to holding the property are charged to expense. The Company had 1 properties in other real
estate owned with balances totaling $186,000 at September 30, 2010 compared to four properties with
balances totaling $747,000 as of September 30, 2009. All of the real estate owned properties at
September 30, 2010 are residential properties located within the Banks primary lending area.
10
The following table sets forth information regarding non-accrual loans, loans which are 90
days or more delinquent but on which the Company is accruing interest, troubled debt
restructurings, and other real estate owned held by the Company at the dates indicated. The Company
continues to accrue interest on loans which are 90 days or more overdue where management believes
that such interest is collectible.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(Dollars in Thousands) |
|
Residential real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
|
$ |
1,716 |
|
|
$ |
335 |
|
|
$ |
244 |
|
|
$ |
|
|
|
$ |
|
|
Accruing loans 90 days overdue |
|
|
147 |
|
|
|
1,446 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,863 |
|
|
|
1,781 |
|
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
|
|
312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans 90 days overdue |
|
|
|
|
|
|
|
|
|
|
815 |
|
|
|
|
|
|
|
|
|
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
312 |
|
|
|
|
|
|
|
815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans 90 days overdue |
|
|
|
|
|
|
119 |
|
|
|
7 |
|
|
|
28 |
|
|
|
18 |
|
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
110 |
|
|
|
119 |
|
|
|
7 |
|
|
|
28 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
|
|
2,138 |
|
|
|
335 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
Accruing loans 90 days overdue |
|
|
147 |
|
|
|
1,565 |
|
|
|
1,014 |
|
|
|
28 |
|
|
|
18 |
|
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,285 |
|
|
$ |
1,900 |
|
|
$ |
1,258 |
|
|
$ |
28 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans |
|
|
.28 |
% |
|
|
.38 |
% |
|
|
.26 |
% |
|
|
n/m |
* |
|
|
n/m |
* |
Total real estate owned, net of related
reserves |
|
$ |
186 |
|
|
$ |
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and other real
estate owned to total assets |
|
|
.30 |
% |
|
|
.32 |
% |
|
|
.15 |
% |
|
|
n/m |
* |
|
|
n/m |
* |
Management establishes reserves for losses on delinquent loans when it determines that
losses are probable. The Company has recorded a provision for loan losses totaling $600,000 in
fiscal 2010 and $400,000 in fiscal 2009, due to the increase in unemployment trends and decline in
property values reflecting instability in the economy. Although management believes that it uses
the best information available to make determinations with respect to loan loss reserves, future
adjustments to reserves may be necessary if economic conditions differ substantially from the
assumptions used in making the initial determinations.
Residential mortgage lending generally entails a lower risk of default than other types of
lending. Consumer loans and commercial real estate loans generally involve more risk of
collectibility because of the type and nature of the collateral and, in certain cases, the absence
of collateral. It is the Companys policy to establish specific reserves for losses on delinquent
consumer loans and commercial loans when it determines that losses are probable. In addition,
consumer loans are charged against reserves if they are more than 120 days delinquent unless a
satisfactory repayment schedule is arranged.
11
The following table summarizes activity in the Companys allowance for loan losses during the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(Dollars In Thousands) |
|
Total loans outstanding at end of period |
|
$ |
516,894 |
|
|
$ |
503,113 |
|
|
$ |
484,382 |
|
|
$ |
424,228 |
|
|
$ |
392,893 |
|
Average loans outstanding |
|
|
510,004 |
|
|
|
493,748 |
|
|
|
454,305 |
|
|
|
408,561 |
|
|
|
383,237 |
|
|
Allowance for loan losses, beginning of year |
|
$ |
2,094 |
|
|
$ |
1,988 |
|
|
$ |
1,933 |
|
|
$ |
1,956 |
|
|
$ |
1,968 |
|
Provision for loan losses |
|
|
600 |
|
|
|
400 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate and multi family
residential |
|
|
(147 |
) |
|
|
(288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(1 |
) |
|
|
|
|
Consumer non-real estate |
|
|
(52 |
) |
|
|
(33 |
) |
|
|
(27 |
) |
|
|
(35 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(199 |
) |
|
|
(321 |
) |
|
|
(40 |
) |
|
|
(36 |
) |
|
|
(20 |
) |
Recoveries of loans previously charged off |
|
|
9 |
|
|
|
27 |
|
|
|
10 |
|
|
|
13 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of year |
|
$ |
2,504 |
|
|
$ |
2,094 |
|
|
$ |
1,988 |
|
|
$ |
1,933 |
|
|
$ |
1,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent non-performing loans |
|
|
109.58 |
% |
|
|
110.21 |
% |
|
|
158.03 |
% |
|
|
6,903.57 |
% |
|
|
10,866.67 |
% |
Ratio of net charge-offs during the period to average loans outstanding during the
period |
|
|
0.04 |
% |
|
|
0.06 |
% |
|
|
0.01 |
% |
|
|
0.01 |
% |
|
|
0.00 |
% |
The following table shows how our allowance for loan losses is allocated by type of loan
at each of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
Loan |
|
|
|
|
|
|
|
Category |
|
|
|
|
|
|
Category |
|
|
|
|
|
|
Category |
|
|
|
|
|
|
Category |
|
|
|
|
|
|
Category |
|
|
|
Amount |
|
|
as a % |
|
|
Amount |
|
|
as a % |
|
|
Amount |
|
|
as a % |
|
|
Amount |
|
|
as a % |
|
|
Amount |
|
|
as a % |
|
|
|
of |
|
|
of total |
|
|
of |
|
|
of total |
|
|
of |
|
|
of total |
|
|
of |
|
|
of total |
|
|
of |
|
|
of total |
|
|
|
Allowance |
|
|
Loans |
|
|
Allowance |
|
|
Loans |
|
|
Allowance |
|
|
Loans |
|
|
Allowance |
|
|
Loans |
|
|
Allowance |
|
|
Loans |
|
|
|
(Dollars in Thousands) |
|
Single-family residential |
|
$ |
798 |
|
|
|
65.0 |
% |
|
$ |
808 |
|
|
|
68.2 |
% |
|
$ |
422 |
|
|
|
68.9 |
% |
|
$ |
303 |
|
|
|
71.3 |
% |
|
$ |
286 |
|
|
|
72.2 |
% |
Multi-family residential |
|
|
18 |
|
|
|
0.3 |
|
|
|
20 |
|
|
|
0.4 |
|
|
|
24 |
|
|
|
0.5 |
|
|
|
5 |
|
|
|
0.6 |
|
|
|
6 |
|
|
|
0.7 |
|
Construction |
|
|
7 |
|
|
|
0.9 |
|
|
|
4 |
|
|
|
0.6 |
|
|
|
13 |
|
|
|
1.7 |
|
|
|
9 |
|
|
|
1.4 |
|
|
|
10 |
|
|
|
1.8 |
|
Lot loans |
|
|
5 |
|
|
|
0.4 |
|
|
|
3 |
|
|
|
0.2 |
|
|
|
3 |
|
|
|
0.2 |
|
|
|
1 |
|
|
|
0.1 |
|
|
|
2 |
|
|
|
0.2 |
|
Home equity |
|
|
405 |
|
|
|
17.5 |
|
|
|
357 |
|
|
|
18.4 |
|
|
|
202 |
|
|
|
19.1 |
|
|
|
240 |
|
|
|
22.5 |
|
|
|
242 |
|
|
|
24.4 |
|
Commercial real estate |
|
|
906 |
|
|
|
14.6 |
|
|
|
542 |
|
|
|
9.7 |
|
|
|
396 |
|
|
|
7.8 |
|
|
|
207 |
|
|
|
3.0 |
|
|
|
43 |
|
|
|
0.2 |
|
Commercial business loans |
|
|
4 |
|
|
|
0.8 |
|
|
|
104 |
|
|
|
2.1 |
|
|
|
188 |
|
|
|
1.4 |
|
|
|
24 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
Consumer non-real estate
loans |
|
|
22 |
|
|
|
0.5 |
|
|
|
21 |
|
|
|
0.4 |
|
|
|
20 |
|
|
|
0.4 |
|
|
|
17 |
|
|
|
0.5 |
|
|
|
16 |
|
|
|
0.5 |
|
Unallocated |
|
|
339 |
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
720 |
|
|
|
|
|
|
|
1,126 |
|
|
|
|
|
|
|
1,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable |
|
$ |
2,504 |
|
|
|
100.0 |
% |
|
$ |
2,094 |
|
|
|
100.0 |
% |
|
$ |
1,988 |
|
|
|
100.0 |
% |
|
$ |
1,932 |
|
|
|
100.0 |
% |
|
$ |
1,956 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance consists of specific and general components. The specific component
relates to loans that are classified as either doubtful, substandard or special mention. The
general component covers non-classified loans and is based on historical loss experience adjusted
for qualitative factors.
12
Investment Activities
The Companys investment portfolio consists primarily of United States government agency
mortgage-backed securities and debt obligations of United States government agencies. The other
investments include tax-exempt municipal obligations, money market mutual funds, and stock of the
FHLB of Pittsburgh.
As of September 30, 2010, the Company had $131.6 million of mortgage-backed securities,
invested in FHLMC, Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) backed securities or collaterized mortgage obligations (CMOs). FHLMC
securities are guaranteed by the FHLMC, GNMA securities by the Federal Housing Administration and
FNMA securities by the FNMA, which are instrumentalities of the United States government, and,
pursuant to federal regulations, are deemed to be part of the Companys loan portfolio.
The following table sets forth certain information relating to our investment and
mortgage-backed securities portfolios and our investments in FHLB stock at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
(In thousands) |
|
Mortgage-backed securities and
collateralized mortgage
obligations (CMOs) |
|
$ |
131,604 |
|
|
$ |
138,539 |
|
|
$ |
163,215 |
|
|
$ |
169,995 |
|
|
$ |
214,691 |
|
|
$ |
212,572 |
|
U.S. Government Sponsored Enterprises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(GSE) Agency Notes |
|
|
108,807 |
|
|
|
109,530 |
|
|
|
82,602 |
|
|
|
82,857 |
|
|
|
54,314 |
|
|
|
54,076 |
|
Municipal securities |
|
|
16,462 |
|
|
|
17,188 |
|
|
|
22,592 |
|
|
|
23,317 |
|
|
|
24,940 |
|
|
|
24,897 |
|
Equity securities |
|
|
355 |
|
|
|
343 |
|
|
|
355 |
|
|
|
311 |
|
|
|
842 |
|
|
|
842 |
|
U.S. Government Money Market funds |
|
|
20,261 |
|
|
|
20,261 |
|
|
|
6,417 |
|
|
|
6,417 |
|
|
|
12 |
|
|
|
12 |
|
FHLB stock |
|
|
16,096 |
|
|
|
16,096 |
|
|
|
16,096 |
|
|
|
16,096 |
|
|
|
16,574 |
|
|
|
16,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment and mortgage-backed
securities and FHLB stock |
|
$ |
293,585 |
|
|
$ |
301,957 |
|
|
$ |
291,277 |
|
|
$ |
298,993 |
|
|
$ |
311,373 |
|
|
$ |
308,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the amount of investment and mortgage-backed securities
which mature during each of the periods indicated and the weighted average yields for each range of
maturities at September 30, 2010. No tax-exempt yields have been adjusted to a tax-equivalent
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts at September 30, 2010 Which Mature in |
|
|
|
|
|
|
|
|
|
|
|
Over One |
|
|
|
|
|
|
Over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
Five |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Through |
|
|
Weighted |
|
|
Through |
|
|
Weighted |
|
|
Over |
|
|
Weighted |
|
|
|
One year |
|
|
Average |
|
|
Five |
|
|
Average |
|
|
Ten |
|
|
Average |
|
|
Ten |
|
|
Average |
|
|
|
Or less |
|
|
Yield |
|
|
Years |
|
|
Yield |
|
|
Years |
|
|
Yield |
|
|
Years |
|
|
Yield |
|
|
|
(Dollars in Thousands) |
|
Bonds and other
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities and
CMOs |
|
$ |
194 |
|
|
|
3.97 |
% |
|
$ |
13,434 |
|
|
|
4.26 |
% |
|
$ |
32,743 |
|
|
|
4.59 |
% |
|
$ |
85,233 |
|
|
|
4.52 |
% |
U.S. Government
Agency
Notes |
|
|
14,986 |
|
|
|
0.43 |
% |
|
|
13,000 |
|
|
|
1.63 |
% |
|
|
22,000 |
|
|
|
2.83 |
% |
|
|
58,820 |
|
|
|
3.11 |
% |
Municipal securities |
|
|
1,447 |
|
|
|
5.43 |
% |
|
|
1,275 |
|
|
|
4.92 |
% |
|
|
1,325 |
|
|
|
5.24 |
% |
|
|
12,416 |
|
|
|
4.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,627 |
|
|
|
0.91 |
% |
|
$ |
27,709 |
|
|
|
3.06 |
% |
|
$ |
56,068 |
|
|
|
3.91 |
% |
|
$ |
156,469 |
|
|
|
4.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys investment strategy is set and reviewed periodically by the entire Board of
Directors.
13
Sources of Funds
General. Deposits are the primary source of the Companys funds for use in lending and for
other general business purposes. In addition to deposits, the Company obtains funds from loan
payments and prepayments, FHLB advances and other borrowings, and, to a lesser extent, sales of
loans. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows
are significantly influenced by general market interest rates and economic conditions.
Deposits. The Company has a number of different programs designed to attract both short-term
and long-term deposits from the general public by providing an assortment of accounts and rates
consistent with FDIC regulations. These programs include passbook and club savings accounts, NOW
and regular checking accounts, money market deposit accounts, retirement accounts, certificates of
deposit ranging in terms from 90 days to 60 months and jumbo certificates of deposit in
denominations of $100,000 or more. The interest rates on the Companys various accounts are
determined weekly by the Interest Rate Risk Management Officer based on reports prepared by members
of senior management. The Company attempts to control the flow of deposits by pricing its accounts
to remain competitive with other financial institutions in its market area.
The Companys deposits are obtained primarily from residents of Montgomery and Bucks Counties;
the Company does not utilize brokered deposits. The principal methods used by the Company to
attract deposit accounts include local advertising, offering a wide variety of services and
accounts, competitive interest rates and convenient office locations. The Company also is a member
of the STAR ATM network.
14
The following table shows the distribution of, and certain other information relating to,
the Companys deposits by type as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Amount |
|
|
Percent of Deposits |
|
|
Amount |
|
|
Percent of Deposits |
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
Passbook and club accounts |
|
$ |
3,739 |
|
|
|
0.7 |
% |
|
$ |
2,940 |
|
|
|
0.6 |
% |
NOW and interest-bearing
checking accounts |
|
|
53,897 |
|
|
|
10.2 |
|
|
|
46,100 |
|
|
|
9.9 |
|
Non-interest-bearing checking
accounts |
|
|
17,014 |
|
|
|
3.2 |
|
|
|
12,364 |
|
|
|
2.6 |
|
Money market demand accounts |
|
|
133,540 |
|
|
|
25.3 |
|
|
|
76,055 |
|
|
|
16.3 |
|
Certificates of deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 month |
|
|
971 |
|
|
|
0.2 |
|
|
|
1,212 |
|
|
|
0.3 |
|
6 month |
|
|
3,182 |
|
|
|
0.6 |
|
|
|
2,600 |
|
|
|
0.6 |
|
7 month |
|
|
24,942 |
|
|
|
4.7 |
|
|
|
39,214 |
|
|
|
8.4 |
|
9 month |
|
|
9,006 |
|
|
|
1.7 |
|
|
|
11,323 |
|
|
|
2.4 |
|
12 month |
|
|
34,742 |
|
|
|
6.6 |
|
|
|
71,419 |
|
|
|
15.3 |
|
15 month |
|
|
5,513 |
|
|
|
1.0 |
|
|
|
4,102 |
|
|
|
0.9 |
|
17 month |
|
|
4,816 |
|
|
|
0.9 |
|
|
|
6,965 |
|
|
|
1.5 |
|
18 month |
|
|
4,245 |
|
|
|
0.8 |
|
|
|
14,113 |
|
|
|
3.0 |
|
20 month |
|
|
28,479 |
|
|
|
5.4 |
|
|
|
22,913 |
|
|
|
4.9 |
|
24 month |
|
|
7,576 |
|
|
|
1.4 |
|
|
|
4,929 |
|
|
|
1.1 |
|
27 month |
|
|
|
|
|
|
0.0 |
|
|
|
19 |
|
|
|
0.0 |
|
36 month |
|
|
46,507 |
|
|
|
8.8 |
|
|
|
41,429 |
|
|
|
8.9 |
|
48 month |
|
|
48,448 |
|
|
|
9.2 |
|
|
|
24,377 |
|
|
|
5.2 |
|
60 month |
|
|
29,239 |
|
|
|
5.5 |
|
|
|
18,979 |
|
|
|
4.1 |
|
Other |
|
|
100 |
|
|
|
0.0 |
|
|
|
100 |
|
|
|
0.0 |
|
Retirement accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposit accounts |
|
|
2,540 |
|
|
|
0.5 |
|
|
|
1,377 |
|
|
|
0.3 |
|
Certificates of deposit |
|
|
69,604 |
|
|
|
13.3 |
|
|
|
64,071 |
|
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
528,100 |
|
|
|
100.0 |
% |
|
$ |
466,601 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The large variety of deposit accounts offered by the Company has increased the Companys
ability to retain deposits and has allowed it to be competitive in obtaining new funds, although
the threat of disintermediation (the flow of funds away from savings institutions into direct
investment vehicles such as government and corporate securities and non-deposit products) still
exists. The new types of accounts; however, have been more costly than traditional accounts during
periods of high interest rates. In addition, the Company has become more vulnerable to short-term
fluctuations in deposit flows as customers have become more rate-conscious and willing to move
funds into higher yielding accounts. The ability of the Company to attract and retain deposits and
the Companys cost of funds have been, and will continue to be, significantly affected by money
market conditions.
15
The following table presents certain information concerning the Companys deposit accounts as
of September 30, 2010 and the scheduled quarterly maturities of its certificates of deposit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
Weighted Average |
|
|
|
Amount |
|
|
Total Deposits |
|
|
Nominal Rate |
|
|
|
(Dollars in Thousands) |
|
Passbook and club accounts |
|
$ |
3,739 |
|
|
|
0.7 |
% |
|
|
0.81 |
% |
NOW and interest-bearing checking accounts |
|
|
53,897 |
|
|
|
10.2 |
|
|
|
0.13 |
|
Non-interest-bearing checking accounts |
|
|
17,015 |
|
|
|
3.2 |
|
|
|
0.00 |
|
Money market deposits accounts(1) |
|
|
136,079 |
|
|
|
25.8 |
|
|
|
0.52 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
210,730 |
|
|
|
39.9 |
% |
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate accounts maturing by quarter: |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
$ |
34,614 |
|
|
|
6.6 |
% |
|
|
1.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
42,527 |
|
|
|
8.1 |
|
|
|
1.01 |
|
June 30, 2011 |
|
|
33,654 |
|
|
|
6.4 |
|
|
|
1.96 |
|
September 30, 2011 |
|
|
47,459 |
|
|
|
9.0 |
|
|
|
2.73 |
|
December 31, 2011 |
|
|
28,364 |
|
|
|
5.4 |
|
|
|
2.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012 |
|
|
12,459 |
|
|
|
2.4 |
|
|
|
2.20 |
|
June 30, 2012 |
|
|
10,622 |
|
|
|
2.0 |
|
|
|
2.47 |
|
September 30, 2012 |
|
|
5,921 |
|
|
|
1.1 |
|
|
|
3.15 |
|
December 31, 2012 |
|
|
7,887 |
|
|
|
1.5 |
|
|
|
3.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013 |
|
|
11,329 |
|
|
|
2.1 |
|
|
|
3.23 |
|
June 30, 2013 |
|
|
8,320 |
|
|
|
1.6 |
|
|
|
3.17 |
|
September 30, 2013 |
|
|
7,642 |
|
|
|
1.4 |
|
|
|
2.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
66,572 |
|
|
|
12.5 |
|
|
|
3.00 |
|
|
|
|
|
|
|
|
|
|
|
Total certificate accounts(1) |
|
|
317,370 |
|
|
|
60.1 |
|
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
528,100 |
|
|
|
100.0 |
% |
|
|
1.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes retirement accounts. |
Management of the Company expects, based on historical experience and its pricing
policies, to retain a significant portion of the $158.3 million of certificates of deposit which
mature during the 12 months ending September 30, 2011.
The following table sets forth the net deposit flows of the Company during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands) |
|
Increase (decrease) before interest credited |
|
$ |
53,598 |
|
|
$ |
30,793 |
|
Interest credited |
|
|
7,901 |
|
|
|
10,295 |
|
|
|
|
|
|
|
|
Net deposit increase |
|
$ |
61,499 |
|
|
$ |
41,088 |
|
|
|
|
|
|
|
|
16
The following table presents by various interest rate categories the amounts of
certificate accounts as of the dates indicated and the amounts of certificate accounts as of
September 30, 2010 which mature during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
Amounts at September 30, 2010 Maturing |
|
|
|
September 30, |
|
|
One Year |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
or Less |
|
|
Two Years |
|
|
Three Years |
|
|
Thereafter |
|
|
|
(In Thousands) |
|
Certificate accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01% to 2.00% |
|
$ |
145,296 |
|
|
$ |
115,032 |
|
|
$ |
28,411 |
|
|
$ |
716 |
|
|
$ |
1,137 |
|
2.01% to 4.00% |
|
|
161,329 |
|
|
|
38,743 |
|
|
|
26,298 |
|
|
|
33,089 |
|
|
|
63,199 |
|
4.01% to 6.00% |
|
|
10,745 |
|
|
|
4,479 |
|
|
|
2,657 |
|
|
|
1,373 |
|
|
|
2,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificate accounts(1) |
|
$ |
317,370 |
|
|
$ |
158,254 |
|
|
$ |
57,366 |
|
|
$ |
35,178 |
|
|
$ |
66,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes retirement accounts. |
The following table sets forth the maturity of our certificates of deposit of $100,000 or
more at September 30, 2010, by time remaining to maturity.
|
|
|
|
|
|
|
|
|
At September 30, 2010 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
Quarter Ending: |
|
Amount |
|
|
Rate |
|
|
|
(Dollars in Thousands) |
|
December 31, 2010 |
|
$ |
4,929 |
|
|
|
1.06 |
% |
March 31, 2011 |
|
|
7,021 |
|
|
|
0.93 |
|
June 30, 2011 |
|
|
5,163 |
|
|
|
1.87 |
|
September 30, 2011 |
|
|
8,117 |
|
|
|
2.82 |
|
After September 30, 2011 |
|
|
34,054 |
|
|
|
2.90 |
|
|
|
|
|
|
|
|
Total certificates of deposit with balances of $100,000 or more |
|
$ |
59,284 |
|
|
|
2.41 |
% |
|
|
|
|
|
|
|
Borrowings. The Bank obtains advances from the FHLB of Pittsburgh upon the security of
its capital stock in the FHLB of Pittsburgh and a portion of its first mortgages. See Regulation
- Regulation of the Bank Federal Home Loan Bank System. At September 30, 2010, the Bank had
advances with maturities of one year or less totaling $16.0 million at an interest rate of 4.37%
and FHLB advances with maturities of 13 months to 10 years totaling $206.1 million at
interest-rates ranging from 3.01% to 5.29%. Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of maturities. In addition,
there are four long-term advances from other financial institutions that are secured by investment
and mortgage-backed securities totaling $50 million at interest-rates ranging from 4.37% to 5.99% .
Depending on the program, limitations on the amount of advances are based on either a fixed
percentage of assets or the FHLB of Pittsburghs assessment of the Banks creditworthiness. FHLB
advances are generally available to meet seasonal and other withdrawals of deposit accounts, to
purchase mortgage-backed securities, investment securities and to expand lending.
17
The following table sets forth certain information regarding the borrowings of the Company as
of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
|
|
|
|
|
|
(Dollars In Thousands) |
|
|
|
|
|
Advances |
|
$ |
272,047 |
|
|
|
4.33 |
% |
|
$ |
309,046 |
|
|
|
4.31 |
% |
The following table sets forth certain information concerning the short-term borrowings
of the Company for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(In Thousands) |
|
Advances : |
|
|
|
|
|
|
|
|
Average balance outstanding |
|
$ |
1,225 |
|
|
$ |
13,341 |
|
Maximum amount outstanding at any
month-end during the period |
|
$ |
10,000 |
|
|
$ |
37,800 |
|
|
Weighted average interest rate during the period |
|
|
0.71 |
% |
|
|
0.70 |
% |
Employees
The Company had 83 full-time employees and 42 part-time employees as of September 30, 2010.
None of these employees is represented by a collective bargaining agent, and the Company believes
that it enjoys good relations with its personnel.
Regulation
The references to laws and regulations which are applicable to the Company and the Bank set
forth below and elsewhere herein are brief summaries thereof which do not purport to be complete
and are qualified in their entirety by reference to such laws and regulations.
Regulation of the Company
General. The Company is a registered bank holding company pursuant to the Bank Holding
Company Act (BHCA) and, as such, is subject to regulation and supervision by the Federal Reserve
Board and the Department. The Company is required to file annually a report of its operations
with, and is subject to examination by, the Federal Reserve Board and the Department.
BHCA Activities and Other Limitations. The BHCA prohibits a bank holding company from
acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank,
or increasing such ownership or control of any bank, without prior approval of the Federal Reserve
Board. The BHCA also generally prohibits a bank holding company from acquiring any bank located
outside of the state in which the existing bank subsidiaries of the bank holding company are
located unless specifically authorized by applicable state law. No approval under the BHCA is
required, however, for a bank holding company already lawfully owning or controlling more than 50%
of the voting shares of a bank to acquire additional shares of such bank.
18
The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more
than 5% of the voting shares of any company that is not a bank (or engaged in related activities as
described below) and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve Board is authorized to approve the ownership of shares
by a bank holding company in any company, the activities of which the Federal Reserve Board has
determined to be so closely related to banking or to managing or controlling banks as to be a
proper incident thereto. In making such determinations, the Federal Reserve Board is required to
weigh the expected benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
The BHCA permits a bank holding company to elect to be considered a financial holding company
(FHC). A bank holding company that makes an FHC election is permitted to engage in activities
that are financial in nature or incidental to such financial activities. The BHCA lists certain
activities that are considered financial in nature and permits the Federal Reserve Board to expand
that list to include other activities that are complementary to the activities on the preapproved
list. The preapproved activities include (1) securities underwriting, dealing and market making;
(2) insurance underwriting; (3) merchant banking; and (4) insurance company portfolio investments.
The Company has not made the FHC election.
The Federal Reserve Board has by regulation determined that certain activities are closely
related to banking within the meaning of the BHCA. These activities include operating a mortgage
company, finance company, credit card company, factoring company, trust company or savings
association; performing certain data processing operations; providing limited securities brokerage
services; acting as an investment or financial advisor; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full-payout, non-operating basis;
providing tax planning and preparation services; operating a collection agency; and providing
certain courier services. The Federal Reserve Board also has determined that certain other
activities, including real estate brokerage and syndication, land development, property management
and underwriting of life insurance not related to credit transactions, are not closely related to
banking and a proper incident thereto. However, under the BHCA certain of these activities are
permissible for a bank holding company that becomes an FHC.
Limitations on Transactions with Affiliates. Transactions between savings banks and any
affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
savings bank is any company or entity which controls, is controlled by or is under common control
with the savings bank. In a holding company context, the parent holding company of a savings bank
(such as the Company) and any companies which are controlled by such parent holding company are
affiliates of the savings bank. Generally, Section 23A (i) limits the extent to which the savings
bank or its subsidiaries may engage in covered transactions with any one affiliate to an amount
equal to 10% of such banks capital stock and surplus, and contains an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital stock and surplus.
Section 23B applies to covered transactions as well as certain other transactions and requires
that all transactions be on terms substantially the same, or at least favorable, to the bank or
subsidiary as those provided to a non-affiliate. The term covered transaction includes the
making of loans to, purchase of assets from, issuance of a guarantee to an affiliate and similar
transactions. Section 23B transactions also include the provision of services and the sale of
assets by a savings bank to an affiliate.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place restrictions on loans to
executive officers, directors and principal stockholders. Under Section 22(h), loans to a
director, an executive officer and a greater than 10% stockholder of a savings bank, and certain
affiliated interests of either, may not exceed, together with all other outstanding loans to such
person and affiliated interests, the savings banks loans to one borrower limit (generally equal to
15% of the banks unimpaired capital and surplus). Section 22(h) also requires that loans to
directors, executive officers and principal stockholders be made on terms substantially the same as
offered in comparable transactions to other persons and also requires prior board approval for
certain loans. In addition, the aggregate amount of extensions of credit by a savings bank to all
19
insiders cannot exceed
the banks unimpaired capital and surplus. Furthermore, Section 22(g) places additional
restrictions on loans to executive officers.
Capital Requirements. The Federal Reserve Board has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding
company and in analyzing applications to it under the BHCA. The Federal Reserve Board capital
adequacy guidelines generally require bank holding companies to maintain total capital equal to 8%
of total risk-adjusted assets, with at least one-half of that amount consisting of Tier I or core
capital and up to one-half of that amount consisting of Tier II or supplementary capital. Tier I
capital for bank holding companies generally consists of the sum of common stockholders equity and
perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount
of such stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital instruments;
perpetual preferred stock which is not eligible to be included as Tier I capital; term subordinated
debt and intermediate-term preferred stock; and, subject to limitations, general allowances for
loan losses. Assets are adjusted under the risk-based guidelines to take into account different
risk characteristics, with the categories ranging from 0% (requiring no additional capital) for
assets such as cash to 100% for the bulk of assets which are typically held by a bank holding
company, including multi-family residential and commercial real estate loans, commercial business
loans and consumer loans. Single-family residential first mortgage loans which are not past-due
(90 days or more) or non-performing and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighing system, as are certain
privately-issued mortgage-backed securities representing indirect ownership of such loans.
Off-balance sheet items also are adjusted to take into account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve Board requires bank
holding companies to maintain a minimum leverage capital ratio of Tier I capital to total assets of
3.0%. Total assets for this purpose does not include goodwill and any other intangible assets and
investments that the Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio requirement is the
minimum for the top-rated bank holding companies without any supervisory, financial or operational
weaknesses or deficiencies or those which are not experiencing or anticipating significant growth.
Other bank holding companies will be expected to maintain Tier I leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.
Financial Support of Affiliated Institutions. Under Federal Reserve Board policy, the Company
is expected to act as a source of financial strength to the Bank and to commit resources to support
the Bank in circumstances when it might not do so absent such policy. Section 18 of the Federal
Deposit Insurance Act (FDIA) describes the circumstances under which a Federal banking agency
would be protected from a claim by an affiliate or a controlling shareholder of an insured
depository institution seeking the return of assets of such an affiliate or controlling
shareholder. Under that provision, a claim would not be permitted if (1) the insured depository
institution was under a written Federal directive to raise capital, (2) the institution was
undercapitalized, and (3) the subject Federal banking agency followed the procedures set forth in
Section 5(g) of the BHCA.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 generally established a
comprehensive framework to modernize and reform the oversight of public company auditing, improve
the quality and transparency of financial reporting by those companies and strengthen the
independence of auditors. Among other things, the legislation (i) created a public company
accounting oversight board which is empowered to set auditing, quality control and ethics
standards, to inspect registered public accounting firms, to conduct investigations and to take
disciplinary actions, subject to SEC oversight and review; (ii) strengthened auditor independence
from corporate management by, among other things, limiting the scope of consulting services that
auditors can offer their public company audit clients; (iii) heightened the responsibility of
public company directors and senior managers for the quality of the financial reporting and
disclosure made by their companies; (iv) adopted a number of provisions to deter wrongdoing by
corporate management; (v) imposed a number of new corporate disclosure requirements; (vi) adopted
provisions which
20
generally seek to
limit and expose to public view possible conflicts of interest affecting securities analysts;
and (vii) imposed a range of new criminal penalties for fraud and other wrongful acts, as well as
extended the period during which certain types of lawsuits can be brought against a company or its
insiders.
Regulation of the Bank
General. The Bank is subject to extensive regulation and examination by the Department and by
the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state
laws and regulations which are applicable to banks regulate, among other things, the scope of their
business, their investments, their reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain loans. There are periodic
examinations by the Department and the FDIC to test the Banks compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection of the insurance
fund and depositors. The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the
Department, the FDIC or the Congress could have a material adverse impact on the Bank and its
operations.
Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended (the
Banking Code) contains detailed provisions governing the organization, location of offices,
rights and responsibilities of directors, officers and employees, as well as corporate powers,
savings and investment operations and other aspects of the Bank and its affairs. The Banking Code
delegates extensive rulemaking power and administrative discretion to the Department so that the
supervision and regulation of state-chartered savings banks may be flexible and readily responsive
to changes in economic conditions and in savings and lending practices.
One of the purposes of the Banking Code is to provide savings banks with the opportunity to be
competitive with each other and with other financial institutions existing under other Pennsylvania
laws and other state, federal and foreign laws. A Pennsylvania savings bank may locate or change
the location of its principal place of business and establish an office anywhere in Pennsylvania,
with the prior approval of the Department.
The Department generally examines each savings bank not less frequently than once every two
years. Although the Department may accept the examinations and reports of the FDIC in lieu of the
Departments examination, the present practice is for the Department to conduct individual
examinations. The Department may order any savings bank to discontinue any violation of law or
unsafe or unsound business practice and may direct any trustee, officer, attorney or employee of a
savings bank engaged in an objectionable activity, after the Department has ordered the activity to
be terminated, to show cause at a hearing before the Department why such person should not be
removed.
Interstate Acquisitions. The Interstate Banking Act allows federal regulators to approve
mergers between adequately capitalized banks from different states regardless of whether the
transaction is prohibited under any state law, unless one of the banks home states has enacted a
law expressly prohibiting out-of-state mergers before June 1997. This act also allows a state to
permit out-of-state banks to establish and operate new branches in this state. The Commonwealth of
Pennsylvania has not opted out of this interstate merger provision. Therefore, the federal
provision permitting interstate acquisitions applies to banks chartered in Pennsylvania.
Pennsylvania law, however, retained the requirement that an acquisition of a Pennsylvania
institution by a Pennsylvania or a non-Pennsylvania-based holding company must be approved by the
Banking Department. The Interstate Act also allows a state to permit out-of-state banks to
establish and operate new branches in this state. Pennsylvania law permits an out of state banking
institution to establish a branch office in Pennsylvania only if the laws of the state where that
institution is located would permit an institution chartered under the laws of Pennsylvania to
establish and maintain a branch in such other state on substantially the same terms and conditions.
21
FDIC Insurance Premiums. The deposits of the Bank are insured by the Deposit Insurance Fund,
which is administered by the FDIC. The recently enacted financial institution reform legislation
permanently increased deposit insurance on most accounts to $250,000. In addition, pursuant to
Section 13(c)(4)(G) of the Federal Deposit Insurance Act, the FDIC has implemented two temporary
programs to provide deposit insurance for the full amount of most noninterest bearing transaction
deposit accounts through the end of 2013 and to guarantee certain unsecured debt of financial
institutions and their holding companies through December 2012. For noninterest bearing transaction
deposit accounts, including accounts swept from a noninterest bearing transaction account into a
noninterest bearing savings deposit account, a 10 basis point annual rate surcharge is applied to
deposit amounts in excess of $250,000. Financial institutions were permitted to opt out of either
or both of these programs. The Bank does not participate in either of these programs.
In February 2009 the FDIC adopted a final regulation that provided for the replenishment of
the Deposit Insurance Fund over a period of seven years. The restoration plan changed the FDICs
base assessment rates and the risk-based assessment system. The risk-based premium system provides
for quarterly assessments based on an insured institutions ranking in one of four risk categories
based upon supervisory and capital evaluations. The assessment rate for an individual institution
is determined according to a formula based on a weighted average of the institutions individual
CAMELS component ratings plus either six financial ratios or, in the case of an institution with
assets of $10.0 billion or more, the average ratings of its long-term debt. Well-capitalized
institutions (generally those with CAMELS composite ratings of 1 or 2) are grouped in Risk Category
I and their initial base assessment rate for deposit insurance is set at an annual rate of between
12 and 16 basis points. The initial base assessment rate for institutions in Risk Categories II,
III and IV is set at annual rates of 22, 32 and 45 basis points, respectively. These initial base
assessment rates are adjusted to determine an institutions final assessment rate based on its
brokered deposits, secured liabilities and unsecured debt. The adjustments include higher premiums
for institutions that rely significantly on excessive amounts of brokered deposits, including
CDARS, higher premiums for excessive use of secured liabilities, including Federal Home Loan Bank
advances and adding financial ratios and debt issuer ratings to the premium calculations for banks
with over $10 billion in assets, while providing a reduction for all institutions for their
unsecured debt. Final assessment rates range from seven to 77.5 basis points.
In addition, all institutions with deposits insured by the FDIC are required to pay
assessments to fund interest payments on bonds issued by the Financing Corporation, a
mixed-ownership government corporation established to recapitalize a predecessor to the Deposit
Insurance Fund. The assessment rate for the third quarter of fiscal 2010 was .0026% of insured
deposits and is adjusted quarterly. These assessments will continue until the Financing Corporation
bonds mature in 2019.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or written agreement entered into with the FDIC. The management of
the Bank does not know of any practice, condition or violation that might lead to termination of
deposit insurance. At September 30, 2010, the Banks regulatory capital exceeded all of its
capital requirements.
On May 22, 2009, the FDIC announced a five basis point special assessment on each insured
depository institutions assets minus its Tier 1 capital as of June 30, 2009. The amount of the
special assessment for any institution will not exceed ten basis points times the institutions
domestic deposit assessment base for the second quarter 2009 risk-based assessment. The FDIC
collected the Banks special assessment amounting to $382,000 on September 30, 2009. The special
assessment was fully expensed by the Company in the second quarter of 2009.
22
On November 12, 2009, the FDIC adopted regulations that required insured depository
institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for
the fourth quarter of 2009 and all of 2010, 2011 and 2012, along with their quarterly risk-based
assessment for the third quarter of 2009. The Banks prepayment totaled $3,100,000. Unlike a
special assessment, this prepayment did not immediately affect the Banks earnings. The Bank will
book the prepaid assessment as a non-earning asset and record the actual risk-based premium
payments at the end of each quarter over 36 months.
Capital Requirements. The FDIC has promulgated regulations and adopted a statement of
policy regarding the capital adequacy of state-chartered banks which, like the Bank, are not
members of the Federal Reserve System. The FDICs capital regulations establish a minimum 3.0% Tier
I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an
additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member
banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to
4.0% to 5.0% or more. Under the FDICs regulation, highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general, which are considered a strong banking organization, rated composite 1
under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the
sum of common stockholders equity (including retained earnings), noncumulative perpetual preferred
stock and related surplus, and minority interests in consolidated subsidiaries, minus all
intangible assets other than certain qualifying supervisory goodwill, and certain purchased
mortgage servicing rights and purchased credit and relationships.
The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based
capital standard for savings banks requires the maintenance of total capital which is defined as
Tier I capital and supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the
type of asset or item.
The components of Tier I capital are equivalent to those discussed above under the 3% leverage
standard. The components of supplementary (Tier 2) capital include certain perpetual preferred
stock, certain mandatory convertible securities, certain subordinated debt and intermediate
preferred stock and general allowances for loan losses. Allowance for loan losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At
September 30, 2010, the Bank met each of its capital requirements.
Prompt Corrective Action. Under Section 38 of the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions which it regulates.
The federal banking agencies (including the FDIC) have adopted substantially similar regulations to
implement Section 38 of the FDIA. Under the regulations, a savings bank shall be deemed to be (i)
well capitalized if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to
any order or final capital directive to meet and maintain a specific capital level for any capital
measure, (ii) adequately capitalized if it has a total risk-based capital ratio of 8.0% or more,
a Tier 1 risk-based capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of well capitalized,
(iii) undercapitalized if it has a total risk-based capital ratio that is less than 8.0%, a Tier
1 risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) significantly undercapitalized if it has a
total risk-based ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than
3.0% or a Tier 1 leverage capital ratio that is less than 3.0%, and (v) critically
undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less
than 2.0%. Section 38 of the FDIA and the regulations promulgated thereunder also specify
circumstances under which the FDIC may reclassify a well capitalized savings bank as adequately capitalized and
may
23
require an adequately capitalized savings bank or an undercapitalized savings bank to comply
with supervisory actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized savings bank as critically undercapitalized). At
September 30, 2010, the Bank was in the well capitalized category.
The Bank is also subject to more stringent Department capital guidelines. Although not
adopted in regulation form, the Department utilizes capital standards requiring a minimum of 6%
leverage capital and 10% risk-based capital. The components of leverage and risk-based capital are
substantially the same as those defined by the FDIC.
Loans-to-One Borrower Limitation. With certain limited exceptions, a Pennsylvania chartered
savings bank may lend to a single or related group of borrowers in an amount equal to 15% of its
capital account.
Activities and Investments of Insured State-Chartered Banks. Section 24 of the FDIA generally
limits the activities and equity investments of FDIC-insured, state-chartered banks to those that
are permissible for national banks. Under regulations dealing with equity investments, an insured
state bank generally may not directly or indirectly acquire or retain any equity investment of a
type, or in an amount, that is not permissible for a national bank. An insured state bank is not
prohibited from, among other things, (i) acquiring or retaining a majority interest in a
subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is
direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not exceed 2% of the banks
total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or
reinsures directors, trustees and officers liability insurance coverage or bankers blanket bond
group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the
voting shares of a depository institution if certain requirements are met.
Pursuant to FDIC regulations promulgated under Section 24 of the FDIA, insured savings banks
engaging in impermissible activities may seek approval from the FDIC to continue such activities.
Savings banks not engaging in such activities but that desire to engage in otherwise impermissible
activities may apply for approval from the FDIC to do so; however, if such bank fails to meet the
minimum capital requirements or the activities present a significant risk to the FDIC insurance
funds, such application will not be approved by the FDIC. The FDIC has authorized the Banks
subsidiary HARL, LLC, to invest up to 15% of its capital in the equity securities of bank holding
companies, banks or thrifts. As of September 30, 2010, $343,000 was invested by HARL, LLC in such
equity securities.
Regulatory Enforcement Authority. Federal banking regulators have substantial enforcement
authority over the financial institutions that they regulate including, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-affiliated parties, as
defined. In general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with regulatory authorities.
Except under certain circumstances, federal law requires public disclosure of final enforcement
actions by the federal banking agencies.
Recent Legislation
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Dodd-Frank Act). This new law will significantly change the current bank
regulatory structure and affect the lending, deposit, investment, trading and operating activities
of financial institutions and their holding companies.
The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and
24
regulations, and to prepare various studies and reports for Congress. The federal agencies are
given significant discretion in drafting such rules and regulations, and consequently, many of the
details and much of the impact of the Dodd-Frank Act may not be known for months or years.
Certain provisions of the Dodd-Frank Act are expected to have a near term impact on the
Company. For example, effective July 21, 2011, a provision of the Dodd-Frank Act eliminates the
federal prohibitions on paying interest on demand deposits, thus allowing businesses to have
interest bearing checking accounts. Depending on competitive responses, this significant change to
existing law could have an adverse impact on the Companys interest expense.
The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance
assessments. Assessments will now be based on the average consolidated total assets less tangible
equity capital of a financial institution. The Dodd-Frank Act also permanently increases the
maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000
per depositor, retroactive to January 1, 2008, and non-interest bearing transaction accounts have
unlimited deposit insurance through December 31, 2013.
Bank and thrift holding companies with assets of less than $15 billion as of December 31,
2009, such as the Company, will be permitted to include trust preferred securities that were issued
before May 19, 2010, as Tier 1 capital; however, trust preferred securities issued by a bank or
thrift holding company (other than those with assets of less than $500 million) after May 19, 2010,
will no longer count as Tier 1 capital. Trust preferred securities still will be entitled to be
treated as Tier 2 capital.
The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding
vote on executive compensation and so-called golden parachute payments, and allow greater access
by shareholders to the companys proxy material by authorizing the SEC to promulgate rules that
would allow stockholders to nominate their own candidates using a companys proxy materials. The
legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive
compensation paid to bank holding company executives, regardless of whether the company is publicly
traded.
The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rule-making authority for a wide range of consumer protection laws that apply to all banks and
savings institutions, including the authority to prohibit unfair, deceptive or abusive acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over
all banks and savings institutions with more than $10 billion in assets. Banks and savings
institutions with $10 billion or less in assets such as the Bank will continue to be examined for
compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens
the federal preemption rules that have been applicable for national banks and federal savings
associations, and gives state attorneys general the ability to enforce federal consumer protection
laws.
It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to
be written implementing rules and regulations will have on community banks. However, it is expected
that at a minimum they will increase our operating and compliance costs and could increase our
interest expense.
Federal and State Taxation
General. The Bank is subject to federal income taxation in the same general manner as other
corporations with some exceptions, including particularly the reserve for bad debts discussed
below. The following discussion of federal taxation is intended only to summarize certain pertinent
federal income tax matters and is not a comprehensive description of the tax rules applicable to
the Bank.
25
Method of Accounting. For federal income tax purposes, the Bank currently reports its income
and expenses on the accrual method of accounting and uses a tax year ending September 30 for filing
its federal income tax returns.
Bad Debt Reserves. The Company computes its reserve for bad debts under the specific
charge-off method. The bad debt deduction allowable under this method is available to large banks
with assets greater than $500 million. Generally, this method allows the Company to deduct an
annual addition to the reserve for bad debts equal to its net charge-offs. Retained earnings at
September 30, 2010 and 2009 includes approximately $1.3 million representing bad debt deductions
for which no deferred income taxes have been provided.
Distributions. If the Bank distributes cash or property to its stockholders, and the
distribution is treated as being from its accumulated pre-1988 tax bad debt reserves, the
distribution will cause the Bank to have additional taxable income. A distribution to stockholders
is deemed to have been made from accumulated bad debt reserves to the extent that (a) the reserves
exceed the amount that would have been accumulated on the basis of actual loss experience, and (b)
the distribution is a non-dividend distribution. A distribution in respect of stock is a
non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in
redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case
of a current distribution, together with all other such distributions during the taxable year, it
exceeds the Banks current and post-1951 accumulated earnings and profits. The amount of
additional taxable income created by a non-dividend distribution is an amount that when reduced by
the tax attributable to it is equal to the amount of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20% on a base of
regular taxable income plus certain tax preferences (alternative minimum taxable income or
AMTI). The alternative minimum tax is payable to the extent such AMTI is in excess of an
exemption amount. The Code provides that an item of tax preference is the excess of the bad debt
deduction allowable for a taxable year pursuant to the percentage of taxable income method over the
amount allowable under the experience method. The other items of tax preference that constitute
AMTI include (a) tax exempt interest on newly-issued (generally, issued on or after August 8, 1986)
private activity bonds other than certain qualified bonds and (b) for taxable years beginning after
1989, 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii)
AMTI (determined without regard to this preference and prior to reduction by net operating losses).
Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum
tax may be used as credits against regular tax liabilities in future years.
Net Operating Loss Carryovers. A financial institution may carry back net operating losses to
the preceding three taxable years and forward to the succeeding 15 taxable years. Effective for
net operating losses arising in tax years beginning after October 1, 1997, the carryback period is
reduced from three years to two years and the carryforward period is extended from 15 years to 20
years. At September 30, 2010, the Bank had no net operating loss carryforwards for federal income
tax purposes. Tax years 2008 and 2009, there are special provisions that allow for a possible five
year carryback period.
Corporate Dividends-Received Deduction. The corporate dividends-received deduction is 80% in
the case of dividends received from corporations with which a corporate recipient does not file a
consolidated tax return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on their behalf.
However, a corporation may deduct 100% of dividends from a member of the same affiliated group of
corporations.
Other Matters. The Companys federal income tax returns for its tax years 2006 and beyond are
open under the statute of limitations and are subject to review by the Internal Revenue Service
(IRS).
Pennsylvania Taxation. The Bank is subject to tax under the Pennsylvania Mutual Thrift
Institutions Tax Act, which imposes a tax at the rate of 11.5% on the Banks net earnings,
determined in
26
accordance with accounting principles generally accepted in the United States of
America, as shown on its books. For fiscal years beginning in 1983, and thereafter, net operating
losses may be carried forward and allowed as a deduction for three succeeding years. This Act
exempts the Bank from all other corporate taxes imposed by Pennsylvania for state tax purposes, and
from all local taxes imposed by political subdivisions thereof, except taxes on real estate and
real estate transfers.
Subsidiary
The Bank is the only direct wholly owned subsidiary of the Company. The Bank formed HSB,
Inc., a Delaware company, as a wholly owned subsidiary of the Bank during fiscal 1997. HSB, Inc.
was formed in order to accommodate the transfer of certain assets that are legal investments for
the Bank and to provide for a greater degree of protection to claims of creditors. The laws of the
State of Delaware and the court system create a more favorable environment for the proposed
business affairs of the subsidiary. HSB, Inc. currently manages the investment securities for the
Bank, which as of September 30, 2010 amounted to approximately $169.0 million. The Bank has two
limited liability company subsidiaries, Freedom Financial Solutions LLC (FFS) and HARL, LLC.
FFS was established to engage in the sale of insurance products through a third party. HARL, LLC
was established for the purpose of investing in FDIC insured financial institutions/holding company
equity securities.
Item 1A. Risk Factors.
Not applicable.
Item 1B. Unresolved Staff Comments.
Not applicable.
27
Item 2. Properties.
As of September 30, 2010, the Company conducted its business from its main office in
Harleysville, Pennsylvania and six other full service branch offices. The Company is also part of
the STAR ATM System, which provides customers with access to their deposits at locations worldwide.
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Net Book Value of |
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Property and |
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Lease |
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Leasehold |
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Expiration |
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Improvements at |
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County |
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Address |
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Owned or Leased |
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Date |
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September 30, 2010 |
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
Montgomery |
|
1889 Ridge Pike
Royersford, Pennsylvania |
|
Owned |
|
|
|
$ |
1,693 |
|
|
$ |
22,927 |
|
Montgomery |
|
271 Main Street
Harleysville, Pennsylvania |
|
Owned |
|
|
|
|
968 |
|
|
|
196,654 |
|
Montgomery |
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640 East Main Street
Lansdale, Pennsylvania |
|
Leased |
|
May 2043(1) |
|
|
801 |
|
|
|
55,851 |
|
Montgomery |
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1550 Hatfield Valley Road
Hatfield, Pennsylvania |
|
Leased |
|
January 2064(1) |
|
|
791 |
|
|
|
92,097 |
|
Montgomery |
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2301 West Main Street
Norristown, Pennsylvania |
|
Owned |
|
|
|
|
381 |
|
|
|
92,816 |
|
Montgomery |
|
3090 Main Street
Sumneytown, Pennsylvania |
|
Owned |
|
|
|
|
198 |
|
|
|
58,269 |
|
Bucks |
|
741 North County Line Road
Souderton, Pennsylvania |
|
Owned |
|
|
|
|
2,740 |
|
|
|
9,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
$ |
7,572 |
|
|
$ |
528,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The land at this office is leased; however, the Bank owns the building. |
Item 3. Legal Proceedings.
The Company is not involved in any legal proceedings except nonmaterial litigation incidental
to the ordinary course of business.
Item 4. [Reserved]
28
PART II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
(a) The information for all equity based and individual compensation arrangements is
incorporated by reference from Part III, Item 12 hereof.
Harleysville Savings Financial Corporations common stock is listed on the Nasdaq Global
Market under the symbol HARL. The common stock was issued at an adjusted price of $1.45 per
share in connection with the Companys conversion from mutual to stock form and the common stock
commenced trading on the NASDAQ Stock Market on September 3, 1987. Prices shown below reflect the
prices reported by the NASDAQ Stock Market during the indicated periods. The closing price of the
common stock on September 30, 2010 was $14.57 per share. There were 3,687,409 shares of common
stock outstanding as of September 30, 2010, held by approximately 1,000 stockholders of record, not
including the number of persons or entities whose stock is held in nominee or street name through
various brokerage firms and banks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends |
|
For The Quarter Ended |
|
High |
|
|
Low |
|
|
Close |
|
|
Declared |
|
September 30, 2010 |
|
$ |
15.85 |
|
|
$ |
14.00 |
|
|
$ |
14.57 |
|
|
$ |
0.19 |
|
June 30, 2010 |
|
|
16.20 |
|
|
|
13.30 |
|
|
|
15.29 |
|
|
|
0.19 |
|
March 31, 2010 |
|
|
14.25 |
|
|
|
13.06 |
|
|
|
13.90 |
|
|
|
0.19 |
|
December 31, 2009 |
|
|
14.37 |
|
|
|
12.02 |
|
|
|
13.86 |
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
$ |
15.70 |
|
|
$ |
12.50 |
|
|
$ |
13.71 |
|
|
$ |
0.19 |
|
June 30, 2009 |
|
|
16.22 |
|
|
|
10.54 |
|
|
|
13.98 |
|
|
|
0.18 |
|
March 31, 2009 |
|
|
14.24 |
|
|
|
10.08 |
|
|
|
11.64 |
|
|
|
0.18 |
|
December 31, 2008 |
|
|
14.00 |
|
|
|
11.12 |
|
|
|
13.43 |
|
|
|
0.18 |
|
(b) Not applicable.
(c) The following table sets forth information with respect to purchases made by or on behalf
of the Company of shares of common stock of the Company during the fourth quarter of fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Shares that May Yet |
|
|
|
|
|
|
|
Average |
|
|
Part of Publicly |
|
|
Be Purchased Under |
|
|
|
Total Number of |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
the Plans or |
|
Period |
|
Shares Purchased |
|
|
per Share |
|
|
Programs |
|
|
Programs(1) |
|
July 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,492 |
|
August 1-31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,492 |
|
September 1-30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
50,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On June 30, 2008, the Company announced its current program to repurchase up to 5.0% of the
outstanding shares of common stock of the Company, or 196,000 shares. The program does not
have an expiration date and all shares are purchased in the open market. |
29
Item 6. Selected Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data: |
|
As of September 30, |
|
(Dollars in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Total Assets |
|
$ |
857,140 |
|
|
$ |
830,007 |
|
|
$ |
825,675 |
|
|
$ |
773,544 |
|
|
$ |
775,638 |
|
Mortgage-backed securities held to maturity |
|
|
130,819 |
|
|
|
162,430 |
|
|
|
213,933 |
|
|
|
192,842 |
|
|
|
219,494 |
|
Mortgage-backed securities available-for-sale |
|
|
809 |
|
|
|
785 |
|
|
|
758 |
|
|
|
818 |
|
|
|
820 |
|
Consumer loans receivable |
|
|
432,806 |
|
|
|
441,138 |
|
|
|
434,439 |
|
|
|
405,672 |
|
|
|
386,486 |
|
Commercial loans |
|
|
79,791 |
|
|
|
59,347 |
|
|
|
44,407 |
|
|
|
15,314 |
|
|
|
920 |
|
Allowance for loan losses |
|
|
2,504 |
|
|
|
2,094 |
|
|
|
1,988 |
|
|
|
1,933 |
|
|
|
1,956 |
|
Investment securities held to maturity |
|
|
125,269 |
|
|
|
105,194 |
|
|
|
79,254 |
|
|
|
108,693 |
|
|
|
111,099 |
|
Investment securities available-for-sale |
|
|
20,604 |
|
|
|
6,728 |
|
|
|
854 |
|
|
|
1,910 |
|
|
|
8,108 |
|
Other investments (1) |
|
|
32,234 |
|
|
|
22,316 |
|
|
|
23,731 |
|
|
|
20,810 |
|
|
|
23,952 |
|
Deposits |
|
|
528,100 |
|
|
|
466,601 |
|
|
|
425,513 |
|
|
|
424,035 |
|
|
|
429,254 |
|
FHLB advances and other borrowings |
|
|
272,047 |
|
|
|
309,046 |
|
|
|
347,846 |
|
|
|
298,609 |
|
|
|
294,611 |
|
Total stockholders equity |
|
|
53,351 |
|
|
|
50,139 |
|
|
|
47,209 |
|
|
|
47,041 |
|
|
|
48,471 |
|
Book value per share |
|
|
14.47 |
|
|
|
13.82 |
|
|
|
13.23 |
|
|
|
12.65 |
|
|
|
12.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
Selected Operations Data: |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Interest income |
|
$ |
40,018 |
|
|
$ |
41,343 |
|
|
$ |
43,076 |
|
|
$ |
40,289 |
|
|
$ |
39,091 |
|
Interest expense |
|
|
21,747 |
|
|
|
24,886 |
|
|
|
29,016 |
|
|
|
28,806 |
|
|
|
26,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
18,271 |
|
|
|
16,457 |
|
|
|
14,060 |
|
|
|
11,483 |
|
|
|
12,725 |
|
Provision for loan losses |
|
|
600 |
|
|
|
400 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
17,671 |
|
|
|
16,057 |
|
|
|
13,975 |
|
|
|
11,483 |
|
|
|
12,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on securities, including
impairment |
|
|
|
|
|
|
(454 |
) |
|
|
(179 |
) |
|
|
160 |
|
|
|
27 |
|
Other income |
|
|
1,987 |
|
|
|
1,925 |
|
|
|
1,909 |
|
|
|
1,730 |
|
|
|
1,273 |
|
Other expense |
|
|
12,702 |
|
|
|
11,527 |
|
|
|
10,094 |
|
|
|
9,216 |
|
|
|
8,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
6,956 |
|
|
|
6,001 |
|
|
|
5,611 |
|
|
|
4,157 |
|
|
|
5,457 |
|
Income tax expense |
|
|
1,948 |
|
|
|
1,285 |
|
|
|
1,232 |
|
|
|
911 |
|
|
|
1,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
|
$ |
4,379 |
|
|
$ |
3,246 |
|
|
$ |
4,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
1.37 |
|
|
$ |
1.31 |
|
|
$ |
1.20 |
|
|
$ |
0.85 |
|
|
$ |
1.09 |
|
Earnings per share diluted |
|
|
1.36 |
|
|
|
1.31 |
|
|
|
1.20 |
|
|
|
0.83 |
|
|
|
1.08 |
|
Dividends per share |
|
|
0.76 |
|
|
|
0.73 |
|
|
|
0.69 |
|
|
|
0.68 |
|
|
|
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
Selected Other Data: |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Return on average assets (2) |
|
|
0.59 |
% |
|
|
0.57 |
% |
|
|
0.54 |
% |
|
|
0.42 |
% |
|
|
0.55 |
% |
Return on average equity (2) |
|
|
9.73 |
% |
|
|
9.70 |
% |
|
|
9.42 |
% |
|
|
6.71 |
% |
|
|
8.76 |
% |
Dividend payout ratio |
|
|
55.41 |
% |
|
|
55.60 |
% |
|
|
57.26 |
% |
|
|
80.02 |
% |
|
|
58.72 |
% |
Average equity to average assets (2) |
|
|
6.07 |
% |
|
|
5.90 |
% |
|
|
5.76 |
% |
|
|
6.13 |
% |
|
|
6.21 |
% |
Interest rate spread (2) |
|
|
2.04 |
% |
|
|
1.84 |
% |
|
|
1.57 |
% |
|
|
1.39 |
% |
|
|
1.51 |
% |
Net yield on interest-earning assets (2) |
|
|
2.21 |
% |
|
|
2.04 |
% |
|
|
1.79 |
% |
|
|
1.58 |
% |
|
|
1.71 |
% |
Ratio of non-performing assets to
total assets at end of period |
|
|
0.30 |
% |
|
|
0.32 |
% |
|
|
0.15 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Ratio of interest-earning assets to
interest-bearing liabilities at end of period |
|
|
106.47 |
% |
|
|
106.45 |
% |
|
|
105.93 |
% |
|
|
104.75 |
% |
|
|
105.61 |
% |
Full service banking offices at end of period |
|
|
7 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
|
(1) |
|
Includes interest-bearing deposits at other depository institutions & stock of the Federal Home Loan Bank of Pittsburgh. |
|
(2) |
|
All ratios are based on average monthly balances during the indicated periods. |
30
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion is intended to assist in understanding our financial condition, and
the results of operations for Harleysville Savings Financial Corporation, and its subsidiary
Harleysville Savings Bank, for the fiscal years ended September 30, 2010 and 2009. The information
in this section should be read in conjunction with the Companys financial statements and the
accompanying notes included elsewhere herein.
Critical Accounting Policies and Judgments
The Companys consolidated financial statements are prepared based on the application of
certain accounting policies, the most significant of which are described in Note 2, Summary of
Significant Accounting Policies. Certain of these policies require numerous estimates and strategic
or economic assumptions that may prove inaccurate or subject to variations and may significantly
affect the Companys reported results and financial position for the period or in future periods.
Changes in underlying factors, assumptions, or estimates in any of these areas could have a
material impact on the Companys future financial condition and results of operations.
Analysis and Determination of the Allowance for Loan Losses - The allowance for loan losses is
a valuation allowance for probable losses inherent in the loan portfolio. The Company evaluates the
need to establish allowances against losses on loans on a monthly basis. When additional allowances
are necessary, a provision for loan losses is charged to earnings.
Our methodology for assessing the appropriateness of the allowance for loan losses consists of
three key elements: (1) specific allowances for certain impaired or collateral-dependent loans; (2)
a general valuation allowance on certain identified problem loans; and (3) a general valuation
allowance on the remainder of the loan portfolio. Although we determine the amount of each element
of the allowance separately, the entire allowance for loan losses is available for the entire
portfolio.
Specific Allowance Required for Certain Impaired or Collateral-Dependent Loans: We establish
an allowance for certain impaired loans for the amounts by which the discounted cash flows (or
collateral value or observable market price) are lower than the carrying value of the loan. Under
current accounting guidelines, a loan is defined as impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due under the
contractual terms of the loan agreement.
General Valuation Allowance on Certain Identified Problem Loans - We also establish a general
allowance for classified loans that do not have an individual allowance. We segregate these loans
by loan category and assign allowance percentages to each category based on inherent losses
associated with each type of lending and consideration that these loans, in the aggregate,
represent an above-average credit risk and that more of these loans will prove to be uncollectible
compared to loans in the general portfolio.
General Valuation Allowance on the Remainder of the Loan Portfolio - We establish another
general allowance for loans that are not classified to recognize the inherent losses associated
with lending activities, but which, unlike specific allowances, has not been allocated to
particular problem assets. This general valuation allowance is determined by segregating the loans
by loan category and assigning allowance percentages based on our historical loss experience,
delinquency trends and managements evaluation of the collectibility of the loan portfolio. The
allowance is adjusted for significant factors that, in managements judgment, affect the
collectibility of the portfolio as of the evaluation date. These significant factors may include
changes in lending policies and procedures, changes in existing general economic and business
conditions affecting our primary lending areas, credit quality trends, collateral value, loan
volumes and concentrations, seasoning of the loan portfolio, loss experience in particular segments
of the portfolio, duration of the current business cycle, and bank regulatory examination results.
The applied loss factors are reevaluated monthly to ensure their relevance in the current economic
environment.
31
Investment Securities Impairment Valuation. Management evaluates securities for
other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or
market concerns warrant such evaluation. Consideration is given to (1) length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent or requirement of the Company to sell its investment in
debt securities and its intent and ability to retain its investment in equity securities for a
period of time sufficient to allow for any anticipated recovery in fair value.
Overview
Harleysville Savings Financial Corporation, a bank holding company, of which Harleysville
Savings Bank (the Bank), is a wholly owned subsidiary, was formed in February 2000. For purposes
of this discussion, the Company, including its wholly owned subsidiary, will be referred to as the
Company. The Companys earnings are primarily dependent upon its net interest income, which is
determined by (i) the difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities (interest rate spread) and (ii) the relative amounts of
interest-earning assets and interest-bearing liabilities outstanding. The Companys interest rate
spread is affected by regulatory, economic, and competitive factors that influence interest rates,
loan demand and deposit flows. The Company, like other thrift institutions, is vulnerable to an
increase in interest rates to the extent that interest-bearing liabilities mature or reprice more
rapidly than interest-earning assets. To reduce the effect of adverse changes in interest rates on
its operations, the Company has adopted certain asset and liability management strategies,
described below. The Companys earnings are also affected by, among other factors, other
non-interest income, other expenses, and income taxes.
The Companys total assets at September 30, 2010, amounted to $857.1 million, compared to
$830.0 million as of September 30, 2009. The increase in assets was primarily due to an increase
in cash and cash equivalents of approximately $10.7 million and the growth in mortgage loans,
commercial loans, resulting in an overall increase in loans receivable of approximately $11.7
million. Total liabilities at September 30, 2010 were $803.8 million compared to $779.9 million
at September 30, 2009. The increase in liabilities was due to an increase in total deposits of
$61.5 million. This increase was offset by a decrease in borrowings of $37.0 million.
Stockholders equity totaled $53.4 million as of September 30, 2010, compared to $50.1 million at
September 30, 2009.
During fiscal 2010, net interest income after provision for loan losses increased $1.6 million
or 10.1% from the prior fiscal year. This increase was the result of a 2.53% increase in the
average interest-earning assets which was offset by a 2.51% increase in average interest-bearing
liabilities, and an increase in the interest rate spread to 2.04% in fiscal year 2010 from 1.84% in
fiscal year 2009. Net income for fiscal 2010 was $5.0 million compared to $4.7 million for fiscal
year ended 2009. The Companys return on average assets (net income divided by average total
assets) was 0.59% during fiscal 2010 compared to 0.57% during fiscal year 2009. Return on average
equity (net income divided by average equity) was 9.73% during fiscal year 2010 compared to 9.70%
in fiscal year 2009.
32
Results of Operations
The following table sets forth as of the periods indicated, information regarding: (i) the total dollar amounts of interest income from interest-earning assets and the resulting average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resulting average costs; (iii) net interest income; (iv) interest rate spread; (v) net interest-earning assets; (vi) the net yield earned on interest-earning assets; and (vii) the ratio of total interest-earning assets to total interest-bearing liabilities. Average balances are calculated on a monthly basis. Yields on tax-exempt assets have not been calculated on a fully tax-exempt basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September |
|
|
For The Year Ended September 30, |
|
|
|
30, 2010 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/Rate |
|
|
|
(Dollars in Thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans (2)(3) |
|
|
5.71 |
% |
|
$ |
345,041 |
|
|
$ |
20,127 |
|
|
|
5.83 |
% |
|
$ |
340,311 |
|
|
$ |
20,024 |
|
|
|
5.88 |
% |
|
$ |
320,925 |
|
|
$ |
19,043 |
|
|
|
5.93 |
% |
Mortgage-backed securities |
|
|
4.51 |
% |
|
|
148,137 |
|
|
|
6,879 |
|
|
|
4.64 |
% |
|
|
190,934 |
|
|
|
9,187 |
|
|
|
4.81 |
% |
|
|
211,563 |
|
|
|
10,088 |
|
|
|
4.77 |
% |
Commercial loans |
|
|
5.92 |
% |
|
|
70,404 |
|
|
|
4,218 |
|
|
|
5.99 |
% |
|
|
51,103 |
|
|
|
3,096 |
|
|
|
6.06 |
% |
|
|
26,492 |
|
|
|
1,799 |
|
|
|
6.79 |
% |
Consumer and other
loans(3) |
|
|
4.66 |
% |
|
|
106,758 |
|
|
|
4,380 |
|
|
|
4.10 |
% |
|
|
106,216 |
|
|
|
4,772 |
|
|
|
4.49 |
% |
|
|
108,747 |
|
|
|
5,719 |
|
|
|
5.26 |
% |
Investments |
|
|
1.95 |
% |
|
|
155,757 |
|
|
|
4,414 |
|
|
|
2.83 |
% |
|
|
117,152 |
|
|
|
4,264 |
|
|
|
3.64 |
% |
|
|
119,133 |
|
|
|
6,427 |
|
|
|
5.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
4.59 |
% |
|
|
826,097 |
|
|
|
40,018 |
|
|
|
4.84 |
% |
|
|
805,716 |
|
|
|
41,343 |
|
|
|
5.13 |
% |
|
|
786,860 |
|
|
|
43,076 |
|
|
|
5.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and money market |
|
|
0.52 |
% |
|
|
110,095 |
|
|
|
932 |
|
|
|
0.85 |
% |
|
|
67,509 |
|
|
|
961 |
|
|
|
1.42 |
% |
|
|
54,669 |
|
|
|
1,189 |
|
|
|
2.17 |
% |
Checking |
|
|
0.13 |
% |
|
|
49,998 |
|
|
|
85 |
|
|
|
0.17 |
% |
|
|
44,151 |
|
|
|
172 |
|
|
|
0.39 |
% |
|
|
42,832 |
|
|
|
367 |
|
|
|
0.86 |
% |
Certificates of deposit |
|
|
2.31 |
% |
|
|
324,853 |
|
|
|
8,017 |
|
|
|
2.47 |
% |
|
|
315,672 |
|
|
|
9,824 |
|
|
|
3.11 |
% |
|
|
329,405 |
|
|
|
13,662 |
|
|
|
4.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
1.59 |
% |
|
|
484,946 |
|
|
|
9,034 |
|
|
|
1.86 |
% |
|
|
427,332 |
|
|
|
10,957 |
|
|
|
2.26 |
% |
|
|
426,906 |
|
|
|
15,218 |
|
|
|
3.56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
4.33 |
% |
|
|
290,956 |
|
|
|
12,713 |
|
|
|
4.37 |
% |
|
|
329,567 |
|
|
|
13,929 |
|
|
|
4.23 |
% |
|
|
315,935 |
|
|
|
13,798 |
|
|
|
4.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities |
|
|
2.54 |
% |
|
|
775,902 |
|
|
|
21,747 |
|
|
|
2.80 |
% |
|
|
756,899 |
|
|
|
24,886 |
|
|
|
3.29 |
% |
|
|
742,841 |
|
|
|
29,016 |
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/interest
rate spread |
|
|
2.04 |
% |
|
|
|
|
|
$ |
18,271 |
|
|
|
2.04 |
% |
|
|
|
|
|
$ |
16,457 |
|
|
|
1.84 |
% |
|
|
|
|
|
$ |
14,060 |
|
|
|
1.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning
assets/net yield on
interest-earning assets(1) |
|
|
|
|
|
$ |
50,195 |
|
|
|
|
|
|
|
2.21 |
% |
|
$ |
48,817 |
|
|
|
|
|
|
|
2.04 |
% |
|
$ |
44,019 |
|
|
|
|
|
|
|
1.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning
assets to interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106.5 |
% |
|
|
|
|
|
|
|
|
|
|
106.5 |
% |
|
|
|
|
|
|
|
|
|
|
105.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net interest income divided by average interest-earning assets. |
|
(2) |
|
Loan fee income is immaterial to this analysis. |
|
(3) |
|
There were 17 non-accruing loans totaling $2,138,000 at September 30, 2010, two non-accruing
loans totaling $335,000 at September 30, 2009 and one non-accruing loan totaling $244,000 at
September 2008. |
33
The following table shows, for the periods indicated, the changes in interest income and
interest expense attributable to changes in volume (changes in volume multiplied by prior year
rate) and changes in rate (changes in rate multiplied by prior year volume). Changes in rate/volume
(determined by multiplying the change in rate by the change in volume) have been allocated to the
change in rate or the change in volume based upon the respective percentages of their combined
totals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 Compared |
|
|
Fiscal 2009 Compared |
|
|
|
to Fiscal 2009 |
|
|
to Fiscal 2008 |
|
|
|
Increase (Decrease) |
|
|
Increase (Decrease) |
|
(In Thousands) |
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest income on interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans (1) |
|
$ |
272 |
|
|
$ |
(169 |
) |
|
$ |
103 |
|
|
$ |
1,139 |
|
|
$ |
(158 |
) |
|
$ |
981 |
|
Mortgage-backed securities |
|
|
(1,997 |
) |
|
|
(312 |
) |
|
|
(2,309 |
) |
|
|
(994 |
) |
|
|
93 |
|
|
|
(901 |
) |
Commercial |
|
|
1,156 |
|
|
|
(34 |
) |
|
|
1,122 |
|
|
|
1,467 |
|
|
|
(170 |
) |
|
|
1,297 |
|
Consumer and other loans (1) |
|
|
24 |
|
|
|
(415 |
) |
|
|
(391 |
) |
|
|
(130 |
) |
|
|
(817 |
) |
|
|
(947 |
) |
Interest and dividends on Investments |
|
|
457 |
|
|
|
(307 |
) |
|
|
150 |
|
|
|
(105 |
) |
|
|
(2,058 |
) |
|
|
(2,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(88 |
) |
|
|
(1,237 |
) |
|
|
(1,325 |
) |
|
|
1,377 |
|
|
|
(3,110 |
) |
|
|
(1,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
241 |
|
|
|
(2,164 |
) |
|
|
(1,923 |
) |
|
|
(54 |
) |
|
|
(4,207 |
) |
|
|
(4,261 |
) |
Borrowings |
|
|
(1,709 |
) |
|
|
493 |
|
|
|
(1,216 |
) |
|
|
519 |
|
|
|
(388 |
) |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(1,468 |
) |
|
|
(1,671 |
) |
|
|
(3,139 |
) |
|
|
465 |
|
|
|
(4,595 |
) |
|
|
(4,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income |
|
$ |
1,380 |
|
|
$ |
434 |
|
|
$ |
1,814 |
|
|
$ |
912 |
|
|
$ |
1,485 |
|
|
$ |
2,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
There were 17 non-accruing loans totaling $2,138,000 at September 30, 2010, two non-accruing loans totaling $335,000 at
September 30, 2009 and one non-accruing loan totaling $244,000 at September 2008.
|
34
Net Interest Income
Net interest income increased by $1.8 million or 11.3% in fiscal 2010, over the prior year.
The increase in the net interest income in fiscal 2010 was due to an increase in the interest rate
spread between interest bearing assets and interest earning liabilities and the growth in the
balance sheet. The driving factors are further explained below under - Interest Income and -
Interest Expense.
Interest Income
Interest income on mortgage loans increased by $103,000 or 0.5% in fiscal 2010 and from
the prior year. During fiscal 2010, the average balance of mortgage loans increased $4.7 million
or 1.4% and the yield decreased by 5 basis points. The increased income was a reflection of the
higher loan volume and was partially offset by the decrease in the yield on mortgage loans. The
majority of loans during the year were fixed rate mortgages. The decrease in interest on
mortgage-backed securities reflects a decrease in average balance by $42.8 million or 22.4%, and a
decrease in yield of 17 basis points in fiscal 2010. During fiscal 2010, the average consumer and
other loan average balance increased $542,000 or 0.5% and the yield decreased by 39 basis points.
The decrease in yield on consumer and other loans was partially offset by the increase in volume,
decreasing income for the period. The increase on interest income on commercial loans during
fiscal 2010 reflected an increase of average balance of $19.3 million while being offset by a
decrease in yield of 7 basis points.
Interest and dividends on investments increased by $150,000 or 3.5% in fiscal 2010 from fiscal
2009. During fiscal 2010, the increase in income resulted from an increase in average balance of
investments of $38.6 million or 33.0% offset by a decrease in yield of 81 basis points. The
increase in the average balance in fiscal 2010 reflects funds that were deployed from normal cash
flows due to deposit growth.
Interest Expense
Interest expense on deposits decreased $1.9 million or 17.6% in fiscal 2010 as compared to the
prior year. In fiscal 2010, the average balance of deposits increased by $57.6 million. The
average rate paid on deposits was 1.86% for the year ended September 30, 2010, compared to 2.27%
for the year ended September 30, 2009. The average rate paid on deposits is a direct reflection of
the falling interest rate environment.
Interest expense on borrowings decreased by $1.2 million or 8.7% in fiscal 2010 as compared to
the prior year. The decrease in 2010 was the result of a decrease in the average balance in
borrowings of $38.6 million or 11.7% offset by an increase in the average rate paid to 4.4%.
Borrowings were primarily paid down by the increase of deposits and also the maturity of
investments during fiscal 2010.
Provision for Loan Losses
Management establishes reserves for losses on loans when it determines that losses are
probable. The adequacy of loan loss reserves is based upon a regular monthly review of loan
delinquencies and classified assets, as well as local and national economic trends. The allowance
for loan losses totaled $2.5 million and $2.1 million at September 30, 2010 and 2009 or 0.5% and
0.4% of total loans at September 30, 2010 and 2009, respectively. The Company recorded an
increased provision for loan losses of $600,000 in fiscal 2010 compared to $400,000 in fiscal 2009,
due to the increase in unemployment trends and declines in property values reflecting instability
in the economy.
Other Income
The Companys total other operating income increased to $2.0 million in fiscal 2010 compared
to $1.5 million in fiscal 2009. The increase in fiscal 2010 was primarily due to other than
temporary impairment of equity securities of $0 in fiscal 2010 compared to $449,000 in fiscal 2009.
35
Customer service fees were $641,000 and $663,000 in 2010 and 2009, respectively. The decrease
was due to less NFS fees during 2010.
Bank owned life insurance (BOLI) income was $512,000 and $502,000 in 2010 and 2009,
respectively.
Other income, which consists primarily of loan servicing fees, the sale of non-deposit
products and insurance commissions, increased by $74,000 or 9.7% during fiscal 2010. The fees,
which comprise other income, are set by the Company at a level, which is intended to cover the cost
of providing the related services and expenses to customers and employees.
Other Expenses
Salaries and employee benefits increased by $727,000 or 11.7% in fiscal 2010 as compared to
prior fiscal year. The increased expenses of salaries and employee benefits during the periods are
attributable to increased staffing, due to a new branch and bank growth, normal salary increases
and increased employee benefit expenses as well as stock option expense.
Occupancy and equipment expense increased by $137,000 or 11.4% in fiscal 2010 compared to
fiscal 2009. Data processing costs increased by $82,000 in fiscal 2010. The increase in occupancy
and equipment expenses in fiscal 2010 was attributable to a new branch, normal growth, normal
technology needs and inflationary effects.
Other expenses, which consist primarily of advertising expenses, directors fees, ATM network
fees, professional fees, checking account costs, REO expenses, and stockholders expense increased
by $408,000 or 16.6% in fiscal 2010 compared to fiscal 2009. The increase in other expenses in 2010
was attributable to increases in advertising, office supplies, audit expense and REO expenses.
Many of these expenses were attributable to natural growth of our customer base and overall growth
of our retail and business banking.
In 2009, all FDIC insured financial institutions paid a special assessment in addition to the
already elevated premiums. As a result, FDIC insurance expense for the fiscal year ended September
30, 2010, decreased $179,000 from the same period last year.
Income Taxes
The Company recorded income tax provisions of $1.9 million and $1.3 million for fiscal year
2010 and 2009, respectively. The primary reason for the increase in the income tax provision in
fiscal 2010 and 2009 was an increase in pretax income. The effective tax rate was 28.0% in 2010
compared to 21.4% in 2009. See Note 11 of the Notes to Consolidated Financial Statements which
provides an analysis of the provision for income taxes.
Commitments and Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of our customers. These financial instruments include
commitments to extend credit and the unused portions of lines of credit. These instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. Commitments to extend credit and lines of
credit are not recorded as an asset or liability by us until the instrument is exercised. At
September 30, 2010 and 2009, we had no commitments to originate loans for sale.
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the loan agreement. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire
36
without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is
based on managements credit evaluation of the customer. The amount and type of collateral required
varies, but may include accounts receivable, inventory, equipment, real estate and income-producing
commercial properties. At September 30, 2010 and 2009, commitments to originate loans and
commitments under unused lines of credit, including undisbursed portions of construction loans in
process, for which the Company is obligated amounted to approximately $78.5 million and $72.1
million, respectively.
Letters of credit are conditional commitments issued by the Company guaranteeing payments of
drafts in accordance with the terms of the letter of credit agreements. Commercial letters of
credit are used primarily to facilitate trade or commerce and are also issued to support public and
private borrowing arrangements, bond financings and similar transactions. Standby letters of credit
are conditional commitments issued by the Company to guarantee the performance of a customer to a
third party. Collateral may be required to support letters of credit based upon managements
evaluation of the creditworthiness of each customer. The credit risk involved in issuing letters of
credit is substantially the same as that involved in extending loan facilities to customers. Most
letters of credit expire within one year. At September 30, 2010 and September 30, 2009, the Company
had letters of credit outstanding of approximately $405,000 and $579,000, respectively, of which
all are standby letters of credit. At September 30, 2010 and 2009, the uncollateralized portion of
the letters of credit extended by the Company was approximately $135,000 and $151,000,
respectively.
The Company is also subject to various pending claims and contingent liabilities arising in
the normal course of business, which are not reflected in the consolidated financial statements.
Management considers that the aggregate liability, if any, resulting from such matters will not be
material.
We anticipate that we will continue to have sufficient funds and alternative funding sources
to meet our current commitments.
The following table summarizes our outstanding commitments to originate loans and to advance
additional amounts pursuant to outstanding letters of credit, lines of credit and under our
construction loans at September 30, 2010.
|
|
|
|
|
|
|
Total Amounts |
|
|
|
Committed |
|
|
|
(In Thousands) |
|
Letters of credit |
|
$ |
405 |
|
Commitments to originate loans |
|
|
16,086 |
|
Unused portion of home equity lines of credit |
|
|
52,895 |
|
Unused portion of commercial lines of credit |
|
|
6,638 |
|
Undisbursed portion of construction loans in process |
|
|
2,926 |
|
|
|
|
|
Total commitments |
|
$ |
78,950 |
|
|
|
|
|
37
Contractual Obligations
The Companys contractual cash obligations at September 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
After 5 |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
|
(In Thousands) |
|
Lease agreements |
|
$ |
684 |
|
|
$ |
130 |
|
|
$ |
275 |
|
|
$ |
279 |
|
|
$ |
|
|
Borrowings |
|
|
272,047 |
|
|
|
21,853 |
|
|
|
90,610 |
|
|
|
42,237 |
|
|
|
117,347 |
|
Certificates of deposit |
|
|
317,370 |
|
|
|
158,403 |
|
|
|
92,394 |
|
|
|
66,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
590,101 |
|
|
$ |
180,386 |
|
|
$ |
183,279 |
|
|
$ |
109,089 |
|
|
$ |
117,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
The Companys assets increased to $857.1 million as of September 30, 2010, from $830.0 million
as of September 30, 2009. Stockholders equity increased to $53.4 million as of September 30, 2010,
from $50.1 million as of September 30, 2009. As of September 30, 2010, stockholders equity
amounted to 6.22% of the Banks total assets under accounting principles generally accepted in the
United States of America (GAAP). For a financial institution, liquidity is a measure of the
ability to fund customers needs for loans, deposit withdrawals and repayment of borrowings.
Harleysville Savings regularly evaluates economic conditions in order to maintain a strong
liquidity position. One of the most significant factors considered by management when evaluating
liquidity requirements is the stability of the Companys core deposit base. In addition to cash,
the Company maintains a portfolio of cash flows generating investments to meet its liquidity
requirements. The Company also relies upon cash flow from operations and other financing
activities, generally short-term and long-term debt. Liquidity is also provided by investing
activities including the repayment and maturity of loans and investment securities as well as the
management of asset sales when considered necessary. The Company also has access to and sufficient
assets to secure lines of credit and other borrowings in amounts adequate to fund any unexpected
cash requirements.
As of September 30, 2010, the Company had a remaining borrowing capacity with the FHLB of
Pittsburgh of approximately $496.9 million. To the extent that the Company cannot meet its
liquidity needs with normal cash flows and deposit growth, the Company will be able to utilize the
available borrowing capacity provided by the FHLB of Pittsburgh to fund asset growth and loan
commitments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Asset and Liability Management
The Company has instituted programs designed to decrease the sensitivity of its earnings to
material and prolonged increases or decreases in interest rates. The principal determinant of the
exposure of the Companys earnings to interest rate risk is the timing difference between the
repricing or maturity of the Companys interest-earning assets and the repricing or maturity of its
interest-bearing liabilities. If the maturities of such assets and liabilities were perfectly
matched, and if the interest rates borne by its assets and liabilities were equally flexible and
moved concurrently, neither of which is the case, the impact on net interest income of rapid
increases or decreases in interest rates would be minimized. The Companys asset and liability
management policies seek to decrease the interest rate sensitivity by shortening the repricing
intervals and the maturities of the Companys interest-earning assets. Although management of the
Company believes that the steps taken have reduced the Companys overall vulnerability to increases
and decreases in interest rates, the Company remains vulnerable to material and prolonged increases
and decreases in interest rates during periods in which its interest rate sensitive liabilities
exceed its interest rate sensitive assets and interest rate sensitive assets exceed interest rate
sensitive liabilities, respectively.
38
The authority and responsibility for interest rate management is vested in the Companys Board
of Directors. The Chief Financial Officer implements the Board of Directors policies during the
day-to-day operations of the Company. Each month, the Chief Financial Officer presents the Board of
Directors with a report, which outlines the Companys asset and liability gap position in various
time periods. The gap is the difference between interest-earning assets and interest-bearing
liabilities which mature or reprice over a given time period. The Chief Financial Officer also
meets weekly with the Companys other senior officers to review and establish policies and
strategies designed to regulate the Companys flow of funds and coordinate the sources, uses and
pricing of such funds. The first priority in structuring and pricing the Companys assets and
liabilities is to maintain an acceptable interest rate spread while reducing the effects of changes
in interest rates and maintaining the quality of the Companys assets.
The following table summarizes the amount of interest-earning assets and interest-bearing
liabilities outstanding as of September 30, 2010, which are expected to mature, prepay or reprice
in each of the future time periods shown. Except as stated below, the amounts of assets or
liabilities shown which mature or reprice during a particular period were determined in accordance
with the contractual terms of the asset or liability. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust rather than in the
period in which they are due, and fixed-rate loans and mortgage-backed securities are included in
the periods in which they are anticipated to be repaid. However, many of our assets can prepay at
any time without a penalty unlike many of our liabilities that have a contractual maturity.
The passbook accounts, negotiable order of withdrawal (NOW) accounts and a portion of the
money market deposit accounts, are included in the Over 5 Years categories based on managements
beliefs that these funds are core deposits having significantly longer effective maturities based
on the Companys retention of such deposits in changing interest rate environments.
Generally, during a period of rising interest rates, a positive gap would result in an
increase in net interest income while a negative gap would adversely affect net interest income.
Conversely, during a period of falling interest rates, a positive gap would result in a decrease in
net interest income while a negative gap would positively affect net interest income. However, the
table below does not necessarily indicate the impact of general interest rate movements on the
Companys net interest income because the repricing of certain categories of assets and liabilities
is discretionary and is subject to competitive and other pressures. As a result, certain assets and
liabilities indicated as repricing within a stated period may in fact reprice at different rate
levels in a different period.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
Over 5 |
|
|
|
|
|
|
or less |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
(In Thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans |
|
$ |
49,798 |
|
|
$ |
57,257 |
|
|
$ |
45,804 |
|
|
$ |
187,015 |
|
|
$ |
339,874 |
|
Commercial loans |
|
|
33,708 |
|
|
|
8,755 |
|
|
|
22,797 |
|
|
|
14,531 |
|
|
|
79,791 |
|
Mortgage-backed securities |
|
|
51,656 |
|
|
|
40,787 |
|
|
|
19,984 |
|
|
|
19,201 |
|
|
|
131,628 |
|
Consumer and other loans |
|
|
66,277 |
|
|
|
13,857 |
|
|
|
6,336 |
|
|
|
10,841 |
|
|
|
97,311 |
|
Investment securities and other investments |
|
|
118,713 |
|
|
|
40,777 |
|
|
|
12,263 |
|
|
|
6,354 |
|
|
|
178,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
320,152 |
|
|
|
161,433 |
|
|
|
107,184 |
|
|
|
237,942 |
|
|
|
826,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passbook and Club accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739 |
|
|
|
3,739 |
|
NOW and interest-bearing checking accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,897 |
|
|
|
53,897 |
|
Consumer Money Market Deposit accounts |
|
|
47,613 |
|
|
|
|
|
|
|
|
|
|
|
54,941 |
|
|
|
102,554 |
|
Business Money Market Deposit accounts |
|
|
25,144 |
|
|
|
|
|
|
|
|
|
|
|
8,381 |
|
|
|
33,525 |
|
Certificate accounts |
|
|
158,403 |
|
|
|
92,394 |
|
|
|
66,573 |
|
|
|
|
|
|
|
317,370 |
|
Borrowed money |
|
|
21,853 |
|
|
|
90,610 |
|
|
|
42,237 |
|
|
|
117,347 |
|
|
|
272,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
253,013 |
|
|
|
183,004 |
|
|
|
108,810 |
|
|
|
238,305 |
|
|
|
783,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing GAP during the period |
|
$ |
67,139 |
|
|
$ |
(21,571 |
) |
|
$ |
(1,626 |
) |
|
$ |
(363 |
) |
|
$ |
43,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative GAP |
|
$ |
67,139 |
|
|
$ |
45,568 |
|
|
$ |
43,942 |
|
|
$ |
43,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of GAP during the period to total assets |
|
|
7.83 |
% |
|
|
-2.52 |
% |
|
|
-0.19 |
% |
|
|
-0.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of cumulative GAP to total assets |
|
|
7.83 |
% |
|
|
5.32 |
% |
|
|
5.13 |
% |
|
|
5.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in
accordance with GAAP which require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more significant impact on a
financial institutions performance than the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or in the same magnitude as the prices of goods and
services, since prices are affected by inflation to a larger extent than interest rates.
40
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Harleysville Savings Financial Corporation
Harleysville, Pennsylvania
We have audited the accompanying consolidated statements of financial condition of
Harleysville Savings Financial Corporation and subsidiary (the Company) as of September 30, 2010
and 2009, and the related consolidated statements of income, comprehensive income, stockholders
equity and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Harleysville Savings Financial Corporation and
subsidiary as of September 30, 2010 and 2009, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.
ParenteBeard LLC
Allentown, Pennsylvania
December 17, 2010
41
Consolidated Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(In thousands, except share data) |
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and amounts due from depository institutions |
|
$ |
4,052 |
|
|
$ |
3,222 |
|
Interest bearing deposits |
|
|
16,138 |
|
|
|
6,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
20,190 |
|
|
|
9,442 |
|
|
|
|
|
|
|
|
|
|
Investments and mortgage-backed securities: |
|
|
|
|
|
|
|
|
Available for sale (amortized cost 2010, $21,401; 2009, $7,557) |
|
|
21,413 |
|
|
|
7,513 |
|
Held to maturity (fair value 2010, $264,448; 2009, $275,384) |
|
|
256,088 |
|
|
|
267,624 |
|
Loans receivable (net of allowance for loan losses
2010, $2,504; 2009, $2,094 |
|
|
510,093 |
|
|
|
498,391 |
|
Accrued interest receivable |
|
|
3,210 |
|
|
|
3,719 |
|
Federal Home Loan Bank stock at cost |
|
|
16,096 |
|
|
|
16,096 |
|
Foreclosed real estate |
|
|
186 |
|
|
|
747 |
|
Office properties and equipment, net |
|
|
12,158 |
|
|
|
10,486 |
|
Prepaid expenses and other assets |
|
|
17,706 |
|
|
|
15,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
857,140 |
|
|
$ |
830,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
528,100 |
|
|
$ |
466,601 |
|
Long-term debt |
|
|
272,047 |
|
|
|
309,046 |
|
Accrued interest payable |
|
|
1,407 |
|
|
|
1,606 |
|
Advances from borrowers for taxes and insurance |
|
|
1,247 |
|
|
|
1,445 |
|
Accounts payable and accrued expenses |
|
|
988 |
|
|
|
1,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
803,789 |
|
|
|
779,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 12 & 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
Preferred Stock: $.01 par value;
7,500,000 shares authorized; none issued |
|
|
|
|
|
|
|
|
Common stock: $.01 par value; 15,000,000
shares authorized; issued 3,921,177 shares: outstanding
2010 3,687,409 shares; 2009, 3,627,696 shares |
|
|
39 |
|
|
|
39 |
|
Additional paid-in capital |
|
|
8,126 |
|
|
|
8,002 |
|
Treasury stock, at cost (2010, 233,768 shares; 2009, 293,481 shares) |
|
|
(3,383 |
) |
|
|
(4,202 |
) |
Retained earnings partially restricted |
|
|
48,562 |
|
|
|
46,329 |
|
Accumulated other comprehensive income (loss) |
|
|
7 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
53,351 |
|
|
|
50,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
857,140 |
|
|
$ |
830,007 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
42
Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In thousands, except share data) |
|
2010 |
|
|
2009 |
|
Interest Income: |
|
|
|
|
|
|
|
|
Interest and fees on mortgage loans |
|
$ |
20,127 |
|
|
$ |
20,024 |
|
Interest on mortgage-backed securities |
|
|
6,879 |
|
|
|
9,187 |
|
Interest on commercial loans |
|
|
4,218 |
|
|
|
3,096 |
|
Interest on consumer and other loans |
|
|
4,380 |
|
|
|
4,772 |
|
Interest on taxable investments |
|
|
3,385 |
|
|
|
2,986 |
|
Interest on tax-exempt investments |
|
|
1,026 |
|
|
|
1,267 |
|
Dividends on investment securities |
|
|
3 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
40,018 |
|
|
|
41,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
9,034 |
|
|
|
10,957 |
|
Interest on borrowings |
|
|
12,713 |
|
|
|
13,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
21,747 |
|
|
|
24,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
18,271 |
|
|
|
16,457 |
|
Provision for loan losses |
|
|
600 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income, after Provision for Loan Losses |
|
|
17,671 |
|
|
|
16,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income: |
|
|
|
|
|
|
|
|
Customer service fees |
|
|
641 |
|
|
|
663 |
|
Impairment of equity securities |
|
|
|
|
|
|
(449 |
) |
Realized losses on securities |
|
|
|
|
|
|
(5 |
) |
Income on bank-owned life insurance |
|
|
512 |
|
|
|
502 |
|
Other income |
|
|
834 |
|
|
|
760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
1,987 |
|
|
|
1,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
6,946 |
|
|
|
6,219 |
|
Occupancy and equipment |
|
|
1,336 |
|
|
|
1,199 |
|
Deposit insurance premiums |
|
|
906 |
|
|
|
1,085 |
|
Data processing |
|
|
649 |
|
|
|
567 |
|
Other |
|
|
2,865 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
12,702 |
|
|
|
11,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
|
6,956 |
|
|
|
6,001 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
1,948 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.37 |
|
|
$ |
1.31 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.36 |
|
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
3,658,300 |
|
|
|
3,598,662 |
|
|
|
|
|
|
|
|
Diluted |
|
|
3,685,004 |
|
|
|
3,610,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
43
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
Net Income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale, net of tax expense
2010, $19; 2009, $6 |
|
|
36 |
(1) |
|
|
12 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
5,044 |
|
|
$ |
4,728 |
|
|
|
|
|
|
|
|
(1) Disclosure of reclassification amount, net of tax for the years ended:
|
|
|
2010 |
|
|
2009 |
|
Net unrealized gain (loss) arising during the year |
|
$ |
55 |
|
|
$ |
(436 |
) |
Reclassification adjustment for net losses included in net income |
|
|
|
|
|
|
454 |
|
|
|
|
|
|
|
|
|
|
$ |
55 |
|
|
$ |
18 |
|
Tax expense |
|
|
(19 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale |
|
$ |
36 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
44
Consolidated Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
Additional |
|
|
Earnings- |
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Shares |
|
|
Common |
|
|
Paid-in |
|
|
Partially |
|
|
Comprehensive |
|
|
Treasury |
|
|
Stockholders |
|
(In thousands, except share data) |
|
Outstanding |
|
|
Stock |
|
|
Capital |
|
|
Restricted |
|
|
Income (Loss) |
|
|
Stock |
|
|
Equity |
|
Balance at September 30, 2008 |
|
|
3,567,934 |
|
|
$ |
39 |
|
|
$ |
7,993 |
|
|
$ |
44,235 |
|
|
$ |
(41 |
) |
|
$ |
(5,017 |
) |
|
$ |
47,209 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,716 |
|
|
|
|
|
|
|
|
|
|
|
4,716 |
|
Dividends $.73 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,622 |
) |
|
|
|
|
|
|
|
|
|
|
(2,622 |
) |
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Treasury stock purchased |
|
|
(10,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
(144 |
) |
Treasury stock delivered under ESOP |
|
|
10,000 |
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
120 |
|
Treasury stock delivered under dividend reinvestment plan |
|
|
44,711 |
|
|
|
|
|
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
575 |
|
Employee options exercised |
|
|
15,251 |
|
|
|
|
|
|
|
(69 |
) |
|
|
|
|
|
|
|
|
|
|
209 |
|
|
|
140 |
|
Change in unrealized holding loss on available-for-sale securities, net of reclassification and tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
|
3,627,696 |
|
|
$ |
39 |
|
|
$ |
8,002 |
|
|
$ |
46,329 |
|
|
$ |
(29 |
) |
|
$ |
(4,202 |
) |
|
$ |
50,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,008 |
|
|
|
|
|
|
|
|
|
|
|
5,008 |
|
Dividends $.76 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,775 |
) |
|
|
|
|
|
|
|
|
|
|
(2,775 |
) |
Stock option compensation |
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167 |
|
Treasury stock purchased |
|
|
(5,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78 |
) |
|
|
(78 |
) |
Treasury stock delivered under ESOP |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
137 |
|
Treasury stock delivered under dividend reinvestment plan |
|
|
41,089 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
554 |
|
|
|
569 |
|
Employee options exercised |
|
|
14,283 |
|
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
206 |
|
|
|
148 |
|
Change in unrealized holding loss
on available-for-sale securities, net
of reclassification and tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
|
3,687,409 |
|
|
$ |
39 |
|
|
$ |
8,126 |
|
|
$ |
48,562 |
|
|
$ |
7 |
|
|
$ |
(3,383 |
) |
|
$ |
53,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
45
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
570 |
|
|
|
469 |
|
Provision for loan losses |
|
|
600 |
|
|
|
400 |
|
Realized (gains) losses on securities |
|
|
|
|
|
|
5 |
|
Loss on impairment of equity securities |
|
|
|
|
|
|
449 |
|
Loss on sale of foreclosed real estate |
|
|
159 |
|
|
|
18 |
|
Amortization of deferred loan fees |
|
|
96 |
|
|
|
33 |
|
Net amortization of premiums and discounts |
|
|
192 |
|
|
|
142 |
|
Increase in cash surrender value of bank owned life insurance |
|
|
(512 |
) |
|
|
(502 |
) |
Compensation charge on stock options |
|
|
167 |
|
|
|
133 |
|
Changes in assets and liabilities which provided (used) cash: |
|
|
|
|
|
|
|
|
Decrease in accounts payable and accrued expenses |
|
|
(182 |
) |
|
|
(768 |
) |
Increase in prepaid expenses and other assets |
|
|
(1,205 |
) |
|
|
(985 |
) |
Decrease in accrued interest receivable |
|
|
509 |
|
|
|
80 |
|
Decrease in accrued interest payable |
|
|
(199 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
5,203 |
|
|
|
4,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of mortgage-backed securities held to maturity |
|
|
(14,986 |
) |
|
|
|
|
Purchase of investment securities held to maturity |
|
|
(129,352 |
) |
|
|
(54,170 |
) |
Purchase of investment securities available-for-sale |
|
|
(131,264 |
) |
|
|
(62,393 |
) |
Net purchase (redemption) of FHLB stock |
|
|
|
|
|
|
478 |
|
Proceeds from the sale of investment securities available-for-sale |
|
|
117,400 |
|
|
|
56,055 |
|
Proceeds from maturities of investment securities held to maturity |
|
|
109,434 |
|
|
|
28,339 |
|
Principal collected on mortgage-backed securities |
|
|
46,248 |
|
|
|
51,247 |
|
Principal collected on long-term loans |
|
|
122,600 |
|
|
|
129,752 |
|
Long-term loans originated or acquired |
|
|
(135,184 |
) |
|
|
(153,032 |
) |
Proceeds from sale of foreclosed real estate |
|
|
588 |
|
|
|
549 |
|
Purchases of premises and equipment |
|
|
(2,242 |
) |
|
|
(1,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(16,758 |
) |
|
|
(4,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Net increase in demand deposits, NOW accounts
and savings accounts |
|
|
71,894 |
|
|
|
31,024 |
|
Net (decrease) increase in certificates of deposit |
|
|
(10,395 |
) |
|
|
10,064 |
|
Cash dividends |
|
|
(2,206 |
) |
|
|
(2,047 |
) |
Net decrease in short-term borrowings |
|
|
|
|
|
|
(21,800 |
) |
Proceeds from long-term debt |
|
|
|
|
|
|
24,500 |
|
Repayment of long-term debt |
|
|
(36,999 |
) |
|
|
(41,500 |
) |
Acquisition of treasury stock |
|
|
(78 |
) |
|
|
(144 |
) |
Treasury stock delivered under employee stock plans |
|
|
285 |
|
|
|
260 |
|
Net decrease in advances from borrowers for taxes and insurance |
|
|
(198 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
22,303 |
|
|
|
319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
10,748 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
9,442 |
|
|
|
9,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
20,190 |
|
|
$ |
9,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest (credited and paid) |
|
$ |
21,946 |
|
|
$ |
24,966 |
|
Income taxes |
|
|
1,825 |
|
|
|
1,203 |
|
Non-cash transfer of loans to foreclosed real estate |
|
|
186 |
|
|
|
1,314 |
|
See notes to consolidated financial statements.
46
Notes to Consolidated Financial Statements
1. Nature of Operations and Organizational Structure
Harleysville Savings Financial Corporation (the Company) is a bank holding company that is
regulated by the Federal Reserve Bank of Philadelphia. Harleysville Savings Bank (the Bank) is a
wholly owned subsidiary and is regulated by the FDIC and the Pennsylvania Department of Banking.
The Bank is principally in the business of attracting deposits through its branch offices and
investing those deposits, together with funds from borrowings and operations, primarily in single
family residential, commercial and consumer loans. The Banks customers are primarily in
southeastern Pennsylvania.
2. Summary of Significant Accounting Policies
Principles of Consolidation The accompanying consolidated financial statements include the
accounts of the Company, the Bank, and the Banks wholly owned subsidiary, HSB Inc., a Delaware
subsidiary which was formed in order to accommodate the transfer of certain assets, Freedom
Financial Solutions LLC that allows the Company to offer non deposit products and HARL, LLC that
allows the Bank to invest in equity investments. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates in Preparation of the Consolidated Financial Statements The preparation of
consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of income and expenses
during the reporting period. The most significant of these estimates and assumptions in the
Companys consolidated financial statements is the allowance for loan losses and
other-than-temporary impairment of investments. Actual results could differ from those estimates.
Significant Group Concentrations of Credit Risk Most of the Companys activities are with
customers located within the southeastern region of Pennsylvania. Note 3 discusses the types of
securities that the Company invests in. Note 4 discusses the types of lending that the Company
engages in. The Company does not have any significant concentrations to any one industry or
customer.
Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and balances due from banks.
Interest-Bearing Deposits in Banks Interest-bearing deposits in banks are carried at cost.
Investment and Mortgage-Backed Securities The Company classifies and accounts for debt and equity
securities as follows:
Held to Maturity Debt securities that management has the positive intent and ability to hold
until maturity are classified as held to maturity and are carried at their remaining unpaid
principal balance, net of unamortized premiums or unaccreted discounts. Premiums are amortized and
discounts are accreted using the interest method over the estimated remaining term of the
underlying security.
Available for Sale Debt and equity securities that will be held for indefinite periods of time,
including securities that may be sold in response to changes in market interest or prepayment
rates, needs for liquidity and changes in the availability of and the yield of alternative
investments are classified as available for sale. These assets are carried at fair value.
Unrealized gains and losses are excluded from earnings and are reported net of tax in other
comprehensive income. Realized gains and losses on the sale of investment securities are recorded
as of the trade date, reported in the consolidated statement of income and determined using the
amortized cost of the specific security sold.
For all securities that are in an unrealized loss position for an extended period of time and for
all securities whose fair value is significantly below amortized cost, the Company performs an
evaluation of the specific events attributable to the market decline of the security. The Company
considers the length of time and extent to which the securitys fair value has been below cost as
well as the general market conditions, industry
47
characteristics, and the fundamental operating
results of the issuer to determine if the decline is other-than-temporary. The Company also
considers as part of the evaluation its intent and ability to hold the security and
whether it is more likely than not that it will be required to sell the security before its fair
value has recovered to a level at least equal to the amortized cost. When the Company determines
that a securitys unrealized loss is other-than-temporary, an impairment loss is recognized in the
period in which the decline in value is determined to be other-than-temporary.
Loans The Company grants commercial, mortgage and consumer loans to customers. A substantial
portion of the loan portfolio is represented by mortgage loans throughout southeastern
Pennsylvania. The ability of the Companys debtors to honor their contracts is dependent upon the
general economic conditions in this area.
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for
charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.
Interest Income on Loans Interest income is accrued on the unpaid principal balance. Interest
on loans is recognized as income when earned. The accrual of interest on mortgage loans is
discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier
date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is
reversed against interest income. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Deferred Loan Fees Loan origination fees, net of certain direct origination costs, are deferred
and the balance is amortized to income as an adjustment over the life of the loan using the
interest method.
Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan losses are charged
against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. An allowance for loan losses is
maintained at a level that management considers adequate to provide for losses based upon
evaluation of known and inherent risks in the loan portfolio. The loan loss reserves are
established as an allowance for estimated losses based on the probable losses of the loan
portfolio. In assessing risk, management considers historical experience, volume and composition of
lending conducted by the Company, industry standards, status of nonperforming loans, general
economic conditions as they relate to the Companys market area, and other factors related to the
collectibility of the Companys loan portfolio.
The allowance for loan losses consists of three elements: (1) specific allowances for impaired
loans; (2) a general valuation allowance on all classified loans which are not impaired; and (3) a
general valuation allowance on the remainder of the loan portfolio. This is consistent with the
regulatory method of classifying reserves. Although the amount of each element of the allowance is
determined separately, the entire allowance for loan losses is available for the entire portfolio.
An allowance for impaired loans is established in the amounts by which the discounted cash flows
(or collateral value or observable market price) are lower than the carrying value of the loan. A
general allowance is established for classified loans that are not impaired. These loans are
segregated by loan category, and allowance percentages are assigned to each category based on
inherent losses associated with each type of lending and consideration that these loans, in the
aggregate, represent an above-average credit risk and that more of these loans will prove to be
uncollectible compared to loans in the general portfolio.
The general allowance for loans that are not classified is established to recognize the inherent
losses associated with lending activities, but which, unlike specific allowances, has not been
allocated to particular problem assets. This general valuation allowance is determined by
segregating non-classified loans by loan
48
category and assigning allowance percentages to each
category. The allowance percentages have been derived using percentages commonly applied under the
regulatory framework for the Company and similarly sized institutions. The percentages are adjusted
for significant factors that, in managements judgment, could affect the collectibility of the
portfolio as of the evaluation date. These significant factors may include changes in
lending policies and procedures, changes in existing general economic and business conditions
affecting our primary lending areas, credit quality trends, collateral value, loan volumes and
concentrations, seasoning of the loan portfolio, loss experience in particular segments of the
portfolio, duration of the current business cycle, and bank regulatory examination results. The
applied loss factors are reevaluated monthly to ensure their relevance in the current economic
environment.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial and construction loans by either the present value of expected future cash
flows discounted at the loans effective interest rate, the loans obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balances homogenous loans are collectively evaluated for impairment.
Accordingly, the Corporation does not separately identify individual consumer and residential loans
for impairment disclosures, unless such loans are the subject of a restructuring agreement.
Foreclosed Real Estate Real estate acquired through, or in lieu of, loan foreclosures are carried
at the fair value of the property, based on an appraisal less cost to sell. Costs relating to the
development and improvement of the property are capitalized, and those relating to holding the
property are charged to expense. The Company had foreclosed real estate of $186,000 and $747,000 as
of September 30, 2010 and 2009, respectively.
Office Properties and Equipment Land is carried at cost. Office properties and equipment are
recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line
method over the expected useful lives of the assets that range from four to fifty years. The costs
of maintenance and repairs are expensed as they are incurred, and renewals and betterments are
capitalized.
Federal Home Loan Bank Stock Federal law requires a member institution of the Federal Home Loan
Bank (FHLB) to hold stock of its district FHLB according to a predetermined formula. The restricted
stock is carried at cost. In December 2008, the FHLB of Pittsburgh notified member banks that it
was suspending dividend payments and the repurchase of capital stock.
Managements determination of whether these investments are impaired is based on their assessment
of the ultimate recoverability of their cost rather than by recognizing temporary declines in
value. The determination of whether a decline affects the ultimate recoverability of their cost is
influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as
compared to the capital stock amount for the FHLB and the length of time this situation has
persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level
of such payments in relation to the operating performance of the FHLB, and (3) the impact of
legislative and regulatory changes on institutions and, accordingly, on the customer base of the
FHLB.
Management believes no impairment charge is necessary related to the FHLB or restricted stock
as of September 30, 2010.
49
Cash Surrender Value Of Bank Owned Life Insurance (BOLI) The Bank funded the purchase of
insurance policies on the lives of officers and employees of the Bank. The Company has recognized
any increase in cash surrender value of life insurance, net of insurance costs, in the consolidated
statements of income as income on BOLI. The cash surrender value of the insurance policies is
recorded as an asset in other assets in the consolidated statements of financial condition and
amounted to $13,920,000 and $13,408,000 at September 30, 2010 and 2009, respectively.
Income Taxes Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company and its subsidiary file a consolidated Federal
income tax return.
The Company analyzes each tax position taken in its tax returns and determines the likelihood that
the position will be realized. Only tax positions that are more likely than not to be realized
can be recognized in the Companys financial statements. For tax positions that do not meet this
recognition threshold, the Company will record an unrecognized tax benefit for the difference
between the position taken on the tax return and the amount recognized in the financial statements.
The Company does not have any material unrecognized tax benefits or accrued interest or penalties
at September 30, 2010 and 2009, or during the years then ended. No unrecognized tax benefits are
expected to arise within the next twelve months. The Companys policy is to account for interest
as a component of interest expense and penalties as a component of other expenses. The Company and
its subsidiaries are subject to U.S. Federal income tax as well as income tax of the State of
Pennsylvania. The Company is no longer subject to examination by taxing authorities for the years
before October 1, 2006.
Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company (2) the transferee obtains the
right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.
Treasury Stock The Company records treasury stock purchases at cost. Gains and losses on
subsequent reissuance of shares are credited or charged to additional paid-in capital using the
average-cost method.
Accounting for Stock Options The Company currently has several stock option plans in place for
employees and directors of the Company. The Company recognizes the cost of employee services
received in exchange for an award of equity investment based on grant-date fair value of the award.
That cost will be recognized over the period during which an employee is required to provide
service in exchange for the award. Stock-based compensation expense related to stock options for
the years ended September 30, 2010 and 2009 was $167,000 and $133,000, respectively. The tax
benefit recognized related to the compensation expense for the years ended September 30, 2010 and
2009 was $18,000 and $14,000, respectively.
The weighted average fair value of options granted in the years ended September 30, 2010 and 2009
was $1.65 and $1.43, respectively, and was estimated at the date of grant using a Binomial Option
Pricing Model with the following weighted-average assumptions:
50
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
Risk free interest rate of return |
|
|
2.88 |
% |
|
|
3.20 |
% |
Expected option life |
|
84 months |
|
|
84 months |
|
Expected volatility |
|
|
20 |
% |
|
|
17 |
% |
Expected dividends |
|
|
5.8 |
% |
|
|
5.4 |
% |
The expected volatility is based on historic volatility. The risk-free interest rates for
periods within the contractual life of the awards are based on the U.S. Treasury yield curve in
effect at the time of the grant. The expected life is based on historical exercise experience.
The dividend yield assumption is based on the Companys history and expectation of dividend
payouts.
Earnings Per Share Basic earnings per common share is computed based on the weighted average
number of shares outstanding. Diluted earnings per share is computed based on the weighted average
number of shares outstanding, increased by additional common shares that would have been
outstanding if dilutive potential common shares had been issued. Potential common shares that may
be issued by the Company relate solely to outstanding stock options, and are determined using the
treasury stock method. The weighted average shares outstanding used to calculate earnings per
share were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
Weighted average shares outstanding basic |
|
|
3,658,300 |
|
|
|
3,598,662 |
|
Increase in shares due to dilutive stock options |
|
|
26,704 |
|
|
|
11,907 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
3,685,004 |
|
|
|
3,610,569 |
|
|
|
|
|
|
|
|
Other Comprehensive Income The Company presents, as a component of comprehensive income,
amounts from transactions and other events, which are currently excluded from the statement of
income and are recorded directly to stockholders equity. The Companys other comprehensive income
consists of net unrealized holding gains or losses on securities available-for-sale, net of income
taxes.
Subsequent Events The Company has evaluated events and transactions occurring subsequent to the
balance sheet date of September 30, 2010 for items that should potentially be recognized or
disclosed in these financial statements. The evaluation was conducted through the date these
financial statements were issued.
Reclassifications Certain amounts in the prior periods financial statements have been
reclassified to conform with the current year classifications. The reclassifications had no effect
on net income.
Recent Accounting Pronouncements In October 2009, the FASB issued Accounting Standards Update
(ASU) 2009-16, Transfers and Servicing (Topic 860) Accounting for Transfers of Financial Assets.
This Update amends the Accounting Standards (Codification) for the issuance of FASB Statement No.
166, Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140. The
amendments in this Update improve financial reporting by eliminating the exceptions for qualifying
special-purpose entities from the consolidation guidance and the exception that permitted sale
accounting for certain mortgage securitizations when a transferor has not surrendered control over
the transferred financial assets. In addition, the amendments require enhanced disclosures about
the risks that a transferor continues to be exposed to because of its continuing involvement in
transferred financial assets. Comparability and consistency in accounting for transferred
financial assets will also be improved through clarifications of the requirements for isolation and
limitations on portions of financial assets that are eligible for sale accounting. This Update is
effective at the start of a reporting entitys first fiscal year beginning after November 15, 2009.
Early application is not permitted. We do not expect the adoption of this new guidance to have an
impact on our financial position or result of operations.
In October 2009, the FASB issued ASU 2009-17, Consolidations (Topic 810) Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities. This Update amends
the Codification for
the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). The
amendments in this Update replace the quantitative-based risks and rewards calculation for
determining which reporting
51
entity, if any, has a controlling financial interest in a variable interest entity with an approach
focused on identifying which reporting entity has the power to direct the activities of a variable
interest entity that most significantly impact the entitys economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An
approach that is expected to be primarily qualitative will be more effective for identifying which
reporting entity has a controlling financial interest in a variable interest entity. The
amendments in this Update also require additional disclosures about a reporting entitys
involvement in variable interest entities, which will enhance the information provided to users of
financial statements. This Update is effective at the start of a reporting entitys first fiscal
year beginning after November 15, 2009. Early application is not permitted. We do not expect the
adoption of this new guidance to have an impact on our financial position or result of operations.
The FASB has issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth in Codification
Subtopic 820-10. The FASBs objective is to improve these disclosures and, thus, increase the
transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10
to now require:
|
|
|
A reporting entity to disclose separately the amounts of significant transfers in and
out of Level 1 and Level 2 fair value measurements and describe the reasons for the
transfers; and |
|
|
|
In the reconciliation for fair value measurements using significant unobservable inputs,
a reporting entity should present separately information about purchases, sales, issuances,
and settlements. |
In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:
|
|
|
For purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the appropriate
classes of assets and liabilities; and |
|
|
|
A reporting entity should provide disclosures about the valuation techniques and inputs
used to measure fair value for both recurring and nonrecurring fair value measurements. |
ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. Early
adoption is permitted. We do not expect the adoption of this standard to have an impact on our
financial position or results of operations.
ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan Is Part of a Pool
That Is Accounted for as a Single Asset, codifies the consensus reached in EITF Issue No. 09-I,
Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single
Asset. The amendments to the Codification provide that modifications of loans that are accounted
for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool
even if the modification of those loans would otherwise be considered a troubled debt
restructuring. An entity will continue to be required to consider whether the pool of assets in
which the loan is included is impaired if expected cash flows for the pool change. ASU 2010-18 does
not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for
within pools. Loans accounted for individually under Subtopic 310-30 continue to be subject to the
troubled debt restructuring accounting provisions within Subtopic 310-40.
ASU 2010-18 is effective prospectively for modifications of loans accounted for within pools under
Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.
Early application is permitted. Upon initial adoption of ASU 2010-18, an entity may make a one-time
election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be
applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to
subsequent acquisitions of loans with credit
52
deterioration. The Company does not expect the adoption of this new guidance to have an impact on
our financial position and results of operations.
ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses, will help investors assess the credit risk of a companys
receivables portfolio and the adequacy of its allowance for credit losses held against the
portfolios by expanding credit risk disclosures.
This ASU requires more information about the credit quality of financing receivables in the
disclosures to financial statements, such as aging information and credit quality indicators. Both
new and existing disclosures must be disaggregated by portfolio segment or class. The
disaggregation of information is based on how a company develops its allowance for credit losses
and how it manages its credit exposure.
The amendments in this update apply to all public and nonpublic entities with financing
receivables. Financing receivables include loans and trade accounts receivable. However,
short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair
value, and debt securities are exempt from these disclosure amendments.
The effective date of ASU 2010-20 differs for public and nonpublic companies. For public
companies, the amendments that require disclosures as of the end of a reporting period are
effective for periods ending on or after December 15, 2010. The amendments that require
disclosures about activity that occurs during a reporting period are effective for periods
beginning on or after December 15, 2010. For nonpublic companies, the amendments are effective for
annual reporting periods ending on or after December 15, 2011. The Company is continuing to
evaluate the impact that the adoption of this new guidance will have on our financial statement
disclosures.
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and fair value of the Companys securities gross unrealized gains and losses, as
of September 30, 2010 and 2009 are as follows.
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Equity securities |
|
$ |
355 |
|
|
$ |
42 |
|
|
$ |
(54 |
) |
|
$ |
343 |
|
Collateralized mortgage obligations |
|
|
785 |
|
|
|
24 |
|
|
|
|
|
|
|
809 |
|
U.S. Government money market funds |
|
|
20,261 |
|
|
|
|
|
|
|
|
|
|
|
20,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available for Sale Securities |
|
$ |
21,401 |
|
|
$ |
66 |
|
|
$ |
(54 |
) |
|
$ |
21,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Equity securities |
|
$ |
355 |
|
|
$ |
48 |
|
|
$ |
(92 |
) |
|
$ |
311 |
|
Collateralized mortgage obligations |
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
785 |
|
U.S. Government money market funds |
|
|
6,417 |
|
|
|
|
|
|
|
|
|
|
|
6,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available for Sale Securities |
|
$ |
7,557 |
|
|
$ |
48 |
|
|
$ |
(92 |
) |
|
$ |
7,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Mortgage-backed securities- U.S.
Government Sponsored
Enterprises (GSES) |
|
$ |
110,732 |
|
|
$ |
6,755 |
|
|
$ |
|
|
|
$ |
117,487 |
|
Collateralized mortgage obligations |
|
|
20,087 |
|
|
|
193 |
|
|
|
(37 |
) |
|
|
20,243 |
|
Municipal bonds |
|
|
16,462 |
|
|
|
773 |
|
|
|
(47 |
) |
|
|
17,188 |
|
U.S. Government Agencies |
|
|
108,807 |
|
|
|
768 |
|
|
|
(45 |
) |
|
|
109,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held to Maturity Securities |
|
$ |
256,088 |
|
|
$ |
8,489 |
|
|
$ |
(129 |
) |
|
$ |
264,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In Thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Mortgage-backed securities- U.S.
Government Sponsored
Enterprises (GSEs) |
|
$ |
150,748 |
|
|
$ |
6,997 |
|
|
$ |
|
|
|
$ |
157,745 |
|
Collateralized mortgage obligations |
|
|
11,682 |
|
|
|
55 |
|
|
|
(272 |
) |
|
|
11,465 |
|
Municipal bonds |
|
|
22,592 |
|
|
|
878 |
|
|
|
(153 |
) |
|
|
23,317 |
|
U.S. Government Agencies |
|
|
82,602 |
|
|
|
613 |
|
|
|
( 358 |
) |
|
|
82,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held to Maturity Securities |
|
$ |
267,624 |
|
|
$ |
8,543 |
|
|
$ |
(783 |
) |
|
$ |
275,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of securities with unrealized losses, aggregated by category, at September 30, 2010
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
|
|
|
Total |
|
(In Thousands) |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized
Losses |
|
|
Total
Fair Value |
|
|
Unrealized Losses |
|
Collateralized mortgage obligations |
|
$ |
8,262 |
|
|
$ |
(4 |
) |
|
$ |
1,530 |
|
|
$ |
(33 |
) |
|
$ |
9,792 |
|
|
$ |
(37 |
) |
Municipal bonds |
|
|
378 |
|
|
|
|
|
|
|
1,494 |
|
|
|
(47 |
) |
|
|
1,872 |
|
|
|
(47 |
) |
U.S. Government Agencies |
|
|
6,955 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
6,955 |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal debt securities |
|
|
15,595 |
|
|
|
(49 |
) |
|
|
3,024 |
|
|
|
(80 |
) |
|
|
18,619 |
|
|
|
(129 |
) |
Equity securities |
|
|
55 |
|
|
|
(3 |
) |
|
|
160 |
|
|
|
(51 |
) |
|
|
215 |
|
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
15,650 |
|
|
$ |
(52 |
) |
|
$ |
3,184 |
|
|
$ |
(131 |
) |
|
$ |
18,834 |
|
|
$ |
(183 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010, debt securities in a gross unrealized loss position consisted of 10
securities that at such date had an aggregate depreciation of 0.68% from the Companys amortized
cost basis. Management believes that the estimated fair value of the securities disclosed above is
primarily dependent upon the movement in market interest rates. Management evaluated the length of
time and the extent to which the fair value has been less than cost; the financial condition and
near term prospects of the issuer, including any specific events which may influence the operations
of the issuer. The Company has the ability and intent to hold these securities until maturity and
the Company does not believe it will be required to sell such securities prior to the recovery of
the amortized cost basis. Management does not believe any individual unrealized loss as of
September 30, 2010 represents an other-than-temporary impairment.
As of September 30, 2010, there were four equity securities in an unrealized loss position.
Management evaluated the length of time and the extent to which the market value has been less than
cost; the financial condition and near term prospects of the issuer, including any specific events
which may influence the operations of the issuer such as changes in technology that may impair the
earnings potential of the investment or the discontinuance of a segment of the business that may
effect the future earnings potential. The Company has the ability and intent to hold these
securities until the anticipated recovery of fair value occurs. Management does not believe any
individual unrealized loss as of September 30, 2010 represents an other-than-temporary impairment.
There were no impairment charges on equity securities, during the year ended September 30, 2010.
During the year ended September 30, 2009, the Company recognized an impairment charge $449,000 on
four securities.
54
A summary of securities with unrealized losses, aggregated by category, at September 30, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or Longer |
|
|
|
|
|
Total |
|
(In Thousands) |
|
Fair Value |
|
|
Unrealized
Losses |
|
|
Fair Value |
|
|
Unrealized
Losses |
|
|
Total
Fair Value |
|
|
Unrealized
Losses |
|
Collateralized mortgage obligations |
|
$ |
2,264 |
|
|
$ |
(49 |
) |
|
$ |
6,576 |
|
|
$ |
(223 |
) |
|
$ |
8,840 |
|
|
$ |
(272 |
) |
Municipal bonds |
|
|
1,000 |
|
|
|
(3 |
) |
|
|
3,036 |
|
|
|
(150 |
) |
|
|
4,036 |
|
|
|
(153 |
) |
U.S. Government Agencies |
|
|
29,637 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
29,637 |
|
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal debt securities |
|
|
32,901 |
|
|
|
(410 |
) |
|
|
9,612 |
|
|
|
(373 |
) |
|
|
42,513 |
|
|
|
(783 |
) |
Equity Securities |
|
|
104 |
|
|
|
(43 |
) |
|
|
74 |
|
|
|
(49 |
) |
|
|
178 |
|
|
|
(92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
33,005 |
|
|
$ |
(453 |
) |
|
$ |
9,686 |
|
|
$ |
(422 |
) |
|
$ |
42,691 |
|
|
$ |
(875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the stated maturities of the investment and mortgage-backed
securities at September 30, 2010. Money market funds and equity securities are not included in the
table based on lack of maturity.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
Amortized |
|
|
|
|
(In Thousands) |
|
Cost |
|
|
Fair Value |
|
Available for sale: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
Due after on year through five years |
|
|
|
|
|
|
|
|
Due after five years through ten years |
|
|
|
|
|
|
|
|
Due after ten years |
|
|
785 |
|
|
|
809 |
|
|
|
|
|
|
|
|
Total |
|
$ |
785 |
|
|
$ |
809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
16,627 |
|
|
$ |
16,685 |
|
Due after on year through five years |
|
|
27,709 |
|
|
|
28,448 |
|
Due after five years through ten years |
|
|
56,068 |
|
|
|
57,961 |
|
Due after ten years |
|
|
155,684 |
|
|
|
161,354 |
|
|
|
|
|
|
|
|
Total |
|
$ |
256,088 |
|
|
$ |
264,448 |
|
|
|
|
|
|
|
|
There were no sales of investment or mortgage-backed securities during the year ended
September 30, 2010. Proceeds for the sale of investments securities available for sale during the
year ended September 30, 2009 were $83,000, result in a gross loss of $14,000 and an after tax loss
of $9,000. Proceeds from the sales of mortgage-backed securities held to maturity during the year
ended September 30, 2009 were $1,365,000 resulting in a gross gain of $9,000 and an after tax gain
of $6,000. The Company sold securities held to maturity in accordance with provisions of FASB ACS
Topic 320, Investments-Debt and Equity Securities allowing such securities to be sold if
principal reductions on such securities were at least 85%.
Certain of the Companys investment securities, totaling $10.3 million and $12.4 million at
September 30, 2010 and 2009, respectively, were pledged as collateral to secure deposit sweep
accounts and public deposits as required or permitted by law.
55
4. LOANS RECEIVABLE
Loans receivable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
Residential Mortgages |
|
$ |
337,888 |
|
|
$ |
345,152 |
|
Construction |
|
|
4,752 |
|
|
|
2,912 |
|
Lot Loans |
|
|
1,986 |
|
|
|
1,141 |
|
Home Equity |
|
|
90,511 |
|
|
|
92,343 |
|
Commercial Mortgages |
|
|
75,450 |
|
|
|
54,341 |
|
Commercial Business Loans |
|
|
4,327 |
|
|
|
4,982 |
|
Consumer Non-Real Estate |
|
|
1,980 |
|
|
|
2,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
516,894 |
|
|
|
503,113 |
|
Undisbursed portion of loans in process |
|
|
(3,426 |
) |
|
|
(1,873 |
) |
Deferred loan fees |
|
|
(871 |
) |
|
|
(755 |
) |
Allowance for loan losses |
|
|
(2,504 |
) |
|
|
(2,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable net |
|
$ |
510,093 |
|
|
$ |
498,391 |
|
|
|
|
|
|
|
|
At September 30, 2010 and 2009, the Company was servicing loans for others amounting to
approximately $1,762,000 and $2,550,000, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to
investors and foreclosure processing. Loan servicing income is recognized over the life of the
loan. In connection with the loans serviced for others, the Company held borrowers escrow
balances of approximately $7,000 and $10,000 at September 30, 2010 and 2009, respectively.
The Bank has had, and may be expected to have in the future, loan transactions in the ordinary
course of business with directors, officers, principal stockholders, their immediate families and
affiliated companies (commonly referred to as related parties), on the same terms including
interest rates and collateral, as those prevailing at the time for comparable transactions with
others. Loans to related parties at September 30, 2010 and 2009, were approximately $784,000 and
$803,000, respectively. Additional loans and repayments for the year ended September 30, 2010, were
$25,000 and $44,000, respectively.
The following schedule summarizes the changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
Balance, beginning of year |
|
$ |
2,094 |
|
|
$ |
1,988 |
|
Provision of loan losses |
|
|
600 |
|
|
|
400 |
|
Recoveries |
|
|
9 |
|
|
|
27 |
|
Charge offs |
|
|
(199 |
) |
|
|
(321 |
) |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
2,504 |
|
|
$ |
2,094 |
|
|
|
|
|
|
|
|
The provision for loan losses charged to expense is based upon past loss experiences and an
evaluation of potential losses in the current loan portfolio, including the evaluation of impaired
loans. A loan is considered to be impaired when, based upon current information and events, it is
probable that the Company will be unable to collect all amounts due according to the contractual
terms of the loan. An insignificant delay or insignificant shortfall in amount of payments does
not necessarily result in the loan being identified as impaired. For this purpose, delays less
than 90 days are considered to be insignificant. Impairment losses are included in the provision
for loan losses. Impaired loans disclosures do not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment, except for those loans
restructured under a troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans. At September 30, 2010 and 2009, the
Company had impaired loans of $312,000 and $0, respectively, with a related allowance for loan
losses of $126,000 and $0, respectively. At September 30, 2010 and 2009, the Company had
non-accrual loans of $2,138,000 and $335,000, respectively. At September 30, 2010 and 2009, the
Company had loans in excess of 90 days delinquent and still accruing interest in the amount of
$147,000 and $1,565,000, respectively.
56
5. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classifications as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
Land |
|
$ |
3,277 |
|
|
$ |
1,159 |
|
Buildings |
|
|
10,152 |
|
|
|
7,349 |
|
Branch office in construction |
|
|
161 |
|
|
|
3,367 |
|
Furniture, fixtures and equipment |
|
|
5,025 |
|
|
|
4,499 |
|
Automobiles |
|
|
18 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,633 |
|
|
|
16,391 |
|
Less accumulated depreciation |
|
|
(6,475 |
) |
|
|
(5,905 |
) |
|
|
|
|
|
|
|
Net |
|
$ |
12,158 |
|
|
$ |
10,486 |
|
|
|
|
|
|
|
|
Depreciation expense for the years ended September 30, 2010 and 2009 amounted to approximately
$570,000 and $469,000, respectively.
6. DEPOSITS
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
(Dollars in Thousands) |
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Non-interest bearing checking
Accounts |
|
$ |
17,015 |
|
|
|
0.00 |
% |
|
$ |
12,364 |
|
|
|
0.00 |
% |
NOW accounts |
|
|
21,320 |
|
|
|
0.06 |
|
|
|
16,818 |
|
|
|
0.12 |
|
Interest bearing checking accounts |
|
32,577 |
|
|
|
0.12 |
|
|
|
29,282 |
|
|
|
0.44 |
|
Money market deposit accounts |
|
|
136,079 |
|
|
|
0.52 |
|
|
|
77,432 |
|
|
|
1.12 |
|
Passbook and club accounts |
|
|
3,739 |
|
|
|
0.81 |
|
|
|
2,940 |
|
|
|
0.91 |
|
Certificate of deposit accounts |
|
317,370 |
|
|
|
2.31 |
|
|
|
327,765 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
$ |
528,100 |
|
|
|
1.54 |
% |
|
$ |
466,601 |
|
|
|
2.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010, the amounts of scheduled maturities of certificate of deposit accounts
were as follows:
|
|
|
|
|
|
|
|
|
For the year ended September 30: |
|
|
2011 |
|
|
$ |
158,254 |
|
|
|
|
2012 |
|
|
|
57,366 |
|
|
|
|
2013 |
|
|
|
35,178 |
|
|
|
|
2014 |
|
|
|
51,452 |
|
|
|
|
2015 |
|
|
|
15,120 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
317,370 |
|
|
|
|
|
|
|
|
|
The aggregate amount of certificate accounts in denominations of $100,000 or more at September
30, 2010 and 2009 amounted to approximately $59.2 million and $60.1 million, respectively. On
October 3, 2008, FDIC deposit insurance temporarily increased from $100,000 to $250,000 per
depositor through December 31, 2013 and was permanently increased to $250,000 in July 2010.
57
Interest expense on savings deposits is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In Thousands) |
|
2010 |
|
|
2009 |
|
NOW, interest-bearing checking and MMDA accounts |
|
$ |
1,363 |
|
|
$ |
961 |
|
Passbook and club accounts |
|
|
42 |
|
|
|
172 |
|
Certificate accounts |
|
|
7,629 |
|
|
|
9,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,034 |
|
|
$ |
10,957 |
|
|
|
|
|
|
|
|
7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The Company has a line of credit with the Federal Home Loan Bank of which $0 of the available $75.0
million was used at September 30, 2010 and 2009. The average balance outstanding on the line of
credit for the years ended September 30, 2010 and 2009 was $1.2 million and $13.3 million,
respectively. The maximum amount outstanding at any time for 2010 and 2009 was $10 million and
$37.8 million, respectively. The weighted average interest rate during 2010 and 2009 was 0.71% and
0.70%.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Amount |
|
|
Average Rate |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in Thousands) |
|
FHLB long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate advances maturing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
$ |
15,923 |
|
|
|
|
|
|
|
4.37 |
% |
|
|
|
|
2012 |
|
|
54,440 |
|
|
|
|
|
|
|
4.50 |
% |
|
|
|
|
2013 |
|
|
20,022 |
|
|
|
|
|
|
|
3.64 |
% |
|
|
|
|
2014 |
|
|
13,729 |
|
|
|
|
|
|
|
3.33 |
% |
|
|
|
|
2015 |
|
|
18,356 |
|
|
|
|
|
|
|
3.83 |
% |
|
|
|
|
2016 |
|
|
10,000 |
|
|
|
|
|
|
|
4.71 |
% |
|
|
|
|
2017 |
|
|
35,000 |
|
|
|
|
|
|
|
4.57 |
% |
|
|
|
|
Maturing after 9/30/2017: |
|
|
54,577 |
|
|
|
|
|
|
|
4.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLB long-term debt |
|
|
222,047 |
|
|
|
259,046 |
|
|
|
4.20 |
% |
|
|
4.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate advances maturing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
15,000 |
|
|
|
|
|
|
|
4.80 |
% |
|
|
|
|
Maturing after 9/30/2015: |
|
|
25,000 |
|
|
|
|
|
|
|
4.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term debt fixed |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
4.60 |
% |
|
|
4.60 |
% |
Adjustable long-term debt maturing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing after 9/30/2015: |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
5.99 |
% |
|
|
5.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term debt |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
|
4.88 |
% |
|
|
4.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Debt |
|
$ |
272,047 |
|
|
$ |
309,046 |
|
|
|
4.33 |
% |
|
|
4.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank (FHLB) advances are collateralized by Federal Home Loan Bank stock and
substantially all first mortgage loans. In addition, there are four long-term advances from other
financial institutions that are secured by investment and mortgage-backed securities totaling $50
million.
58
8. INCOME TAXES
The Company computes its reserve for bad debts under the specific charge-off method. The bad debt
deduction allowable under this method is available to large banks with assets greater than $500
million. Generally, this method allows the Company to deduct an annual addition to the reserve for
bad debts equal to its net charge-offs. Retained earnings at September 30, 2010 and 2009 includes
approximately $1,325,000 representing bad debt deductions for which no deferred income taxes have
been provided.
The expense for income taxes differs from that computed at the statutory federal corporate tax rate
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
|
of Pretax |
|
|
|
|
|
|
of Pretax |
|
(Dollars in Thousands) |
|
Amount |
|
|
Income |
|
|
Amount |
|
|
Income |
|
At statutory rate |
|
$ |
2,365 |
|
|
|
34.0 |
% |
|
$ |
2,041 |
|
|
|
34.0 |
% |
Adjustments resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt income |
|
|
(513 |
) |
|
|
(7.4 |
) |
|
|
(585 |
) |
|
|
(9.8 |
) |
Other |
|
|
96 |
|
|
|
1.4 |
|
|
|
(171 |
) |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense per consolidated
statements of income |
|
$ |
1,948 |
|
|
|
28.0 |
% |
|
$ |
1,285 |
|
|
|
21.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Current |
|
$ |
1,873 |
|
|
$ |
1,417 |
|
Deferred |
|
|
75 |
|
|
|
(132 |
) |
|
|
|
|
|
|
|
Total Income Tax Expense |
|
$ |
1,948 |
|
|
$ |
1,285 |
|
|
|
|
|
|
|
|
Items that gave rise to significant portions of the deferred tax accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(In thousands) |
|
2010 |
|
|
2009 |
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Deferred Loan Fees |
|
$ |
3 |
|
|
$ |
20 |
|
Allowance for Loan Losses |
|
|
851 |
|
|
|
712 |
|
Unrealized loss on investment securities |
|
|
|
|
|
|
15 |
|
Non-deductible capital losses |
|
|
47 |
|
|
|
89 |
|
Securities impairment |
|
|
156 |
|
|
|
156 |
|
Other |
|
|
69 |
|
|
|
29 |
|
|
|
|
|
|
|
|
Sub-Total |
|
|
1,126 |
|
|
|
1,021 |
|
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Unrealized gain on investment securities |
|
|
(4 |
) |
|
|
|
|
Properties and equipment |
|
|
(740 |
) |
|
|
(545 |
) |
|
|
|
|
|
|
|
Sub-Total |
|
|
(744 |
) |
|
|
( 545 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
382 |
|
|
$ |
476 |
|
|
|
|
|
|
|
|
59
9. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the
federal Banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Companys financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Banks assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital
amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total Tier 1 capital (as defined in the regulations) to risk weighted assets (as
defined), and of Tier 1 capital (as defined) to assets (as defined). Management believes, as of
September 30, 2010, that the Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 2010, the most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have changed the Banks
category.
The Banks actual capital amounts and ratios are also presented in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Considered Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
|
For Capital |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Adequacy Purposes |
|
|
Action Provisions |
|
(Dollars in Thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
At September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to assets) |
|
$ |
53,330 |
|
|
|
6.19 |
% |
|
$ |
34,440 |
|
|
|
4.00 |
% |
|
$ |
43,050 |
|
|
|
5.00 |
% |
Tier 1 Capital (to risk weighted assets) |
|
|
53,330 |
|
|
|
11.35 |
% |
|
|
18,799 |
|
|
|
4.00 |
% |
|
|
28,199 |
|
|
|
6.00 |
% |
Total Capital (to risk weighted assets) |
|
|
55,834 |
|
|
|
11.88 |
% |
|
|
37,599 |
|
|
|
8.00 |
% |
|
|
46,999 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to assets) |
|
$ |
50,149 |
|
|
|
6.06 |
% |
|
$ |
33,103 |
|
|
|
4.00 |
% |
|
$ |
41,459 |
|
|
|
5.00 |
% |
Tier 1 Capital (to risk weighted assets) |
|
|
50,149 |
|
|
|
11.26 |
% |
|
|
17,809 |
|
|
|
4.00 |
% |
|
|
26,714 |
|
|
|
6.00 |
% |
Total Capital (to risk weighted assets) |
|
|
52,242 |
|
|
|
11.73 |
% |
|
|
35,618 |
|
|
|
8.00 |
% |
|
|
44,523 |
|
|
|
10.00 |
% |
The Companys capital ratios are not significantly different than the Banks disclosed above.
10. RETIREMENT SAVINGS PLANS
The Company has an employee stock ownership pension plan and a qualified 401 (k) retirement savings
plan covering all full-time employees meeting certain eligibility requirements. Contributions for
both plans are at the discretion of the Companys Board of Directors. Compensation expense related
to the plans was $398,000 and $362,000 for the years ended September 30, 2010 and 2009,
respectively.
11. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
In January 1996, the stockholders approved the 1995 Stock Option Plan. This plan consists of two
parts: Plan I incentive stock options and Plan II compensatory stock options.
In January 2001, the stockholders approved the 2000 Stock Option Plan. This plan consists of two
parts: Plan I incentive stock options and Plan II compensatory stock options.
60
In January 2006, the stockholders approved the 2005 Stock Option Plan. This plan consists of
two parts: Plan I incentive stock options and Plan II compensatory stock options.
In January 2010, the stockholders approved the 2009 Stock Option Plan. This plan consists of two
parts: Plan I incentive stock options and Plan II compensatory stock options. There are
267,122 options remaining for grant in this plan.
A summary of transactions under these plans follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Options |
|
|
Price |
|
|
Options |
|
|
Price |
|
Outstanding, beginning of year |
|
|
404,021 |
|
|
$ |
14.76 |
|
|
|
345,909 |
|
|
$ |
14.97 |
|
Exercised |
|
|
(14,283 |
) |
|
|
9.54 |
|
|
|
(15,250 |
) |
|
|
9.22 |
|
Canceled |
|
|
(417 |
) |
|
|
13.13 |
|
|
|
(1,250 |
) |
|
|
13.12 |
|
Granted |
|
|
110,989 |
|
|
|
13.29 |
|
|
|
74,612 |
|
|
|
12.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
500,310 |
|
|
$ |
14.59 |
|
|
|
404,021 |
|
|
$ |
14.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year |
|
|
155,932 |
|
|
$ |
15.09 |
|
|
|
150,816 |
|
|
$ |
14.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the exercise price ranges at September 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Weighted |
|
|
Weighted Average |
|
Number of |
|
Price |
|
|
Average Remaining |
|
|
Exercise Price |
|
Option Shares |
|
Range |
|
|
Contractual Life |
|
|
per Share |
|
18,549 |
|
|
8.10-12.00 |
|
|
|
1.56 |
|
|
$ |
9.79 |
|
289,678 |
|
|
12.01-16.00 |
|
|
|
7.76 |
|
|
|
12.88 |
|
192,083 |
|
|
16.01-18.00 |
|
|
|
5.08 |
|
|
|
17.63 |
|
|
|
|
|
|
|
|
|
|
|
500,310 |
|
$ |
8.10-18.00 |
|
|
|
6.50 |
|
|
$ |
14.59 |
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and 2009, the aggregate intrinsic value of options outstanding was
$579,000 and $332,000, respectively. At September 30, 2010 and 2009, the aggregate intrinsic value
of options exercisable was $181,000 and $167,000, respectively. For the years ended September 30,
2010 and 2009, the aggregate intrinsic value of options exercised was $66,000 and $70,000,
respectively.
The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the
amount by which the current market value of the underlying stock exceeds the exercise price of the
option) that would have been received by the option holder had all option holders exercised their
options on September 30, 2010. This amount changes based on changes in the market value of the
Companys common stock.
Stock based compensation expense related to stock options for the years ended September 30, 2010
and 2009 was $167,000, or $158,000 net of tax , and $133,000, or $126,000 net of tax, respectively.
As of September 30, 2010, there was approximately $237,000 of total unrecognized compensation cost
related to non-vested stock options under the plans.
The Company also has established an Employee Stock Purchase Plan (the Purchase Plan) whereby
employees may elect to make contributions to the Purchase Plan in an aggregate amount not less than
2% or more than 10% of such employees total compensation. These contributions would then be used
to purchase stock during an offering period determined by the Companys Salary and Benefits
Committee. The purchase price of the stock would be the lesser of 85% of the market price on the
first day or the last day of the offering period. During 2010 and 2009, no shares were issued to
employees, respectively. At September 30, 2010 and 2009, there were 53,583 shares available for
future purchase. The Company suspended participation in the Purchase Plan in March 2005 and the
plan is not currently active.
61
12. COMMITMENTS
At September 30, 2010, the Company had approximately $5.3 million in outstanding commitments to
originate mortgage loans, of which $4.9 million were at fixed rates ranging from 3.875% to 6.50%
and $384,000 were at adjustable rates at 5.00%. The unfunded line of credit commitments at
September 30, 2010 were $52.9 million. The Company had $8.7 million and $1.9 million of committed
commercial and consumer loans, respectively at September 30, 2010. In addition, the Company had
$6.6 million of unused commercial lines of credit at September 30, 2010. The amounts of
undisbursed portions of loans in process at September 30, 2010 were $2.9 million. The Company had
a total of $405,000 in standby letters of credit. Also, at September 30, 2010, the Company had no
outstanding futures or options positions.
The Company leases land for two of its branch offices. Minimum rental commitments for the next
five years at September 30, 2010, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
Rental Amount |
|
|
|
|
|
|
|
(In Thousands) |
|
|
|
|
2011 |
|
|
$ |
130 |
|
|
|
|
2012 |
|
|
|
135 |
|
|
|
|
2013 |
|
|
|
140 |
|
|
|
|
2014 |
|
|
|
138 |
|
|
|
|
2015 |
|
|
|
141 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
684 |
|
|
|
|
|
|
|
|
|
13. LEGAL CONTINGENCIES
Various legal claims also arise from time to time in the normal course of business which, in the
opinion of management, will have no material effect on the Companys consolidated financial
statements.
14. RESTRICTED RETAINED EARNINGS
At the time of conversion to a stock savings bank, in 1987, the Bank established a liquidation
account in an amount equal to the Banks net worth as reflected in the latest consolidated
statement of financial condition of the Bank contained in the offering circular utilized in the
conversion. The function of the liquidation account is to establish a priority on liquidation and,
except with respect to the payment of cash dividends on, or the re-purchase of, any of the common
stock by the Bank, the existence of the liquidation account will not operate to restrict the use or
application of any of the net worth accounts of the Bank. In the event of a complete liquidation
of the Bank (and only in such event), each eligible account holder will be entitled to receive a
pro rata distribution from the liquidation account, based on such holders proportionate amount of
the total current adjusted balances from deposit accounts then held by all eligible account
holders, before any liquidation distribution may be made with respect to stockholders. The
liquidation account was approximately $2,300,000 at September 30, 2010. Furthermore, the Company
may not repurchase any of its stock if the effect thereof would cause the Companys net worth to be
reduced below (i) the amount required for the liquidation account or (ii) the regulatory capital
requirements.
15. FAIR VALUE MEASUREMENTS AND DISCLOSURES
The Company uses fair value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. In accordance with the accounting guidance
adopted by the Company, effective October 1, 2008, the fair value of a financial instrument is the
price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is best determined
based upon quoted market prices. However, in many instances, there are no quoted market prices for
the Companys various financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumption used, including the discount rate and
estimates
62
of future cash flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price
in an orderly transaction (that is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market conditions. If there has been a
significant decrease in the volume and level of activity for the asset or liability, a change in
valuation technique or the use of multiple valuation techniques may be appropriate. In such
instances, determining the price at which willing market participants would transact at the
measurement date under current market conditions depends on the facts and circumstances and
requires the use of significant judgment. The fair value is determined at a reasonable point
within the range that is most representative of fair value under current market conditions.
The guidance 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 under 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 assets or liabilitys level within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by
level within the fair value hierarchy used at September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
(Level 3) |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Significant |
|
Description |
|
Total |
|
|
Identical Assets |
|
|
Inputs |
|
|
Unobservable Inputs |
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale |
|
$ |
20,604 |
|
|
$ |
20,604 |
|
|
$ |
|
|
|
$ |
|
|
Mortgage-backed securities available for sale |
|
|
809 |
|
|
|
|
|
|
|
809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,413 |
|
|
$ |
20,604 |
|
|
$ |
809 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale |
|
$ |
6,728 |
|
|
$ |
6,728 |
|
|
$ |
|
|
|
$ |
|
|
Mortgage-backed securities available for sale |
|
|
785 |
|
|
|
|
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,513 |
|
|
$ |
6,728 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers in and out of Level 1 and Level 2 fair value measurements for the year
ended September 30, 2010.
For assets measured at fair value on a non recurring basis, the fair value measurements by level
within the fair value hierarchy used at September 30, 2010 are as follows:
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
(Level 3) |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Significant |
|
Description |
|
September 30, 2010 |
|
|
Identical Assets |
|
|
Inputs |
|
|
Unobservable Inputs |
|
Impaired Loans |
|
$ |
186 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has no measured at fair value on a non-recurring basis at September 30, 2009.
The following valuation techniques were used to measure fair value of the Companys financial
instruments in the tables above.
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate
those assets fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity
(carried at amortized cost) 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 prices for the specific securities but rather by relying on the securities relationship to
other benchmark quoted prices.
Loans Receivable (Carried at Cost)
The fair values of loans are estimated using discounted cash flow analyses, using market rates at
the balance sheet 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 values.
Impaired loans are those loans which the Company has measured impairment generally based on
the fair value of the loans collateral. Fair value is generally determined base upon independent
third-party appraisals of the properties, or discounted cash flows based upon the expected
proceeds. These assets are included as Level 3 values, based upon the lowest level of input that
is significant to the fair value measurements. The fair value cost of the loan balance of $312,000
less their specific valuation allowances of $126,000.
Federal Home Loan Bank Stock (Carried at Cost)
The carrying amount of this restricted investment in bank stock approximates fair value, and
considers the limited marketability of such securities.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amount of accrued interest receivable and accrued interest payable approximates its
fair value.
Deposit Liabilities (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook
savings and 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 fixed-rate certificates of deposit
are estimated using a discounted cash
64
flow calculation that applies interest rates currently being
offered in the market on certificates to a schedule of an aggregated expected monthly maturities on
time deposits.
Borrowings (Carried at Cost)
Fair values of borrowings are estimated using discounted cash flow analysis, based on quoted prices
for new 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.
Off-Balance Sheet financial Instruments (Disclosed at Cost)
Fair values for the Companys off-balance sheet financial instruments (lending commitments and
letters of or edit based on fees currently charged in the market to enter into similar agreements,
taking into account, the remain terms of the agreements and the counterparties credit standing.
The fair value of these off-balance sheet finer instruments are not considered material as of
September 30, 2010.
The estimated fair value amounts have been determined by the Company using available market
information appropriate valuation methodologies. However, considerable judgment is necessarily
required to interpret the data to develop the estimates.
The carrying amounts and estimated fair values of all the Companys financial instruments as of
September 30, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
Estimated Fair |
|
|
Carrying |
|
|
Estimated Fair |
|
(In Thousands) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,190 |
|
|
$ |
20,190 |
|
|
$ |
9,442 |
|
|
$ |
9,442 |
|
Securities held to maturity |
|
|
256,088 |
|
|
|
264,448 |
|
|
|
267,624 |
|
|
|
275,384 |
|
Securities available-for-sale |
|
|
21,413 |
|
|
|
21,413 |
|
|
|
7,513 |
|
|
|
7,513 |
|
Loans receivable net |
|
|
510,093 |
|
|
|
530,294 |
|
|
|
498,391 |
|
|
|
512,512 |
|
Federal Home Loan Bank stock |
|
|
16,096 |
|
|
|
16,096 |
|
|
|
16,096 |
|
|
|
16,096 |
|
Accrued interest receivable |
|
|
3,210 |
|
|
|
3,210 |
|
|
|
3,719 |
|
|
|
3,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, passbook, club and NOW deposit accounts |
|
|
74,651 |
|
|
|
74,651 |
|
|
|
61,404 |
|
|
|
61,404 |
|
Money Market deposit accounts |
|
|
136,079 |
|
|
|
136,079 |
|
|
|
77,432 |
|
|
|
77,432 |
|
Certificate of deposit accounts |
|
|
317,370 |
|
|
|
325,881 |
|
|
|
327,765 |
|
|
|
332,733 |
|
Borrowings |
|
|
272,047 |
|
|
|
291,857 |
|
|
|
309,046 |
|
|
|
331,330 |
|
Accrued interest payable |
|
|
1,407 |
|
|
|
1,407 |
|
|
|
1,606 |
|
|
|
1,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off balance sheet financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Companys entire holdings of a
particular financial instrument. Because no market exists for a significant portion of the
Companys financial instruments, fair value estimates are based on many judgments. These estimates
are subjective in nature and involve uncertainties and matters significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on and off-balance-sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Significant assets and liabilities that
are not considered financial instruments include deferred income taxes and premises and equipment.
In addition, the tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been considered in the
estimates.
66
16. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial statements of Harleysville Savings Financial Corporation are as follows:
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
September 30, |
|
Condensed Statements of Financial Condition |
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
62 |
|
|
$ |
31 |
|
Investment in subsidiary |
|
|
53,714 |
|
|
|
50,589 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
53,776 |
|
|
$ |
50,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Stockholders Equity |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
425 |
|
|
$ |
481 |
|
Stockholders equity |
|
|
53,351 |
|
|
|
50,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Stockholders Equity |
|
$ |
53,776 |
|
|
$ |
50,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30, |
|
Condensed Statements of Income: |
|
2010 |
|
|
2009 |
|
Equity in income of subsidiary |
|
$ |
5,513 |
|
|
$ |
5,169 |
|
Other expense |
|
|
505 |
|
|
|
453 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended September 30, |
|
Condensed Statements of Cash Flows |
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
5,008 |
|
|
$ |
4,716 |
|
(Decrease) increase in other liabilities |
|
|
16 |
|
|
|
(14 |
) |
Income of Harleysville Savings Bank |
|
|
(5,513 |
) |
|
|
(5,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(489 |
) |
|
|
(467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Dividends received from subsidiary |
|
|
2,519 |
|
|
|
2,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
2,519 |
|
|
|
2,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Acquisition of treasury stock |
|
|
(78 |
) |
|
|
(144 |
) |
Issuance of treasury stock |
|
|
285 |
|
|
|
260 |
|
Dividends paid |
|
|
(2,206 |
) |
|
|
(2,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,999 |
) |
|
|
(1,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
|
31 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the
period |
|
|
31 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
$ |
62 |
|
|
$ |
31 |
|
|
|
|
|
|
|
|
67
17. Quarterly Financial Data (Unaudited)
Unaudited quarterly financial data for the years ended September 30, 2010 and 2009 is as follows:
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
|
1st |
|
|
2nd |
|
|
3rd |
|
|
4th |
|
(In Thousands) |
|
QTR |
|
|
QTR |
|
|
QTR |
|
|
QTR |
|
|
QTR |
|
|
QTR |
|
|
QTR |
|
|
QTR |
|
Interest Income |
|
$ |
10,256 |
|
|
$ |
9,944 |
|
|
$ |
9,951 |
|
|
$ |
9,867 |
|
|
$ |
10,726 |
|
|
$ |
10,504 |
|
|
$ |
9,973 |
|
|
$ |
10,140 |
|
Interest Expense |
|
|
5,869 |
|
|
|
5,425 |
|
|
|
5,290 |
|
|
|
5,163 |
|
|
|
6,541 |
|
|
|
6,147 |
|
|
|
6,128 |
|
|
|
6,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
4,387 |
|
|
|
4,519 |
|
|
|
4,661 |
|
|
|
4,704 |
|
|
|
4,185 |
|
|
|
4,357 |
|
|
|
3,845 |
|
|
|
4,070 |
|
Provision for loan losses |
|
|
150 |
|
|
|
150 |
|
|
|
150 |
|
|
|
150 |
|
|
|
100 |
|
|
|
100 |
|
|
|
90 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
4,237 |
|
|
|
4,369 |
|
|
|
4,511 |
|
|
|
4,554 |
|
|
|
4,085 |
|
|
|
4,257 |
|
|
|
3,755 |
|
|
|
3,960 |
|
Impairment of equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449 |
|
|
|
|
|
|
|
|
|
Realize net gains(losses) on
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
(14 |
) |
Other Income |
|
|
502 |
|
|
|
458 |
|
|
|
508 |
|
|
|
519 |
|
|
|
471 |
|
|
|
463 |
|
|
|
460 |
|
|
|
531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
3,070 |
|
|
|
3,230 |
|
|
|
3,205 |
|
|
|
3,197 |
|
|
|
2,754 |
|
|
|
2,819 |
|
|
|
3,113 |
|
|
|
2,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,669 |
|
|
|
1,597 |
|
|
|
1,814 |
|
|
|
1,876 |
|
|
|
1,802 |
|
|
|
1,461 |
|
|
|
1,102 |
|
|
|
1,637 |
|
Income tax expense |
|
|
455 |
|
|
|
437 |
|
|
|
500 |
|
|
|
556 |
|
|
|
426 |
|
|
|
258 |
|
|
|
246 |
|
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,214 |
|
|
$ |
1,160 |
|
|
$ |
1,314 |
|
|
$ |
1,320 |
|
|
$ |
1,376 |
|
|
$ |
1,203 |
|
|
$ |
856 |
|
|
$ |
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
0.33 |
|
|
$ |
0.32 |
|
|
$ |
0.36 |
|
|
$ |
0.36 |
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
|
$ |
0.24 |
|
|
$ |
0.35 |
|
Earnings per share diluted |
|
$ |
0.33 |
|
|
$ |
0.32 |
|
|
$ |
0.36 |
|
|
$ |
0.35 |
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
|
$ |
0.24 |
|
|
$ |
0.35 |
|
Earnings per share is computed independently for each period presented. Consequently, the sum
of the quarters may not equal the total earnings per share for the year.
68
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
The information required herein is incorporated by reference from the information contained in
the section captioned Ratification of Selection of Independent Registered Public Accounting Firm
Change in Auditors in the Companys definitive Proxy Statement for the Annual Meeting of
Stockholders for the year ended September 30, 2010 to be held in January 2011 (the Proxy
Statement).
Item 9A. Controls and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief
Operating and Financial Officer, the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September
30, 2010. Based on such evaluation, our Chief Executive Officer and Chief Operating and Financial
Officer have concluded that our disclosure controls and procedures are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the fourth fiscal quarter
of 2010 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Report of Managements Assessment of Internal Control over Financial Reporting
Management is responsible for designing, implementing, documenting, and maintaining an adequate
system of internal control over financial reporting. An adequate system of internal control over
financial reporting encompasses the processes and procedures that have been established by
management to:
|
|
|
maintain records that accurately reflect the companys transactions; |
|
|
|
prepare financial statement and footnote disclosures in accordance with GAAP that can be
relied upon by external users; |
|
|
|
prevent and detect unauthorized acquisition, use or disposition of the companys assets
that could have a material effect on the financial statements. |
Management conducted an evaluation of the effectiveness of the Companys internal control over
financial reporting based on the criteria in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation
under the criteria in Internal Control-Integrated Framework, management concluded that internal
control over financial reporting was effective as of September 30, 2010. Furthermore, during the
conduct of its assessment, management identified no material weakness in its financial reporting
control system.
The Board of Directors of Harleysville Savings Financial Corporation, through its Audit Committee,
provides oversight to managements conduct of the financial reporting process. The Audit
Committee, which is composed entirely of independent directors, is also responsible to recommend
the appointment of independent public accountants. The Audit Committee also meets with management,
the internal audit staff, and the independent public accountants throughout the year to provide
assurance as to the adequacy of the financial reporting process and to monitor the overall scope of
the work performed by the internal audit staff and the independent public accountants.
Because of its inherent limitations, our disclosure controls and procedures may not prevent or
detect misstatements. A control system, no matter how well conceived and operated, can only
provide reasonable, not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and
69
instances of fraud, if any, have been detected. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm under rules of the
Securities and Exchange Commission that permits the Company to provide only managements report in
this annual report.
|
|
|
/s/ Ronald B. Geib
|
|
/s/ Brendan J. McGill |
|
|
|
President and Chief Executive Officer
|
|
Executive Vice President, |
|
|
Chief Operating and Financial Officer |
Item 9B. Other Information.
Not applicable.
70
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required herein is incorporated by reference from the information contained in
the sections captioned Information with Respect to Nominees for Director, Directors Whose Terms
Continue and Executive Officers and Beneficial Ownership of Common Stock by Certain Beneficial
Owners and Management Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy
Statement.
The Company has adopted a Code of Conduct and Ethics that applies to its principal executive
officer and principal financial officer, as well as other officers and employees of the Company and
the Bank. A copy of the Code of Ethics may be found on the Companys website at
www.harleysvillesavingsbank.com.
Item 11. Executive Compensation.
The information required herein is incorporated by reference from the information contained in
the section captioned Management Compensation in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required herein is incorporated by reference from the information contained in
the section captioned Beneficial Ownership of Common Stock by Certain Beneficial Owners and
Management in the Proxy Statement.
The following table sets forth certain information for all equity compensation plans of
the Company and individual compensation arrangements (whether with employees or non-employees, such
as directors) in effect as of September 30, 2010.
Equity Compensation Plan Information
|
|
|
|
|
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
Number of securities remaining |
|
|
|
Number of securities to be |
|
|
Weighted-average |
|
|
available for future issuance |
|
|
|
issued upon exercise of |
|
|
exercise price of |
|
|
under equity compensation plans |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
(excluding securities reflected in |
|
Plan Category |
|
warrants and rights |
|
|
warrants and rights |
|
|
the first column) |
|
Equity compensation
plans approved by
security holders |
|
|
267,122 |
|
|
$ |
14.59 |
|
|
|
500,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
267,122 |
|
|
$ |
14.59 |
|
|
|
500,310 |
|
|
|
|
|
|
|
|
|
|
|
71
Item 13. Certain Relationships and Related Transactions and Directors Independence.
The information required herein is incorporated by reference from the information contained in
the sections captioned Management Compensation Related Party Transactions and Information
with Respect to Nominees for Director, Continuing Directors and Executive Officers in the Proxy
Statement.
Item 14. Principal Accounting Fees and Services.
The information required herein is incorporated by reference from the information contained in
the section captioned Relationship with Independent Registered Public Accounting Firm Audit
Fees in the Proxy Statement.
72
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) |
(1) |
|
The following financial statements are incorporated by reference from Item 8 hereof: |
Consolidated Statements of Financial Condition as of September 30, 2010 and 2009
Consolidated Statements of Income for the Years Ended September 30, 2010 and 2009
Consolidated Statements of Stockholders Equity for the Years Ended September 30, 2010 and 2009
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended September 30, 2010 and 2009
Notes to Consolidated Financial Statements
(2) All schedules are omitted because they are not required or applicable, or the
required information is shown in the consolidated financial statements or the notes thereto.
(3) Exhibits
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
|
|
|
|
|
|
|
No. |
|
Description |
|
Location |
3.1
|
|
Amended and Restated Articles of Incorporation
|
|
|
(1 |
) |
|
3.2
|
|
Amended and Restated Bylaws
|
|
|
(1 |
) |
|
4.0
|
|
Common Stock Certificate
|
|
|
(2 |
) |
|
10.1
|
|
1995 Stock Option Plan*
|
|
|
(3 |
) |
|
10.2
|
|
Amended and Restated 2000 Stock Option Plan*
|
|
|
(4 |
) |
|
10.3
|
|
Amended and Restated 2005 Stock Option Plan*
|
|
|
(4 |
) |
|
10.4
|
|
2009 Stock Incentive Plan*
|
|
|
(5 |
) |
|
10.5
|
|
Profit Sharing Incentive Plan*
|
|
|
(3 |
) |
|
10.6
|
|
Amended and Restated Employment Agreement among the Company,
the Bank and Ronald B. Geib*
|
|
|
(4 |
) |
|
10.7
|
|
Form of Change in Control Agreement among Harleysville Savings Financial
Corporation, Harleysville Savings Bank and each of Brendan J. McGill, Stephen J.
Kopenhaver, Adrian D. Gordon and Sheri Strouse*
|
|
|
(6 |
) |
|
22.0
|
|
Subsidiaries of the Registrant Reference is made to Item 1. Business
- Subsidiaries of this Form 10-K for the required information
|
|
|
|
|
|
23.1
|
|
Consent of ParenteBeard LLC
|
|
Filed herewith
|
|
31.1
|
|
Certification of Chief Executive Officer
|
|
Filed herewith
|
|
31.2
|
|
Certification of Chief Financial Officer
|
|
Filed herewith
|
|
32.0
|
|
Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
|
|
Filed herewith
|
|
|
|
* |
|
Denotes management compensation plan or arrangement. |
|
(1) |
|
Incorporated herein by reference to the Companys Current Report on Form 8-K filed with the
Securities and Exchange Commission (SEC) on August 17, 2007. |
|
(2) |
|
Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on
February 25, 2000. |
|
(3) |
|
Incorporated herein by reference to the Companys Annual Report on Form 10-K for the year
ended September 30, 2003, filed with the SEC on December 23, 2003. |
|
(4) |
|
Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on
November 21, 2008. |
|
(5) |
|
Incorporated by reference to the Companys definitive proxy statement filed with the SEC on
December 18, 2009. |
|
(6) |
|
Incorporated by reference to the Companys Current Report on Form 8-K filed with the SEC on
May 21, 2009. |
|
(b) |
|
Exhibits |
|
|
|
The exhibits listed under (a)(3) of this Item 15 are filed herewith. |
|
(c) |
|
Reference is made to (a)(2) of this Item 15. |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
HARLEYSVILLE SAVINGS FINANCIAL CORPORATION
|
|
December 17, 2010 |
By: |
/s/ Ronald B. Geib
|
|
|
|
Ronald B. Geib |
|
|
|
President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Edward J. Molnar
Edward J. Molnar
|
|
Chairman of the Board
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Ronald B. Geib
Ronald B. Geib
|
|
President and Chief Executive Officer (principal
executive officer)
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Brendan J. McGill
Brendan J. McGill
|
|
Executive Vice President, Chief
Operating and Financial Officer
(principal financial and principal
accounting officer)
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Sanford L. Alderfer
Sanford L. Alderfer
|
|
Director
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Mark R. Cummins
Mark R. Cummins
|
|
Director
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ Thomas D. Clemens
Thomas D. Clemens
|
|
Director
|
|
December 17, 2010 |
74
|
|
|
|
|
Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Charlotte A. Hunsberger
Charlotte A. Hunsberger
|
|
Director
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ George W. Meschter
George W. Meschter
|
|
Director
|
|
December 17, 2010 |
|
|
|
|
|
|
|
|
|
|
/s/ James L. Rittenhouse
James L. Rittenhouse
|
|
Director
|
|
December 17, 2010 |
75