UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2012.
OR
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to .
Commission File No. 0-22288
Fidelity Bancorp, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Pennsylvania
|
|
25-1705405
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
1009 Perry Highway, Pittsburgh, Pennsylvania 15237
(Address of principal executive offices)
412-367-3300
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by
check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 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
x
No
¨
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.
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|
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Large accelerated filer
|
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¨
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|
Accelerated filer
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¨
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|
|
|
|
Non-accelerated filer
|
|
¨
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).: Yes
¨
No
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
3,068,651 shares, par value $0.01, at July 31, 2012.
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Index
2
Part I - Financial Information
Item 1. Financial Statements
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (Unaudited)
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
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June 30,
2012
|
|
|
September 30,
2011
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
8,233
|
|
|
$
|
7,035
|
|
Interest-bearing demand deposits with other institutions
|
|
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33,108
|
|
|
|
17,821
|
|
|
|
|
|
|
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Cash and Cash Equivalents
|
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41,341
|
|
|
|
24,856
|
|
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Securities available-for-sale (amortized cost of $174,231 and $174,069)
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|
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173,472
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|
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170,790
|
|
Securities held-to-maturity (fair value of $71,218 and $82,036)
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69,729
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|
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80,423
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Loans held for sale
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|
|
2,942
|
|
|
|
1,837
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Loans receivable, net of allowance of $4,288 and $5,763
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|
334,529
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|
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|
346,285
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Foreclosed real estate, net
|
|
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6,906
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|
|
|
3,125
|
|
Federal Home Loan Bank stock, at cost
|
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7,007
|
|
|
|
8,173
|
|
Office premises and equipment, net
|
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|
9,414
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|
9,691
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Accrued interest receivable
|
|
|
2,103
|
|
|
|
2,382
|
|
Bank owned life insurance
|
|
|
5,989
|
|
|
|
5,822
|
|
Goodwill
|
|
|
2,653
|
|
|
|
2,653
|
|
Deferred tax assets
|
|
|
6,673
|
|
|
|
7,425
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|
Other assets
|
|
|
2,848
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
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|
Total Assets
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|
$
|
665,606
|
|
|
$
|
666,915
|
|
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|
|
|
|
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Liabilities and Stockholders Equity
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Liabilities:
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Deposits:
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Non-interest bearing
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|
$
|
64,247
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|
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$
|
56,370
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Interest bearing
|
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|
405,048
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389,732
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|
|
|
|
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|
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Total Deposits
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469,295
|
|
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446,102
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Securities sold under agreement to repurchase
|
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63,956
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76,373
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|
Short-term borrowings
|
|
|
|
|
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|
302
|
|
Long-term debt
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|
|
65,000
|
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80,000
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Subordinated debt
|
|
|
7,732
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7,732
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Advance payments by borrowers for taxes and insurance
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2,591
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|
|
|
1,212
|
|
Other liabilities
|
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4,290
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|
|
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4,703
|
|
|
|
|
|
|
|
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Total Liabilities
|
|
|
612,864
|
|
|
|
616,424
|
|
|
|
|
|
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Stockholders equity:
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Preferred stock, $0.01 par value per share, liquidation preference $1,000; 5,000,000 shares authorized; 7,000 shares
issued
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6,908
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6,863
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|
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 3,679,164 and 3,673,638 shares issued,
respectively
|
|
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37
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37
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Paid-in-capital
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46,666
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46,627
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|
Retained earnings
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|
9,953
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|
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9,588
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|
Accumulated other comprehensive loss, net of tax
|
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(590
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)
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|
|
(2,392
|
)
|
Treasury stock, at cost - 610,513 shares
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|
|
(10,232
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)
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|
|
(10,232
|
)
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|
|
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|
|
|
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|
Total Stockholders Equity
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|
52,742
|
|
|
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50,491
|
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|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
665,606
|
|
|
$
|
666,915
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)
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|
|
|
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|
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Three Months Ended
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Nine Months Ended
|
|
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June 30,
|
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|
June 30,
|
|
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|
2012
|
|
|
2011
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|
2012
|
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2011
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
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4,242
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|
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$
|
4,624
|
|
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$
|
13,258
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|
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$
|
14,652
|
|
Mortgage-backed securities
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712
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|
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|
902
|
|
|
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2,213
|
|
|
|
2,437
|
|
Investment securities-taxable
|
|
|
532
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|
|
|
622
|
|
|
|
1,622
|
|
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|
1,934
|
|
Investment securities-tax-exempt
|
|
|
277
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|
|
|
349
|
|
|
|
896
|
|
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|
1,127
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|
Other
|
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|
21
|
|
|
|
25
|
|
|
|
50
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
5,784
|
|
|
|
6,522
|
|
|
|
18,039
|
|
|
|
20,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
967
|
|
|
|
1,083
|
|
|
|
3,013
|
|
|
|
3,353
|
|
Securities sold under agreement to repurchase
|
|
|
765
|
|
|
|
1,007
|
|
|
|
2,501
|
|
|
|
3,461
|
|
Short-term borrowings
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
5
|
|
Long-term debt
|
|
|
516
|
|
|
|
675
|
|
|
|
1,639
|
|
|
|
2,025
|
|
Subordinated debt
|
|
|
102
|
|
|
|
102
|
|
|
|
306
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,351
|
|
|
|
2,868
|
|
|
|
7,462
|
|
|
|
9,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3,433
|
|
|
|
3,654
|
|
|
|
10,577
|
|
|
|
11,068
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
600
|
|
|
|
300
|
|
|
|
1,275
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
2,833
|
|
|
|
3,354
|
|
|
|
9,302
|
|
|
|
10,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment losses
|
|
|
|
|
|
|
(55
|
)
|
|
|
(1,131
|
)
|
|
|
(2,450
|
)
|
Non-credit related losses recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
180
|
|
|
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings
|
|
|
|
|
|
|
(55
|
)
|
|
|
(951
|
)
|
|
|
(1,411
|
)
|
|
|
|
|
|
Loan service charges and fees
|
|
|
195
|
|
|
|
133
|
|
|
|
582
|
|
|
|
491
|
|
Realized gain on sales of securities, net
|
|
|
|
|
|
|
|
|
|
|
381
|
|
|
|
586
|
|
Gain on sales of loans
|
|
|
200
|
|
|
|
21
|
|
|
|
558
|
|
|
|
249
|
|
(Loss) gain on loan interest rate swaps
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
12
|
|
Deposit service charges and fees
|
|
|
279
|
|
|
|
309
|
|
|
|
875
|
|
|
|
909
|
|
ATM fees
|
|
|
268
|
|
|
|
258
|
|
|
|
786
|
|
|
|
733
|
|
Non-insured investment products
|
|
|
60
|
|
|
|
46
|
|
|
|
167
|
|
|
|
152
|
|
Earnings on cash surrender value of life insurance
|
|
|
64
|
|
|
|
63
|
|
|
|
191
|
|
|
|
191
|
|
Other
|
|
|
141
|
|
|
|
49
|
|
|
|
426
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,201
|
|
|
|
822
|
|
|
|
3,011
|
|
|
|
2,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
2,212
|
|
|
|
2,130
|
|
|
|
6,585
|
|
|
|
6,492
|
|
Office occupancy and equipment expense
|
|
|
261
|
|
|
|
258
|
|
|
|
800
|
|
|
|
786
|
|
Depreciation and amortization
|
|
|
128
|
|
|
|
142
|
|
|
|
403
|
|
|
|
429
|
|
Advertising
|
|
|
|
|
|
|
100
|
|
|
|
200
|
|
|
|
300
|
|
Professional fees
|
|
|
106
|
|
|
|
102
|
|
|
|
328
|
|
|
|
336
|
|
Service bureau expense
|
|
|
149
|
|
|
|
147
|
|
|
|
446
|
|
|
|
444
|
|
Federal deposit insurance premiums
|
|
|
224
|
|
|
|
225
|
|
|
|
665
|
|
|
|
820
|
|
Other
|
|
|
841
|
|
|
|
634
|
|
|
|
2,212
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
3,921
|
|
|
|
3,738
|
|
|
|
11,639
|
|
|
|
11,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited) (Contd.)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Income before provision for (benefit of) income taxes
|
|
$
|
113
|
|
|
$
|
438
|
|
|
$
|
674
|
|
|
$
|
929
|
|
Provision for (benefit of) income taxes
|
|
|
(68
|
)
|
|
|
25
|
|
|
|
(182
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
181
|
|
|
|
413
|
|
|
|
856
|
|
|
|
938
|
|
Preferred stock dividend
|
|
|
(88
|
)
|
|
|
(88
|
)
|
|
|
(263
|
)
|
|
|
(263
|
)
|
Accretion of preferred stock discount
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
(45
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
78
|
|
|
$
|
310
|
|
|
$
|
548
|
|
|
$
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
$
|
0.17
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
181
|
|
|
$
|
413
|
|
|
$
|
856
|
|
|
$
|
938
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive gain on cash flow hedges
|
|
|
67
|
|
|
|
23
|
|
|
|
194
|
|
|
|
169
|
|
Tax effect
|
|
|
(23
|
)
|
|
|
(8
|
)
|
|
|
(66
|
)
|
|
|
(57
|
)
|
Comprehensive gain on investment securities
|
|
|
779
|
|
|
|
391
|
|
|
|
2,147
|
|
|
|
215
|
|
Tax effect
|
|
|
(265
|
)
|
|
|
(133
|
)
|
|
|
(730
|
)
|
|
|
(73
|
)
|
Reclassification adjustment on investment securities
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
(586
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
199
|
|
Comprehensive loss on securities for which other-than-temporary impairment has been recognized in earnings
|
|
|
|
|
|
|
|
|
|
|
(180
|
)
|
|
|
(1,039
|
)
|
Tax effect
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
353
|
|
Reclassification adjustment for other-than-temporary impairment losses on debt and equity securities
|
|
|
|
|
|
|
55
|
|
|
|
951
|
|
|
|
1,411
|
|
Tax effect
|
|
|
|
|
|
|
(19
|
)
|
|
|
(323
|
)
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
558
|
|
|
|
309
|
|
|
|
1,802
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
739
|
|
|
$
|
722
|
|
|
$
|
2,658
|
|
|
$
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders Equity (Unaudited)
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Common
Shares
Issued
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Total
|
|
Balance at September 30, 2011
|
|
|
3,673,638
|
|
|
$
|
6,863
|
|
|
$
|
37
|
|
|
$
|
46,627
|
|
|
$
|
9,588
|
|
|
$
|
(2,392
|
)
|
|
$
|
(10,232
|
)
|
|
$
|
50,491
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
|
856
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,802
|
|
|
|
|
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Stock options exercised, no tax benefit
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Restricted stock issued
|
|
|
2,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
(183
|
)
|
Shares issued through Dividend Reinvestment Plan
|
|
|
1,682
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012
|
|
|
3,679,164
|
|
|
$
|
6,908
|
|
|
$
|
37
|
|
|
$
|
46,666
|
|
|
$
|
9,953
|
|
|
$
|
(590
|
)
|
|
$
|
(10,232
|
)
|
|
$
|
52,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
856
|
|
|
$
|
938
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,275
|
|
|
|
900
|
|
Provision for depreciation and amortization
|
|
|
403
|
|
|
|
429
|
|
Deferred loan fee amortization
|
|
|
(24
|
)
|
|
|
(111
|
)
|
Amortization of investment and mortgage-backed securities (discounts) premiums, net
|
|
|
845
|
|
|
|
699
|
|
Realized gains on sales of securities, net
|
|
|
(381
|
)
|
|
|
(586
|
)
|
Impairment losses on securities
|
|
|
951
|
|
|
|
1,411
|
|
Loans originated for sale
|
|
|
(31,890
|
)
|
|
|
(11,015
|
)
|
Sales of loans held for sale
|
|
|
31,343
|
|
|
|
12,754
|
|
Net gains on sales of loans
|
|
|
(558
|
)
|
|
|
(249
|
)
|
Earnings on cash surrender value of life insurance policies
|
|
|
(191
|
)
|
|
|
(191
|
)
|
Decrease in interest receivable
|
|
|
279
|
|
|
|
247
|
|
Decrease in interest payable
|
|
|
(118
|
)
|
|
|
(204
|
)
|
Increase in prepaid taxes
|
|
|
(93
|
)
|
|
|
(197
|
)
|
Non-cash compensation expense related to stock benefit plans
|
|
|
14
|
|
|
|
28
|
|
Changes in other assets
|
|
|
630
|
|
|
|
1,381
|
|
Changes in other liabilities
|
|
|
(101
|
)
|
|
|
1,270
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,240
|
|
|
|
7,504
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available-for-sale
|
|
|
9,276
|
|
|
|
22,382
|
|
Proceeds from maturities and principal repayments of securities available-for-sale
|
|
|
37,764
|
|
|
|
23,459
|
|
Purchases of securities available-for-sale
|
|
|
(48,499
|
)
|
|
|
(51,254
|
)
|
Proceeds from maturities and principal repayments of securities held-to-maturity
|
|
|
41,943
|
|
|
|
35,273
|
|
Purchases of securities held-to-maturity
|
|
|
(31,183
|
)
|
|
|
(41,867
|
)
|
Net decrease in loans
|
|
|
5,817
|
|
|
|
26,665
|
|
Proceeds from sales of foreclosed real estate
|
|
|
655
|
|
|
|
297
|
|
Purchases of office premises and equipment
|
|
|
(126
|
)
|
|
|
(794
|
)
|
Redemptions of Federal Home Loan Bank (FHLB) stock
|
|
|
1,166
|
|
|
|
1,431
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
16,813
|
|
|
|
15,592
|
|
|
|
|
|
|
|
|
|
|
7
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Contd.)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
Financing Activities
:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
$
|
23,193
|
|
|
$
|
1,172
|
|
Net decrease in retail securities sold under agreement to repurchase
|
|
|
(2,417
|
)
|
|
|
(3,167
|
)
|
Net decrease in wholesale securities sold under agreement to repurchase
|
|
|
(10,000
|
)
|
|
|
(30,000
|
)
|
Net (decrease) increase in short-term borrowings
|
|
|
(302
|
)
|
|
|
35
|
|
Increase in advance payments by borrowers for taxes and insurance
|
|
|
1,379
|
|
|
|
1,632
|
|
Repayments of long-term debt
|
|
|
(15,000
|
)
|
|
|
(401
|
)
|
Cash dividends paid
|
|
|
(446
|
)
|
|
|
(446
|
)
|
Stock options exercised
|
|
|
7
|
|
|
|
|
|
Proceeds from sale of stock through Dividend Reinvestment Plan
|
|
|
18
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,568
|
)
|
|
|
(31,163
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
16,485
|
|
|
|
(8,067
|
)
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
24,856
|
|
|
|
29,337
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
41,341
|
|
|
$
|
21,270
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest paid on deposits and other borrowings
|
|
$
|
7,580
|
|
|
$
|
9,353
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
85
|
|
|
$
|
595
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Transfer of loans to foreclosed real estate
|
|
$
|
4,688
|
|
|
$
|
2,822
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
8
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Unaudited)
June 30, 2012
(1)
Consolidation
The consolidated financial statements contained herein for Fidelity Bancorp, Inc. (the Company) include the accounts of
Fidelity Bancorp, Inc. and its wholly-owned subsidiary, Fidelity Bank, PaSB (the Bank). All inter-company balances and transactions have been eliminated.
(2)
Basis of Presentation
The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States. However, all adjustments
(consisting of normal recurring adjustments), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. These financial statements should be read in conjunction with the audited
financial statements and the accompanying notes thereto included in the Companys Annual Report for the fiscal year ended September 30, 2011. The results for the three and nine-month periods ended June 30, 2012 are not necessarily
indicative of the results that may be expected for the fiscal year ending September 30, 2012 or any future interim period.
Certain
amounts in the fiscal year 2011 financial statements have been reclassified to conform with the fiscal year 2012 presentation format. These reclassifications had no effect on stockholders equity or net income.
(3)
New Accounting Standards
In May 2011, the FASB issued ASU 2011-04,
Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.
The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and
IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this Update are to be applied
prospectively. The Company has provided the necessary disclosures in Notes (9) and (10).
In June 2011, the FASB issued ASU 2011-05,
Comprehensive Income (Topic 220):
Presentation of Comprehensive Income.
The amendments in this Update improve the comparability, clarity, consistency, and transparency of financial reporting and increase the prominence of items reported in other comprehensive income. To
increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the option to present components of other comprehensive income as part of the statement of changes in stockholders
equity was eliminated. The amendments require that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement
approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of
comprehensive income. All entities that report items of comprehensive income, in any period presented, will be affected by the changes in this Update. The amendments in this Update should be applied retrospectively, and early adoption is permitted.
The Company has provided the necessary disclosure in the Consolidated Statement of Comprehensive Income.
9
In September 2011, the FASB issued ASU 2011-08,
Intangibles Goodwill and Other Topics
(Topic 350), Testing Goodwill for Impairment
. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The
more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more
likely than not that its fair value is less than its carrying amount. The amendments in this Update apply to all entities, both public and nonpublic, that have goodwill reported in their financial statements and are effective for interim and annual
goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an
entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. This ASU is not expected to have a significant impact on the
Companys financial statements.
In September 2011, the FASB issued ASU 2011-09,
Compensation-Retirement Benefits-Multiemployer
Plans (Subtopic 715-80):
Disclosures about an Employers Participation in a Multiemployer Plan
. The amendments in this Update will require additional disclosures about an employers participation in a multiemployer pension plan
to enable users of financial statements to assess the potential cash flow implications relating to an employers participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant
plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. The amendments should be applied retrospectively for all prior periods presented.
This ASU is not expected to have a significant impact on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-10,
Property, Plant, and Equipment (Topic 360):
Derecognition of in Substance Real Estate-a Scope Clarification.
The amendments in this Update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the
subsidiarys nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the
subsidiarys nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to
derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest
under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiarys operations in its consolidated financial statements until legal title to the real estate is transferred to legally
satisfy the debt. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with
previously derecognized in substance real estate entities. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities,
the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. This ASU is not expected to have a significant impact on the Companys financial
statements.
10
In December 2011, the FASB issued ASU 2011-11,
Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities
. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or
Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an
entitys financial statements to evaluate the effect or potential effect of netting arrangements on an entitys financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments
and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide
the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Companys financial statements.
In December 2011, the FASB issued ASU 2011-12,
Comprehensive Income (Topic 220): Deferral
of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05
. In order to defer only those changes in Update 2011-05 that
relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income
consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial
statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin
applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This ASU is not expected to have a significant impact on the Companys financial statements.
11
(4)
Stock Based Compensation
On June 30, 2012, the Company had four share-based compensation plans, for which stock options and restricted stock were
outstanding as of June 30, 2012. However, the plan described below is the only plan for which stock options and restricted stock are available for grant. The compensation cost that has been charged against income for those plans was $14,000 and
$28,000 for the nine months ended June 30, 2012 and 2011, respectively.
The Companys 2005 Stock-Based Incentive Plan (the Plan),
which was shareholder-approved, permits the grant of stock options and restricted stock to its employees and non-employee directors for up to 165,000 shares of common stock, of which a maximum of 55,000 may be restricted stock. Option awards are
granted with an exercise price equal to the market value of the common stock on the date of the grant, the options vest over a three-year period, and have a contractual term of seven years, although the Plan permits contractual terms of up to ten
years. Option awards provide for accelerated vesting if there is a change in control, as defined in the Plan. Additionally, at December 20, 2011, the Company awarded 2,678 shares of restricted stock from the unallocated shares under the Plan
having a market value of approximately $23,995. Compensation expense on the restricted stock awards equals the market value of the Companys stock on the grant date and will be amortized ratably over the three-year vesting period. As of
June 30, 2012, 24,471 share awards were available for grant under this program.
As of June 30, 2012 there was approximately $29,000
of unrecognized compensation costs related to unvested share-based compensation awards granted.
Stock option transactions for the nine months ended June 30,
2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price Per Share
|
|
Outstanding at the beginning of the year
|
|
|
330,652
|
|
|
$
|
15.55
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,166
|
)
|
|
|
6.23
|
|
Forfeited
|
|
|
(97,699
|
)
|
|
|
16.26
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2012
|
|
|
231,787
|
|
|
$
|
15.31
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2012
|
|
|
231,787
|
|
|
$
|
15.31
|
|
|
|
|
|
|
|
|
|
|
The options outstanding and exercisable as of June 30, 2012 have a weighted average remaining term of 1.5 years.
No options were granted for the nine-month period ended June 30, 2012 or 2011.
Compensation cost related to restricted stock is recognized based on the market price of the stock at the grant date over the vesting period. Compensation expense related to restricted stock was $11,000
and $20,000 for the nine months ended June 30, 2012 and 2011, respectively. For the nine months ended June 30, 2012, there were 2,678 shares of restricted stock awarded. The market price of stock on the date of grant was $8.96. For the
nine months ended June 30, 2011, there were 2,969 shares of restricted stock awarded. The market price of stock on the date of grant was $5.91.
12
(5)
Earnings Per Share
Basic earnings per share (EPS) excludes dilution and is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company. The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
78
|
|
|
$
|
310
|
|
|
$
|
548
|
|
|
$
|
630
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted average shares outstanding
|
|
|
3,064
|
|
|
|
3,057
|
|
|
|
3,062
|
|
|
|
3,053
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
139
|
|
|
|
137
|
|
|
|
138
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share - weighted average shares and assumed conversions
|
|
|
3,203
|
|
|
|
3,194
|
|
|
|
3,200
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
$
|
0.17
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 189,037 shares of common stock at prices ranging from $13.06 to $21.35 per share were outstanding during the three
months ended June 30, 2012, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. Similarly, options to purchase 286,319 shares of common stock at prices ranging from $11.06 to $22.91 per share
were outstanding during the three months ended June 30, 2011, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive.
Options to purchase 189,037 shares of common stock at prices ranging from $13.06 to $21.35 per share were outstanding during the nine months ended June 30, 2012, but were not included in the
computation of diluted EPS because to do so would have been anti-dilutive. Similarly, options to purchase 286,319 shares of common stock at prices ranging from $11.06 to $22.91 per share and warrants to acquire 121,387 shares of common stock at a
price of $8.65 per share were outstanding during the nine months ended June 30, 2011, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive.
13
(6)
Securities
The amortized cost and fair value of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
30,231
|
|
|
$
|
421
|
|
|
$
|
2
|
|
|
$
|
30,650
|
|
Municipal obligations
|
|
|
29,500
|
|
|
|
2,233
|
|
|
|
|
|
|
|
31,733
|
|
Corporate obligations
|
|
|
8,780
|
|
|
|
27
|
|
|
|
363
|
|
|
|
8,444
|
|
Equity securities in financial institutions
|
|
|
1,545
|
|
|
|
70
|
|
|
|
83
|
|
|
|
1,532
|
|
Other equity securities
|
|
|
1,000
|
|
|
|
|
|
|
|
10
|
|
|
|
990
|
|
Mutual funds
|
|
|
2,780
|
|
|
|
58
|
|
|
|
17
|
|
|
|
2,821
|
|
Trust preferred securities
|
|
|
14,150
|
|
|
|
67
|
|
|
|
6,061
|
|
|
|
8,156
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
60,651
|
|
|
|
2,798
|
|
|
|
6
|
|
|
|
63,443
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
23,582
|
|
|
|
238
|
|
|
|
23
|
|
|
|
23,797
|
|
Private-label
|
|
|
2,012
|
|
|
|
24
|
|
|
|
130
|
|
|
|
1,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,231
|
|
|
$
|
5,936
|
|
|
$
|
6,695
|
|
|
$
|
173,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
22,003
|
|
|
$
|
70
|
|
|
$
|
5
|
|
|
$
|
22,068
|
|
Municipal obligations
|
|
|
6,774
|
|
|
|
430
|
|
|
|
|
|
|
|
7,204
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
7,137
|
|
|
|
301
|
|
|
|
39
|
|
|
|
7,399
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
32,885
|
|
|
|
720
|
|
|
|
3
|
|
|
|
33,602
|
|
Private-label
|
|
|
930
|
|
|
|
15
|
|
|
|
|
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,729
|
|
|
$
|
1,536
|
|
|
$
|
47
|
|
|
$
|
71,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
39,228
|
|
|
$
|
574
|
|
|
$
|
8
|
|
|
$
|
39,794
|
|
Municipal obligations
|
|
|
30,086
|
|
|
|
1,745
|
|
|
|
3
|
|
|
|
31,828
|
|
Corporate obligations
|
|
|
3,985
|
|
|
|
75
|
|
|
|
845
|
|
|
|
3,215
|
|
Equity securities in financial institutions
|
|
|
2,468
|
|
|
|
46
|
|
|
|
1,013
|
|
|
|
1,501
|
|
Other equity securities
|
|
|
1,000
|
|
|
|
|
|
|
|
56
|
|
|
|
944
|
|
Mutual funds
|
|
|
2,697
|
|
|
|
51
|
|
|
|
11
|
|
|
|
2,737
|
|
Trust preferred securities
|
|
|
14,405
|
|
|
|
39
|
|
|
|
6,494
|
|
|
|
7,950
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
65,533
|
|
|
|
2,560
|
|
|
|
|
|
|
|
68,093
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
12,180
|
|
|
|
247
|
|
|
|
8
|
|
|
|
12,419
|
|
Private-label
|
|
|
2,487
|
|
|
|
26
|
|
|
|
204
|
|
|
|
2,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,069
|
|
|
$
|
5,363
|
|
|
$
|
8,642
|
|
|
$
|
170,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
17,533
|
|
|
$
|
95
|
|
|
$
|
13
|
|
|
$
|
17,615
|
|
Municipal obligations
|
|
|
10,896
|
|
|
|
360
|
|
|
|
|
|
|
|
11,256
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
8,708
|
|
|
|
311
|
|
|
|
49
|
|
|
|
8,970
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
41,206
|
|
|
|
904
|
|
|
|
12
|
|
|
|
42,098
|
|
Private-label
|
|
|
2,080
|
|
|
|
36
|
|
|
|
19
|
|
|
|
2,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,423
|
|
|
$
|
1,706
|
|
|
$
|
93
|
|
|
$
|
82,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amortized cost
and fair value of debt securities by contractual maturity dates as of June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(In Thousands)
|
|
As of June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
6,609
|
|
|
$
|
6,652
|
|
|
$
|
2,003
|
|
|
$
|
2,004
|
|
Due after one year through five years
|
|
|
31,685
|
|
|
|
32,243
|
|
|
|
8,607
|
|
|
|
8,637
|
|
Due after five years through ten years
|
|
|
28,653
|
|
|
|
30,130
|
|
|
|
15,509
|
|
|
|
15,847
|
|
Due after ten years
|
|
|
101,959
|
|
|
|
99,104
|
|
|
|
43,610
|
|
|
|
44,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
168,906
|
|
|
$
|
168,129
|
|
|
$
|
69,729
|
|
|
$
|
71,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities for the three months ended June 30, 2012 and 2011. Proceeds from the sales of securities for the
nine months ended June 30, 2012 and 2011 were $9.3 million and $22.4 million, respectively. Gross gains of $426,000 and $586,000 were realized on sales of securities during the nine months ended June 30, 2012 and 2011, respectively. Gross
losses of $45,000 and $0 were realized on sales of securities during the nine months ended June 30, 2012 and 2011, respectively.
15
The Company recognized other-than-temporary impairment losses on securities of $55,000 for the three-month
periods ended June 30, 2011. There were no similar impairment charges recognized during the current three-month period ended June 30, 2012. The impairment charges for the three-month period ended June 30, 2011 relate to the
Companys holdings of a private label mortgage-backed security. The Company recognized other-than-temporary impairment losses on securities of $951,000 and $1.4 million for the nine-month periods ended June 30, 2012 and 2011, respectively.
The impairment charges for the nine-month period ended June 30, 2012 relate to the Companys holdings of a private label mortgage-backed security, a pooled trust preferred security, and three common stock holdings of local financial
institutions. The impairment charges for the nine-month period ended June 30, 2011 relate to the Companys holdings of five pooled trust preferred securities, a single issuer trust preferred security, a private label mortgage-backed
security, and common stock of a local financial institution.
At June 30, 2012, the unrealized losses on the securities portfolio were
primarily attributable to wider credit spreads, reflecting market illiquidity. The Company does not intend to sell these securities and it is not more-likely than-not that the Company will have to sell these securities.
16
The following tables show the aggregate related fair value of investments with a continuous unrealized loss
position for less than twelve months and those that have been in a continuous unrealized loss position for twelve months or more.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
As of June 30, 2012:
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
# of
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollar amounts in thousands)
|
|
Securities
|
|
|
Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Value
|
|
|
Losses
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
2
|
|
|
$
|
5,110
|
|
|
$
|
2
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
5,110
|
|
|
$
|
2
|
|
Corporate obligations
|
|
|
1
|
|
|
|
5,283
|
|
|
|
5
|
|
|
|
1
|
|
|
|
640
|
|
|
|
358
|
|
|
|
2
|
|
|
|
5,923
|
|
|
|
363
|
|
Equity securities in financial institutions
|
|
|
2
|
|
|
|
607
|
|
|
|
62
|
|
|
|
1
|
|
|
|
113
|
|
|
|
21
|
|
|
|
3
|
|
|
|
720
|
|
|
|
83
|
|
Other equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
990
|
|
|
|
10
|
|
|
|
1
|
|
|
|
990
|
|
|
|
10
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,429
|
|
|
|
17
|
|
|
|
1
|
|
|
|
1,429
|
|
|
|
17
|
|
Trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
7,652
|
|
|
|
6,061
|
|
|
|
12
|
|
|
|
7,652
|
|
|
|
6,061
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
1
|
|
|
|
3,005
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3,005
|
|
|
|
6
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
4
|
|
|
|
8,792
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
8,792
|
|
|
|
23
|
|
Private-label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,193
|
|
|
|
130
|
|
|
|
2
|
|
|
|
1,193
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired available-for-sale securities
|
|
|
10
|
|
|
|
22,797
|
|
|
|
98
|
|
|
|
18
|
|
|
|
12,017
|
|
|
|
6,597
|
|
|
|
28
|
|
|
|
34,814
|
|
|
|
6,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
2
|
|
|
$
|
5,995
|
|
|
$
|
5
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
5,995
|
|
|
$
|
5
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,754
|
|
|
|
39
|
|
|
|
2
|
|
|
|
1,754
|
|
|
|
39
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
4
|
|
|
|
4,197
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4,197
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired held-to-maturity securities
|
|
|
6
|
|
|
|
10,192
|
|
|
|
8
|
|
|
|
2
|
|
|
|
1,754
|
|
|
|
39
|
|
|
|
8
|
|
|
|
11,946
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
16
|
|
|
$
|
32,989
|
|
|
$
|
106
|
|
|
|
20
|
|
|
$
|
13,771
|
|
|
$
|
6,636
|
|
|
|
36
|
|
|
$
|
46,760
|
|
|
$
|
6,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
As of September 30, 2011:
(Dollar amounts in thousands)
|
|
# of
Securities
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
# of
Securities
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
# of
Securities
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
1
|
|
|
$
|
2,081
|
|
|
$
|
8
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
2,081
|
|
|
$
|
8
|
|
Municipal obligations
|
|
|
1
|
|
|
|
509
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
509
|
|
|
|
3
|
|
Corporate obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,150
|
|
|
|
845
|
|
|
|
2
|
|
|
|
1,150
|
|
|
|
845
|
|
Equity securities in financial institutions
|
|
|
1
|
|
|
|
264
|
|
|
|
12
|
|
|
|
5
|
|
|
|
1,145
|
|
|
|
1,001
|
|
|
|
6
|
|
|
|
1,409
|
|
|
|
1,013
|
|
Other equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
944
|
|
|
|
56
|
|
|
|
1
|
|
|
|
944
|
|
|
|
56
|
|
Mutual funds
|
|
|
1
|
|
|
|
1,388
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,388
|
|
|
|
11
|
|
Trust preferred securities
|
|
|
3
|
|
|
|
774
|
|
|
|
223
|
|
|
|
10
|
|
|
|
6,835
|
|
|
|
6,271
|
|
|
|
13
|
|
|
|
7,609
|
|
|
|
6,494
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
2
|
|
|
|
3,929
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
3,929
|
|
|
|
8
|
|
Private-label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,318
|
|
|
|
204
|
|
|
|
2
|
|
|
|
1,318
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired available-for-sale securities
|
|
|
9
|
|
|
|
8,945
|
|
|
|
265
|
|
|
|
20
|
|
|
|
11,392
|
|
|
|
8,377
|
|
|
|
29
|
|
|
|
20,337
|
|
|
|
8,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
|
1
|
|
|
$
|
1,987
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
1,987
|
|
|
$
|
13
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
2
|
|
|
|
2,045
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2,045
|
|
|
|
49
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
3
|
|
|
|
3,835
|
|
|
|
8
|
|
|
|
1
|
|
|
|
789
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4,624
|
|
|
|
12
|
|
Private-label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
496
|
|
|
|
19
|
|
|
|
2
|
|
|
|
496
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired held-to-maturity securities
|
|
|
6
|
|
|
|
7,867
|
|
|
|
70
|
|
|
|
3
|
|
|
|
1,285
|
|
|
|
23
|
|
|
|
9
|
|
|
|
9,152
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
|
15
|
|
|
$
|
16,812
|
|
|
$
|
335
|
|
|
|
23
|
|
|
$
|
12,677
|
|
|
$
|
8,400
|
|
|
|
38
|
|
|
$
|
29,489
|
|
|
$
|
8,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss. An unrealized loss exists
when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in
Accumulated Other Comprehensive Income
(AOCI) for
available-for-sale securities, while such losses related to held-to-maturity securities are not recorded, as these investments are carried at their amortized cost.
Regardless of the classification of the securities as available-for-sale or held-to-maturity, the Company has assessed each position for other than temporary impairment.
18
Factors considered in determining whether a loss is temporary include:
|
|
|
the length of time and the extent to which fair value has been below cost;
|
|
|
|
the severity of the impairment;
|
|
|
|
the cause of the impairment and the financial condition and near-term prospects of the issuer;
|
|
|
|
activity in the market of the issuer which may indicate adverse credit conditions;
|
|
|
|
if the Company intends to sell the investment;
|
|
|
|
if its more-likely-than-not the Company will be required to sell the investment before recovering its amortized cost basis; and
|
|
|
|
if the Company does not expect to recover the investments entire amortized cost basis (even if the Company does not intend to sell the security).
|
The Companys review for impairment generally entails:
|
|
|
identification and evaluation of investments that have indications of possible impairment;
|
|
|
|
analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has
been in an unrealized loss position and the expected recovery period;
|
|
|
|
discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having
other-than-temporary impairment and those that would not support other-than-temporary impairment; and
|
|
|
|
documentation of the results of these analyses, as required under business policies.
|
For debt securities that are not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell or would
more-likely-than-not be required to sell the investment before the expected recovery of the amortized cost basis. Management has no intent to sell and believes it is more-likely-than-not that it will not be required to sell the investment before
recovery of its amortized cost basis.
Similarly, for equity securities, management considers the various factors described above, including
its intent and ability to hold the equity security for a period of time sufficient for recovery to amortized cost. Where management lacks that intent or ability, the securitys decline in fair value is deemed to be other-than-temporary and is
recorded in earnings.
For debt securities, a critical component of the evaluation for other-than-temporary impairment is the identification
of credit impaired securities, where management does not receive cash flows sufficient to recover the entire amortized cost basis of the security. The extent of the Companys analysis regarding credit quality and the stress on assumptions used
in the analysis had been refined for securities where the current fair value or other characteristics of the security warrant. The paragraphs below describe the Companys process for identifying credit impairment in security types with the most
significant unrealized losses as of June 30, 2012.
Trust Preferred Debt Securities
Included in debt securities in an unrealized loss position at June 30, 2012 were twelve different trust preferred offerings with an aggregate fair
value of $7.7 million, all of which had floating rates based on LIBOR. The unrealized losses on these debt securities amounted to $6.1 million at June 30, 2012. Due to dislocations in the credit markets broadly, and the lack of trading and new
issuances in trust preferred securities, market price indications generally reflect the lack of liquidity in the market. Prices on pooled trust preferred securities were calculated by a third party valuation company. The valuation methodology is
based on the premise that the fair value of the securitys collateral should approximate the fair value of its liabilities. In general, the spreads for trust preferred collateral have widened by over 500 basis points since 2007. To determine
the decline in the collaterals value associated with this increase in credit spreads, the third party projected collateral cash flows for each pool using Intex, the commonly used modeling software for securities of this type. Once generated,
the cash flows for each pool were discounted at the applicable rate to arrive at the fair value of the collateral. Any declines in the resulting fair value of the collateral below the par value represent the component of loss attributed to credit
risk. The credit quality of each collateral pool was then analyzed for the purpose of projecting defaults and recoveries.
19
Prepayment assumptions were also estimated. With these additional assumptions, cash flow projections for
both the collateral and the debt obligation were modeled and valued. The fair value of each bond was then determined by discounting the projected cash flows by an adjusted discount rate (adjusted to capture the default risk). Key assumptions in the
valuation model are described below:
Discount rate
: In accordance with EITF 99-20-b, the discount rate used for impairment testing is
the current yield used to accrete the beneficial interest. Specifically, for securities with fixed rate coupons, the discount rate is equal to the bonds yield to maturity, calculated at the purchase price. For floating rate securities, the
discount rate is equal to the bonds spread to maturity, calculated at the purchase price, plus the forward curve for the benchmark index, which is generally 3-month LIBOR.
Deferrals and defaults
: For performing bank issuers, defaults are projected using an internal CAMELS model developed by the third party preparing the valuations. Issuers that have CAMELS ratings of
4 or 5, and fail a second level stress test, are assigned default probabilities of either 50% or 100%. Banks that pass these default thresholds are projected to default at an annual rate of 2% for 2 years, and 36 basis points every year thereafter.
Defaults of insurance company and REIT issuers are projected at the average historical rates for their credit ratings. To account for current economic stresses, these default rates are doubled for insurance companies in each of the first two years
of the projection. Ratings of CCC- are assigned to unrated issuers, and assume immediate defaults for issuers with ratings below CCC-. The model assumes that all issues in deferral will default immediately, unless they have entered into definitive
agreements to either be acquired, or raise material amounts of capital. In addition, there are different recovery assumptions for deferrals and defaults. For collateral issued by failed banks, insurance companies and REITs, a conservative assumption
of zero is modeled for recoveries. For deferring bank collateral, recoveries of 10% are assumed to account for the potential for cures, as well to be consistent with the small recoveries historically associated with TruPS. The model incorporates
deferrals announced after the balance sheet date into the cash flow projections, to the extent that they are not already contained in the default projections.
Prepayment rate
: Generally, TruPS are callable at par after a 5-year lockout. For deals with issues that have high, fixed rate coupons in excess of 8%, or floating rate spreads greater than 300
basis points, its assumed that profitable, well capitalized banks will have the economic incentive to call their TruPS within one year. In addition, its assumed that banks subject to Dodd-Franks phase-out of TruPS from Tier 1
capital will prepay their issues in the middle of 2013. For mezzanine positions, increasing the prepayment assumptions would result in increased credit losses due to the reduction in the excess spread available to service our bonds. For senior
positions, the credit effect would be neutral to positive because increases in prepayments would result in faster return of principal and lower aggregate defaults, all else equal. However, the prepayment assumptions did not change during the year.
During the three months ended June 30, 2012 and 2011, the Company did not incur any impairment charges to earnings on trust preferred
debt securities. During the nine months ended June 30, 2012, the Company recognized in earnings impairment charges of $20,000 on an investment in a pooled trust preferred security. The impairment charges on the pooled trust preferred security
resulted from several factors, including a downgrade on its credit ratings, failure to pass its principal coverage test, indications of a break in yield, and the decline in the net present value of its projected cash flows. During the nine months
ended June 30, 2011, the Company recognized impairment charges of $1.0 million on five investments in pooled trust preferred securities and $135,000 on a single issuer trust preferred security. The impairment charges on the pooled trust
preferred securities resulted from several factors, including a downgrade on their credit ratings, failure to pass their principal coverage tests, indications of a break in yield, and the decline in the net present value of their projected cash
flows. The impairment charges on the single issuer trust preferred security resulted from the financial institution being put on regulatory order after several quarters of losses and it started deferring interest payments on both its trust preferred
and its TARP preferred shares outstanding. Based on cash flow forecasts for the remaining securities, management expects to recover the remaining amortized cost of these securities. Furthermore, the Company does not intend to sell these securities
and it is not more-likely-than-not that the Company will be required to sell these securities before recovery of their cost basis, which may be at maturity.
20
The following table provides additional detail for each
trust preferred security in the Companys portfolio as of June 30, 2012 (Dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal
|
|
Type
|
|
Class
|
|
Moodys/Fitch Rating
|
|
Face Value
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Unrealized
Gain/Loss
|
|
|
A
|
|
|
B
|
|
|
C
|
|
|
D
|
|
Alesco XVII
|
|
Pooled
|
|
B
|
|
C/CC
|
|
$
|
2,086
|
|
|
$
|
574
|
|
|
$
|
209
|
|
|
$
|
(365
|
)
|
|
|
34
|
|
|
|
27.24
|
%
|
|
|
4.57
|
%
|
|
|
-18.70
|
%
|
I-PRETSL I
|
|
Pooled
|
|
A-1
|
|
NA/AA
|
|
|
210
|
|
|
|
210
|
|
|
|
195
|
|
|
|
(15
|
)
|
|
|
14
|
|
|
|
9.26
|
%
|
|
|
8.87
|
%
|
|
|
92.20
|
%
|
I-PRETSL I
|
|
Pooled
|
|
B-2
|
|
NA/CCC
|
|
|
2,200
|
|
|
|
2,200
|
|
|
|
1,254
|
|
|
|
(946
|
)
|
|
|
14
|
|
|
|
9.26
|
%
|
|
|
8.87
|
%
|
|
|
21.81
|
%
|
I-PRETSL III
|
|
Pooled
|
|
B-2
|
|
B2/CCC
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
2,850
|
|
|
|
(2,150
|
)
|
|
|
22
|
|
|
|
7.95
|
%
|
|
|
9.34
|
%
|
|
|
28.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
MM Community Funding
|
|
Pooled
|
|
B
|
|
Ca/C
|
|
|
1,000
|
|
|
|
390
|
|
|
|
280
|
|
|
|
(110
|
)
|
|
|
8
|
|
|
|
21.14
|
%
|
|
|
6.34
|
%
|
|
|
-82.82
|
%
|
PRETSL IV
|
|
Pooled
|
|
Mezzanine
|
|
Ca/CCC
|
|
|
244
|
|
|
|
244
|
|
|
|
185
|
|
|
|
(59
|
)
|
|
|
4
|
|
|
|
2.06
|
%
|
|
|
6.44
|
%
|
|
|
14.23
|
%
|
PRETSL V
|
|
Pooled
|
|
Mezzanine
|
|
C/D
|
|
|
63
|
|
|
|
11
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
5.46
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
PRETSL VIII
|
|
Pooled
|
|
B-3
|
|
C/C
|
|
|
1,342
|
|
|
|
233
|
|
|
|
93
|
|
|
|
(140
|
)
|
|
|
19
|
|
|
|
42.18
|
%
|
|
|
-6.38
|
%
|
|
|
-97.81
|
%
|
PRETSL XVIII
|
|
Pooled
|
|
B
|
|
Caa3/CC
|
|
|
2,056
|
|
|
|
2,015
|
|
|
|
247
|
|
|
|
(1,768
|
)
|
|
|
49
|
|
|
|
29.61
|
%
|
|
|
7.86
|
%
|
|
|
-6.11
|
%
|
PRETSL XXI
|
|
Pooled
|
|
C-2
|
|
C/C
|
|
|
1,156
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
49
|
|
|
|
27.91
|
%
|
|
|
11.65
|
%
|
|
|
-23.15
|
%
|
PRETSL XXIV
|
|
Pooled
|
|
D
|
|
C/C
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
32.96
|
%
|
|
|
12.19
|
%
|
|
|
-44.71
|
%
|
Regional Diversified Funding 2004-1
|
|
Pooled
|
|
B-2
|
|
Ca/D
|
|
|
2,513
|
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
23
|
|
|
|
44.86
|
%
|
|
|
11.94
|
%
|
|
|
-71.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
BankAmerica Capital
|
|
Single-Issuer
|
|
NA
|
|
Ba1/BB
|
|
|
1,000
|
|
|
|
954
|
|
|
|
806
|
|
|
|
(148
|
)
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Fleet Capital Trust V
|
|
Single-Issuer
|
|
NA
|
|
Ba1/BB
|
|
|
1,000
|
|
|
|
928
|
|
|
|
806
|
|
|
|
(122
|
)
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Chase Capital II
|
|
Single-Issuer
|
|
NA
|
|
A2/BBB
|
|
|
1,000
|
|
|
|
954
|
|
|
|
721
|
|
|
|
(233
|
)
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Trust Preferred
|
|
Single-Issuer
|
|
NA
|
|
Baa3/BB+
|
|
|
250
|
|
|
|
250
|
|
|
|
251
|
|
|
|
1
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Valley National Trust Preferred
|
|
Single-Issuer
|
|
NA
|
|
WR/NA
|
|
|
187
|
|
|
|
187
|
|
|
|
191
|
|
|
|
4
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,150
|
|
|
$
|
8,156
|
|
|
$
|
(5,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
-
|
Number of unique, currently performing issuers
|
B
-
|
Deferrals and defaults as a percentage of original collateral
|
C
-
|
Deferrals and defaults as a percentage of currently performing collateral. The values in this field represent our estimate of the percentage of currently performing
collateral that will default over the life of each deal.
|
D
-
|
Excess subordination as a percentage of currently performing collateral. Excess subordination represents the percentage of currently performing collateral that would
need to default/(cure) for a bond to be fully collateralized. Excess subordination is calculated by subtracting the total principal balance of the class being evaluated, and all the classes senior to it, from the total performing collateral, and
dividing the result by the total performing collateral.
|
Equity Securities in Financial Institutions
At June 30, 2012 the Company had $83,000 of unrealized losses on equity securities in financial institutions. These securities represent investments in common equity offerings of three financial
institutions with an aggregate fair value of $720,000. In addition to the general factors mentioned above for determining whether the decline in market value is other than temporary, the analysis of each of these securities includes a review of the
profitability of each issuer and its capital adequacy, and all data available to determine the credit quality of each issuer. There were no impairment charges taken on these securities during the three months ended June 30, 2012 and 2011.
During the nine months ended June 30, 2012, the Company recognized in earnings impairment charges of $878,000 on three investments in common stock holdings of local financial institutions resulting from the duration and extent to which the
market value has been less than the cost and the performance of the financial institution. During the nine months ended June 30, 2011, the Company recognized in earnings impairment charges of $87,000 on one investment in common stock of a local
financial institution resulting from the duration and extent to which the
21
market value has been less than the cost and the performance of the financial institution. Based on the Companys detailed analysis, and because the Company has the ability and intent to
hold the investments until a recovery of its amortized cost basis, except for the investment mentioned above, the Company does not consider these assets to be other-than-temporarily impaired at June 30, 2012. However, continued price declines
could result in a write down of one or more of these equity investments.
Corporate Obligations
Included in corporate obligations in an unrealized loss position at June 30, 2012 were two different securities with an aggregate fair value of $5.9
million. The unrealized loss on these securities amounted to $363,000 at June 30, 2012. One of these securities represents an investment in a corporate obligation issued by a financial institution and has a floating rate which resets monthly
based on LIBOR. In addition to the general factors mentioned above for determining whether the decline in market value is other-than-temporary, the analysis of this security included a review of the profitability of the issuer and its capital
adequacy, and all data available to determine the credit quality of the issuer. The issuer was well capitalized as of June 30, 2012 and the security has an investment grade rating as rated by at least one nationally recognized credit rating
agency. The institution had participated in the Treasurys TARP Capital Purchase Program and has subsequently repaid the TARP proceeds. Based on the Companys detailed analysis and because the Company has the ability and intent to hold
these investments until a recovery of its amortized cost basis, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2012. There were no impairment charges on corporate obligations for the three and
nine months ended June 30, 2012 and 2011.
Private-Label Collateralized Mortgage Obligations
Included in private-label collateralized mortgage obligations in an unrealized loss position at June 30, 2012 were two different securities with an
aggregate fair value of $1.2 million. The unrealized loss on these securities amounted to $130,000 at June 30, 2012. For the three months ended June 30, 2012, the Company did not incur any impairment charges to earnings on these
securities. For the nine months ended June 30, 2012 the Company recognized $52,000 of credit impairment losses relating to one private label mortgage-backed security. The impairment losses were a result of a downgrade in its credit rating, as
well as independent third-party analysis of the underlying collateral for the bond. For the three months ended June 30, 2011 the Company recognized $55,000 of credit impairment losses relating to this security. For the nine months ended
June 30, 2011 the Company recognized $142,000 of credit impairment losses relating to this security. Based on managements analysis of the remaining securities, management determined that the price declines are strictly market and spread
related and management expects to recover the remaining amortized cost of these securities. Furthermore, the Company does not intend to sell these securities and believes it is not more-likely-than-not that the Company will be required to sell these
securities before recovery of their cost basis, which may be at maturity.
On March 1, 2012, the private label CMO security noted below,
for which impairment charges have been taken, was transferred from the held-to-maturity (HTM) portfolio to the available-for-sale (AFS) portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cusip #
|
|
Description
|
|
|
Par Value
|
|
|
Book Value
|
|
|
Market Value
|
|
949773AB1
|
|
|
WFMBS 2007-6A
|
|
|
$
|
981,512.72
|
|
|
$
|
673,311.41
|
|
|
$
|
674,299.24
|
|
In accordance with FASB codification 320-10-25-6a, evidence of a significant deterioration in the issuers creditworthiness (for
example, a downgrading of an issuers published credit rating) would be a change in circumstance that would cause an entity to change its intent to hold a security to maturity without calling into question its intent to hold other debt
securities to maturity in the future. The sale or transfer of a HTM security for this reason shall not be considered inconsistent with its original classification.
The Companys intent to hold this security to maturity changed because of the significant deterioration in the issuers (Wells Fargo) creditworthiness. The security was purchased on
June 15, 2007 and was rated AAA by Fitch and Aaa by Moodys on that date. Since the time of purchase, the security was downgraded six times by Moodys and four times by Fitch. The security was downgraded to below investment grade on
December 16, 2008 and April
22
8, 2009 by Moodys and Fitch, respectively. Other-than-temporary impairment (OTTI) losses were first recognized in June 2010 and continued each consecutive quarter through
December 2011. Total OTTI losses were $312,614 relating to this security. All private-label CMOs in the HTM portfolio were reviewed for transferability to AFS. As of December 31, 2011, the Company had six private-label CMO securities in
its HTM portfolio with a book value of $1.8 million. Of these six securities, three were at an unrealized gain position, two were at an unrealized loss position, and the security noted above was written down to its market value. Of the two
securities at an unrealized loss position, one paid off in February 2012 and the other continues to make payments and retains its investment grade rating. There were no OTTI losses recognized on any private-label CMOs in the HTM portfolio
other than the security transferred to AFS. On March 7, 2012, the Company subsequently sold the transferred security and recognized a loss of $45,143.
The following is a roll forward for the nine months ended June 30, 2012 of the amounts recognized in earnings related to credit losses on securities which the Company has recorded
other-than-temporary impairment charges through earnings and other comprehensive income:
|
|
|
|
|
|
|
(In Thousands)
|
|
Credit component of OTTI as of October 1, 2011
|
|
$
|
5,001
|
|
Additions for credit-related OTTI charges on previously unimpaired securities
|
|
|
|
|
Additions for credit-related OTTI charges on previously impaired securities
|
|
|
72
|
|
|
|
|
|
|
Credit component of OTTI as of June 30, 2012
|
|
$
|
5,073
|
|
|
|
|
|
|
(7)
Loans Receivable and Related Allowance for Loan Losses
The following table summarizes the primary segments of the loan portfolio as
of June 30, 2012 and September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
1,660
|
|
|
$
|
110,354
|
|
|
$
|
112,014
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
7,581
|
|
|
|
52,009
|
|
|
|
59,590
|
|
All other commercial real estate
|
|
|
3,541
|
|
|
|
21,261
|
|
|
|
24,802
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
|
|
|
|
2,666
|
|
|
|
2,666
|
|
Commercial construction loans
|
|
|
2,393
|
|
|
|
11,588
|
|
|
|
13,981
|
|
Home equity loans
|
|
|
205
|
|
|
|
61,553
|
|
|
|
61,758
|
|
Consumer loans
|
|
|
|
|
|
|
2,472
|
|
|
|
2,472
|
|
Commercial business and lease loans
|
|
|
2,151
|
|
|
|
59,383
|
|
|
|
61,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,531
|
|
|
$
|
321,286
|
|
|
$
|
338,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Total
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
1,666
|
|
|
$
|
116,802
|
|
|
$
|
118,468
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
9,487
|
|
|
|
51,153
|
|
|
|
60,640
|
|
All other commercial real estate
|
|
|
7,176
|
|
|
|
15,005
|
|
|
|
22,181
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
|
|
|
|
7,236
|
|
|
|
7,236
|
|
Commercial construction loans
|
|
|
1,515
|
|
|
|
13,356
|
|
|
|
14,871
|
|
Home equity loans
|
|
|
213
|
|
|
|
66,474
|
|
|
|
66,687
|
|
Consumer loans
|
|
|
|
|
|
|
2,510
|
|
|
|
2,510
|
|
Commercial business and lease loans
|
|
|
1,858
|
|
|
|
57,597
|
|
|
|
59,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,915
|
|
|
$
|
330,133
|
|
|
$
|
352,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The segments of the Banks loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The
residential mortgage loan segment is made up of fixed rate and adjustable rate single-family amortizing term loans, which are primarily first liens. The commercial real estate (CRE) loan segment is further disaggregated into two classes.
Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include multifamily structures and owner-occupied commercial
structures. The construction loan segment is further disaggregated into two classes. One to four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a
residential dwelling is to be built. Commercial construction loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. Construction lending is generally
considered to involve a higher degree of credit risk than long-term permanent financing. If the estimate of construction cost proves to be inaccurate, the Bank may be compelled to advance additional funds to complete the construction with repayment
dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Bank is forced to foreclose on a project prior to completion, there is no assurance that it will be able to
recover the entire unpaid portion of the loan. In addition, the Bank may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. The commercial business and lease loan
segment consists of loans made for the purpose of financing the activities of commercial customers. The home equity loan segment consists primarily of home equity loans, which are generally second liens. The consumer loan segment consists of motor
vehicle loans, savings account loans, personal lines of credit, overdraft loans, other types of secured consumer loans, and unsecured personal loans.
Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $50,000 and if the loan either is in nonaccrual status, or is risk rated
Substandard. Loans are considered to be 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 evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. 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. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship
that is impaired, or are classified as a troubled debt restructuring agreement.
Once the determination has been made that a loan is impaired,
the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future
cash flows discounted at the loans effective interest rate; (b) the loans observable market price; or (c) the fair value of the collateral less selling costs.
24
The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of
collateral method, which is required for loans that are collateral dependent. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a monthly basis. The
Companys policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The
following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of June 30, 2012 and September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
Specific Allowance
|
|
|
Impaired
Loans with
No Specific
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
1,652
|
|
|
$
|
1,660
|
|
|
$
|
1,660
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
6,093
|
|
|
|
839
|
|
|
|
1,488
|
|
|
|
7,581
|
|
|
|
7,675
|
|
All other commercial real estate
|
|
|
|
|
|
|
|
|
|
|
3,541
|
|
|
|
3,541
|
|
|
|
3,541
|
|
Commercial construction loans
|
|
|
|
|
|
|
|
|
|
|
2,393
|
|
|
|
2,393
|
|
|
|
2,393
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
205
|
|
|
|
205
|
|
Commercial business and lease loans
|
|
|
566
|
|
|
|
47
|
|
|
|
1,585
|
|
|
|
2,151
|
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
6,667
|
|
|
$
|
887
|
|
|
$
|
10,864
|
|
|
$
|
17,531
|
|
|
$
|
17,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,666
|
|
|
$
|
1,666
|
|
|
$
|
1,666
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
7,742
|
|
|
|
993
|
|
|
|
1,745
|
|
|
|
9,487
|
|
|
|
10,181
|
|
All other commercial real estate
|
|
|
4,746
|
|
|
|
910
|
|
|
|
2,430
|
|
|
|
7,176
|
|
|
|
7,278
|
|
Commercial construction loans
|
|
|
|
|
|
|
|
|
|
|
1,515
|
|
|
|
1,515
|
|
|
|
1,515
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
213
|
|
|
|
213
|
|
Commercial business and lease loans
|
|
|
1,344
|
|
|
|
601
|
|
|
|
514
|
|
|
|
1,858
|
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
13,832
|
|
|
$
|
2,504
|
|
|
$
|
8,083
|
|
|
$
|
21,915
|
|
|
$
|
22,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are certain impaired loans whose payments are being applied to reduce the principal balance of the loan because the recovery of
interest is not determinable. The unpaid principal balance reflects the balance as if the payments were applied in accordance with the terms of the original contractual agreement whereas the recorded investment reflects the outstanding principal
balance for financial reporting purposes.
25
The following table presents the average recorded investment in impaired loans and related interest income
recognized for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
on an
Accrual
Basis
|
|
|
Interest
Income
Recognized
on a Cash
Basis
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
on an
Accrual
Basis
|
|
|
Interest
Income
Recognized
on a Cash
Basis
|
|
Residential loans
|
|
$
|
1,663
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
835
|
|
|
$
|
73
|
|
|
$
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
7,562
|
|
|
|
3
|
|
|
|
54
|
|
|
|
8,303
|
|
|
|
141
|
|
|
|
29
|
|
All other commercial real estate
|
|
|
3,558
|
|
|
|
|
|
|
|
39
|
|
|
|
8,165
|
|
|
|
12
|
|
|
|
117
|
|
Commercial construction loans
|
|
|
1,917
|
|
|
|
18
|
|
|
|
26
|
|
|
|
821
|
|
|
|
49
|
|
|
|
|
|
Home equity loans
|
|
|
207
|
|
|
|
|
|
|
|
3
|
|
|
|
59
|
|
|
|
5
|
|
|
|
|
|
Commercial business and lease loans
|
|
|
2,121
|
|
|
|
6
|
|
|
|
33
|
|
|
|
1,532
|
|
|
|
29
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
17,028
|
|
|
$
|
27
|
|
|
$
|
179
|
|
|
$
|
19,715
|
|
|
$
|
309
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2012
|
|
|
Nine Months Ended June 30, 2011
|
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
on an
Accrual
Basis
|
|
|
Interest
Income
Recognized
on a Cash
Basis
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
on an
Accrual
Basis
|
|
|
Interest
Income
Recognized
on a Cash
Basis
|
|
Residential loans
|
|
$
|
1,666
|
|
|
$
|
|
|
|
$
|
68
|
|
|
$
|
464
|
|
|
$
|
73
|
|
|
$
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
7,586
|
|
|
|
33
|
|
|
|
176
|
|
|
|
7,675
|
|
|
|
141
|
|
|
|
153
|
|
All other commercial real estate
|
|
|
4,669
|
|
|
|
|
|
|
|
180
|
|
|
|
8,855
|
|
|
|
12
|
|
|
|
364
|
|
Commercial construction loans
|
|
|
1,706
|
|
|
|
18
|
|
|
|
50
|
|
|
|
410
|
|
|
|
49
|
|
|
|
|
|
Home equity loans
|
|
|
209
|
|
|
|
|
|
|
|
8
|
|
|
|
29
|
|
|
|
5
|
|
|
|
|
|
Commercial business and lease loans
|
|
|
2,061
|
|
|
|
18
|
|
|
|
116
|
|
|
|
1,336
|
|
|
|
31
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
17,897
|
|
|
$
|
69
|
|
|
$
|
598
|
|
|
$
|
18,769
|
|
|
$
|
311
|
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management uses an eight point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first four
categories are considered not criticized, and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are
currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the
orderly liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past payment due date are considered Substandard. Loans which are 90 days past
their contractual maturity date are analyzed individually to determine impairment, classification and accrual status. As of June 30, 2012, there were $3.8 million of commercial construction loans and $1.6 million of commercial business loans
which were more than 90 days past their contractual maturity date but were otherwise performing in accordance with their terms and were not considered impaired or classified, and were also accruing interest. In general, these loans are either in the
process of renewing or paying off. Loans in the Doubtful category have all the weaknesses found in Substandard loans, with the added provision that the weaknesses make collection of debt in full highly questionable and improbable. Any portion of a
loan that has been charged off is placed in the Loss category.
26
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to
repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. The Banks Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their
portfolios at origination and on an ongoing basis. The Credit Analysis Department confirms the appropriate risk grade at origination and monitors all subsequent changes to risk ratings. The Banks Classified Asset Committee approves all risk
rating changes, except those made within the pass risk ratings. The Bank engages an external consultant to conduct loan reviews on a quarterly basis. Generally, the external consultant reviews commercial relationships that equal or exceed
$1,000,000, 10% of the number of loans under $1,000,000, and adversely classified commercial credits in excess of $50,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis. Loans
in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful within the internal risk rating
system as of June 30, 2012 and September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
$
|
51,292
|
|
|
$
|
4,124
|
|
|
$
|
4,174
|
|
|
$
|
|
|
|
$
|
59,590
|
|
All other commercial real estate
|
|
|
20,348
|
|
|
|
|
|
|
|
4,454
|
|
|
|
|
|
|
|
24,802
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,666
|
|
Commercial construction loans
|
|
|
11,588
|
|
|
|
|
|
|
|
2,393
|
|
|
|
|
|
|
|
13,981
|
|
Commercial business and lease loans
|
|
|
59,383
|
|
|
|
178
|
|
|
|
1,973
|
|
|
|
|
|
|
|
61,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145,277
|
|
|
$
|
4,302
|
|
|
$
|
12,994
|
|
|
$
|
|
|
|
$
|
162,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
$
|
48,237
|
|
|
$
|
6,221
|
|
|
$
|
6,182
|
|
|
$
|
|
|
|
$
|
60,640
|
|
All other commercial real estate
|
|
|
14,142
|
|
|
|
|
|
|
|
8,039
|
|
|
|
|
|
|
|
22,181
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
7,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,236
|
|
Commercial construction loans
|
|
|
13,356
|
|
|
|
|
|
|
|
1,515
|
|
|
|
|
|
|
|
14,871
|
|
Commercial business and lease loans
|
|
|
57,251
|
|
|
|
458
|
|
|
|
1,736
|
|
|
|
10
|
|
|
|
59,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
140,222
|
|
|
$
|
6,679
|
|
|
$
|
17,472
|
|
|
$
|
10
|
|
|
$
|
164,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents (in thousands) the classes of the loan portfolio for which loan
performance is the primary credit quality indicator.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Loans
|
|
|
Home Equity
Loans
|
|
|
Consumer
Loans
|
|
|
Total
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
110,947
|
|
|
$
|
61,422
|
|
|
$
|
2,463
|
|
|
$
|
174,832
|
|
Non-performing loans
|
|
|
1,067
|
|
|
|
336
|
|
|
|
9
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,014
|
|
|
$
|
61,758
|
|
|
$
|
2,472
|
|
|
$
|
176,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing loans
|
|
$
|
116,704
|
|
|
$
|
65,961
|
|
|
$
|
2,510
|
|
|
$
|
185,175
|
|
Non-performing loans
|
|
|
1,764
|
|
|
|
726
|
|
|
|
|
|
|
|
2,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,468
|
|
|
$
|
66,687
|
|
|
$
|
2,510
|
|
|
$
|
187,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of
the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2012 and
September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
30 - 59
Days Past
Due
|
|
|
60 - 89
Days Past
Due
|
|
|
90 Days+
Past Due
|
|
|
Total Past
Due
|
|
|
Non-
Accrual
|
|
|
Total
Loans
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
108,105
|
|
|
$
|
791
|
|
|
$
|
2,032
|
|
|
$
|
19
|
|
|
$
|
2,842
|
|
|
$
|
1,067
|
|
|
$
|
112,014
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
54,951
|
|
|
|
275
|
|
|
|
148
|
|
|
|
190
|
|
|
|
613
|
|
|
|
4,026
|
|
|
|
59,590
|
|
All other commercial real estate
|
|
|
23,953
|
|
|
|
218
|
|
|
|
551
|
|
|
|
|
|
|
|
769
|
|
|
|
80
|
|
|
|
24,802
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,666
|
|
Commercial construction loans
|
|
|
10,175
|
|
|
|
|
|
|
|
|
|
|
|
3,806
|
|
|
|
3,806
|
|
|
|
|
|
|
|
13,981
|
|
Home equity loans
|
|
|
60,046
|
|
|
|
284
|
|
|
|
162
|
|
|
|
930
|
|
|
|
1,376
|
|
|
|
336
|
|
|
|
61,758
|
|
Consumer loans
|
|
|
2,346
|
|
|
|
74
|
|
|
|
43
|
|
|
|
|
|
|
|
117
|
|
|
|
9
|
|
|
|
2,472
|
|
Commercial business and lease loans
|
|
|
57,209
|
|
|
|
556
|
|
|
|
1,364
|
|
|
|
1,622
|
|
|
|
3,542
|
|
|
|
783
|
|
|
|
61,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
319,451
|
|
|
$
|
2,198
|
|
|
$
|
4,300
|
|
|
$
|
6,567
|
|
|
$
|
13,065
|
|
|
$
|
6,301
|
|
|
$
|
338,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans
|
|
$
|
112,633
|
|
|
$
|
3,088
|
|
|
$
|
983
|
|
|
$
|
|
|
|
$
|
4,071
|
|
|
$
|
1,764
|
|
|
$
|
118,468
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
52,146
|
|
|
|
1,041
|
|
|
|
749
|
|
|
|
2,306
|
|
|
|
4,096
|
|
|
|
4,398
|
|
|
|
60,640
|
|
All other commercial real estate
|
|
|
19,387
|
|
|
|
2,220
|
|
|
|
574
|
|
|
|
|
|
|
|
2,794
|
|
|
|
|
|
|
|
22,181
|
|
Construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential construction loans
|
|
|
7,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,236
|
|
Commercial construction loans
|
|
|
13,231
|
|
|
|
|
|
|
|
|
|
|
|
1,640
|
|
|
|
1,640
|
|
|
|
|
|
|
|
14,871
|
|
Home equity loans
|
|
|
64,904
|
|
|
|
197
|
|
|
|
315
|
|
|
|
545
|
|
|
|
1,057
|
|
|
|
726
|
|
|
|
66,687
|
|
Consumer loans
|
|
|
2,450
|
|
|
|
52
|
|
|
|
4
|
|
|
|
4
|
|
|
|
60
|
|
|
|
|
|
|
|
2,510
|
|
Commercial business and lease loans
|
|
|
55,900
|
|
|
|
2,048
|
|
|
|
447
|
|
|
|
1,051
|
|
|
|
3,546
|
|
|
|
9
|
|
|
|
59,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
327,887
|
|
|
$
|
8,646
|
|
|
$
|
3,072
|
|
|
$
|
5,546
|
|
|
$
|
17,264
|
|
|
$
|
6,897
|
|
|
$
|
352,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An allowance for loan and lease losses (ALLL) is maintained to absorb losses from the loan portfolio. The ALLL is based on
managements continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss
experience, and the amount of non-performing loans.
The classes described above, provide the starting point for the ALLL analysis. Management
tracks the historical net charge-off activity by loan class. A historical charge-off factor is calculated and applied to each class. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.
For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. Other qualitative factors are also considered.
Pass rated credits are segregated from Criticized credits for the application of qualitative factors. Management has identified a number of qualitative factors which it uses to
supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The qualitative factors are evaluated quarterly and
updated using information obtained from internal, regulatory, and governmental sources. The Banks qualitative factors consist of: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual
loans; levels of and trends in the Banks borrowers in bankruptcy; trends in volumes and terms of loans; effects of changes in lending policies and strategies; and concentrations of credit from a loan type, industry and/or geographic
standpoint.
28
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in
order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.
The following table summarizes the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and
the amount required for loans collectively evaluated for impairment. Activity in the allowance is presented for the nine months ended June 30, 2012 and the twelve months ended September 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2012
|
|
|
|
Residential
Loans
|
|
|
Commercial
Real Estate
Loans
|
|
|
Installment
Loans
|
|
|
Commercial
Business and
Lease Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL balance at September 30, 2011
|
|
$
|
395
|
|
|
$
|
2,904
|
|
|
$
|
396
|
|
|
$
|
1,947
|
|
|
$
|
121
|
|
|
$
|
5,763
|
|
Charge-offs
|
|
|
(76
|
)
|
|
|
(2,318
|
)
|
|
|
(73
|
)
|
|
|
(591
|
)
|
|
|
|
|
|
|
(3,058
|
)
|
Recoveries
|
|
|
|
|
|
|
190
|
|
|
|
7
|
|
|
|
111
|
|
|
|
|
|
|
|
308
|
|
Provision
|
|
|
58
|
|
|
|
1,283
|
|
|
|
5
|
|
|
|
50
|
|
|
|
(121
|
)
|
|
|
1,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL balance at June 30, 2012
|
|
$
|
377
|
|
|
$
|
2,059
|
|
|
$
|
335
|
|
|
$
|
1,517
|
|
|
$
|
|
|
|
$
|
4,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1
|
|
|
$
|
839
|
|
|
$
|
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
376
|
|
|
$
|
1,220
|
|
|
$
|
335
|
|
|
$
|
1,470
|
|
|
$
|
|
|
|
$
|
3,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2011
|
|
|
|
Residential
Loans
|
|
|
Commercial
Real Estate
Loans
|
|
|
Installment
Loans
|
|
|
Commercial
Business and
Lease Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALLL balance at September 30, 2010
|
|
$
|
236
|
|
|
$
|
3,300
|
|
|
$
|
371
|
|
|
$
|
1,914
|
|
|
$
|
|
|
|
$
|
5,821
|
|
Charge-offs
|
|
|
(30
|
)
|
|
|
(714
|
)
|
|
|
(142
|
)
|
|
|
(428
|
)
|
|
|
|
|
|
|
(1,314
|
)
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
41
|
|
|
|
|
|
|
|
56
|
|
Provision
|
|
|
189
|
|
|
|
318
|
|
|
|
152
|
|
|
|
420
|
|
|
|
121
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL balance at September 30, 2011
|
|
$
|
395
|
|
|
$
|
2,904
|
|
|
$
|
396
|
|
|
$
|
1,947
|
|
|
$
|
121
|
|
|
$
|
5,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
|
|
|
$
|
1,903
|
|
|
$
|
|
|
|
$
|
601
|
|
|
$
|
|
|
|
$
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
395
|
|
|
$
|
1,001
|
|
|
$
|
396
|
|
|
$
|
1,346
|
|
|
$
|
121
|
|
|
$
|
3,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended June 30, 2012, the provision of $1.3 million allocated to commercial real estate loans is primarily due
to one commercial property. The Company foreclosed on the property and incurred expenses which exceeded the estimated cost previously reserved for in the allowance for loan losses.
The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss
ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALLL that is representative of the risk found in the components of the portfolio at any given date.
The Companys loan portfolio also includes certain loans that have been modified in a troubled debt restructuring (TDR), where economic
concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Companys loss mitigation activities and could include reductions in the interest
rate, payment extensions, forgiveness of principal, forbearance or other actions. At June 30, 2012 the Company had one home equity loan totaling $60,000 and one residential loan totaling $135,000 that are TDRs and are classified as
nonperforming. All other TDRs are making payments in accordance with the new loan agreements. There are no commitments to lend additional funds to these borrowers. At June 30, 2011 the Company did not have any TDRs that
were classified as nonperforming.
29
When the Company modifies a loan, management evaluates any possible impairment based on the present value of
expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole remaining source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses
the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan is less than the recorded investment in the loan, impairment is recognized by segment of
class of loan, as applicable, through a charge-off to the allowance. Segment and class status is determined by the loans classification at origination. As of June 30, 2012 a specific reserve of $29,000 has been established against one
commercial real estate loan, one commercial business loan, and one residential loan modified in a troubled debt restructuring. At June 30, 2011 a specific reserve of $138,000 had been established against one commercial real estate loan modified
in a troubled debt restructuring.
Loan modifications that are considered TDRs completed during
the three and nine months ended June 30, 2012 and 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
(Dollar amounts in thousands)
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
Residential loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6
|
|
|
$
|
1,671
|
|
|
$
|
1,671
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3,421
|
|
|
|
3,298
|
|
Commercial construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,641
|
|
|
|
1,641
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
117
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
11
|
|
|
$
|
6,850
|
|
|
$
|
6,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
Pre-Modification
|
|
|
Post-Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
(Dollar amounts in thousands)
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
Residential loans
|
|
|
1
|
|
|
$
|
9
|
|
|
$
|
9
|
|
|
|
6
|
|
|
$
|
1,671
|
|
|
$
|
1,671
|
|
Commercial real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner-occupied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
3,421
|
|
|
|
3,298
|
|
Commercial construction loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,641
|
|
|
|
1,641
|
|
Home equity loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
117
|
|
|
|
117
|
|
Commercial business and lease loans
|
|
|
1
|
|
|
|
73
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
82
|
|
|
$
|
82
|
|
|
|
11
|
|
|
$
|
6,850
|
|
|
$
|
6,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The restructuring of these loans include extension of the loan terms, accepting interest only payments, and resetting the interest
rate.
As of June 30, 2012, one residential loan modification classified as TDR subsequently defaulted. The balance of this
loan was $135,000. As of June 30, 2011, none of the loan modifications classified as TDRs subsequently defaulted.
30
(8)
Derivative Instruments
The Company accounts for its derivative instruments as either assets or liabilities on the balance sheet at fair value through
adjustments to either the hedged items, accumulated other comprehensive income (loss), or current earnings, as appropriate. As part of its overall interest rate risk management activities, the Company utilizes derivative instruments to manage its
exposure to various types of interest rate risk. These derivative instruments consist of interest rate swaps. There were two interest rate swap contracts outstanding as of June 30, 2012.
Entering into interest rate derivatives potentially exposes the Company to the risk of counterparties failure to fulfill their legal obligations including, but not limited to, potential amounts due
or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller.
During the second quarter of fiscal 2008, the Company entered into an interest rate swap contract involving the exchange of the Companys floating
rate interest rate payment on its $7.5 million in floating rate preferred securities for a fixed rate interest payment without the exchange of the underlying principal amount. This hedge relationship fails to qualify for the assumption of no
ineffectiveness (short cut method) as defined by U.S. generally accepted accounting principles. Therefore, the Company accounts for this hedge relationship as a cash flow hedge. The cumulative change in fair value of the hedging derivative, to the
extent that it is expected to be offset by the cumulative change in anticipated interest cash flows from the hedged exposure, will be deferred and reported as a component of accumulated other comprehensive income (AOCI). Any hedge ineffectiveness
will be charged to current earnings. Consistent with the risk management objective and the hedge accounting designation, management measured the degree of hedge effectiveness by comparing the cumulative change in anticipated interest cash flows from
the hedged exposure over the hedging period to the cumulative change in anticipated cash flows from the hedging derivative. Management utilizes the Hypothetical Derivative Method to compute the cumulative change in anticipated interest
cash flows from the hedged exposure. To the extent that the cumulative change in anticipated cash flows from the hedging derivative offsets from 80% to 125% of the cumulative change in anticipated interest cash flows from the hedged exposure, the
hedge will be deemed effective. The Company will use the Hypothetical Derivative Method to measure ineffectiveness. Under this method, the calculation of ineffectiveness will be done by using the change in fair value of the hypothetical derivative.
That is, the swap will be recorded at fair value on the balance sheet and other comprehensive income will be adjusted to an amount that reflects the lesser of either the cumulative change in fair value of the swap or the cumulative change in the
fair value of the hypothetical derivative instrument. Management will determine the ineffectiveness of the hedging relationship by comparing the cumulative change in anticipated interest cash flows from the hedged exposure over the hedging period to
the cumulative change in anticipated cash flows from the hedging derivative. Any difference between these two measures will be deemed hedge ineffectiveness and recorded in current earnings. As of June 30, 2012, the hedge instrument was deemed
to be effective, therefore, no amounts were charged to current earnings. The Company does not expect to reclassify any hedge-related amounts from accumulated other comprehensive income to earnings over the next twelve months.
The pay fixed interest rate swap contract outstanding at June 30, 2012 is being utilized to hedge $7.5 million in floating rate preferred
securities. Below is a summary of the interest rate swap contract and the terms at June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
|
|
Notional
|
|
|
Pay
|
|
|
Receive
|
|
|
Maturity
|
|
|
Unrealized
|
|
thousands)
|
|
Amount
|
|
|
Rate
|
|
|
Rate(*)
|
|
|
Date
|
|
|
Gain
|
|
|
Loss
|
|
Cash flow hedge
|
|
$
|
7,500
|
|
|
|
5.32
|
%
|
|
|
1.83
|
%
|
|
|
12/15/2012
|
|
|
$
|
|
|
|
$
|
134
|
|
(*)
|
Variable receive rate based upon contract rates in effect at June 30, 2012
|
During the first quarter of fiscal 2009, the Bank originated a $1.0 million fixed rate loan for one of its commercial mortgage loan
customers and simultaneously entered into an offsetting fixed interest rate swap contract with PNC Bank, National Association (PNC). The Bank pays PNC interest at the same fixed rate on the same notional amount as the customer pays to
the Bank on the commercial mortgage loan, and receives interest from PNC at a floating rate on the same notional amount. This interest rate hedging program helps the Bank limit its interest rate risk while at the same time helps the Bank meet the
financing needs and interest rate risk management needs of its commercial customers. The Company accounts for this hedge relationship as a fair value hedge. This interest rate
31
swap contract was recorded at fair value with any resulting gain or loss recorded in current period earnings. For the three and nine months ended June 30, 2012 the Company recorded losses of
$6,000 and $4,000, respectively, relating to this contract. For the three and nine months ended June 30, 2011, the Company recorded a loss of $2,000 and a gain of $12,000, respectively, relating to this contract. As of June 30, 2012, the
notional amount of the customer-related interest rate derivative financial instrument was $935,000, compared to $954,000 at June 30, 2011.
(9)
Disclosures About Fair Value Measurements
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in
measuring assets and liabilities at fair value. The three broad levels of pricing observations are as follows:
|
|
|
|
|
Level I -
|
|
Quoted prices are available in the active markets for identical assets or liabilities as of the reported date.
|
|
|
Level II -
|
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities
include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
|
|
Level III -
|
|
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
This hierarchy requires the use of observable market data when available.
The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring
basis as of June 30, 2012 and September 30, 2011 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement.
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
As of June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
|
|
|
$
|
30,650
|
|
|
$
|
|
|
|
$
|
30,650
|
|
Municipal obligations
|
|
|
|
|
|
|
31,733
|
|
|
|
|
|
|
|
31,733
|
|
Corporate obligations
|
|
|
|
|
|
|
8,444
|
|
|
|
|
|
|
|
8,444
|
|
Equity securities in financial institutions
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
Other equity securities
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
990
|
|
Mutual funds
|
|
|
2,821
|
|
|
|
|
|
|
|
|
|
|
|
2,821
|
|
Trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
8,156
|
|
|
|
8,156
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
63,443
|
|
|
|
|
|
|
|
63,443
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
23,797
|
|
|
|
|
|
|
|
23,797
|
|
Private-label
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
|
|
1,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,343
|
|
|
$
|
159,973
|
|
|
$
|
8,156
|
|
|
$
|
173,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans held for sale
|
|
$
|
|
|
|
$
|
2,942
|
|
|
$
|
|
|
|
$
|
2,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
$
|
|
|
|
$
|
361
|
|
|
$
|
|
|
|
$
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
As of September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
|
|
|
$
|
39,794
|
|
|
$
|
|
|
|
$
|
39,794
|
|
Municipal obligations
|
|
|
|
|
|
|
31,828
|
|
|
|
|
|
|
|
31,828
|
|
Corporate obligations
|
|
|
|
|
|
|
3,215
|
|
|
|
|
|
|
|
3,215
|
|
Equity securities in financial institutions
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
1,501
|
|
Other equity securities
|
|
|
944
|
|
|
|
|
|
|
|
|
|
|
|
944
|
|
Mutual funds
|
|
|
2,737
|
|
|
|
|
|
|
|
|
|
|
|
2,737
|
|
Trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
7,950
|
|
|
|
7,950
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
68,093
|
|
|
|
|
|
|
|
68,093
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
|
|
|
|
12,419
|
|
|
|
|
|
|
|
12,419
|
|
Private Label
|
|
|
|
|
|
|
2,309
|
|
|
|
|
|
|
|
2,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,182
|
|
|
$
|
157,658
|
|
|
$
|
7,950
|
|
|
$
|
170,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential loans held for sale
|
|
$
|
|
|
|
$
|
1,837
|
|
|
$
|
|
|
|
$
|
1,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
$
|
|
|
|
$
|
532
|
|
|
$
|
|
|
|
$
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The Companys Level III investments at June 30, 2012, represent seventeen different trust
preferred offerings with an aggregate fair value of $8.2 million, of which twelve had floating rates based on LIBOR at June 30, 2012. Due to dislocations in the credit markets broadly, and the lack of trading and new issuance in trust preferred
securities, market price indications generally reflect the lack of liquidity in the market. For further information relating to the Companys Level III trust preferred securities, reference footnote 6, Securities, on pages 14
through 23.
The following table presents the changes in the Level III fair value category for the nine months ended June 30, 2012. The
Company classifies financial instruments in Level III of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to the unobservable inputs, the valuation models for Level
III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.
Securities Available-For-Sale (In Thousands)
|
|
|
|
|
Beginning balance October 1, 2011
|
|
$
|
7,950
|
|
Impairment charge on securities
|
|
|
(20
|
)
|
Net change in unrealized loss on securities available-for-sale
|
|
|
461
|
|
Purchases, issuances, calls, and settlements
|
|
|
(78
|
)
|
Paydowns on securities
|
|
|
(164
|
)
|
Amortization
|
|
|
7
|
|
Transfers in and/or out of Level III
|
|
|
|
|
|
|
|
|
|
Ending balance June 30, 2012
|
|
$
|
8,156
|
|
|
|
|
|
|
The following tables present the assets measured on a nonrecurring basis on the Consolidated Statements of Financial Condition at their
fair value as of June 30, 2012 and September 30, 2011 by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to
value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where
valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
As of June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured on a Nonrecurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
4,069
|
|
|
$
|
12,575
|
|
|
$
|
16,644
|
|
Foreclosed real estate, net
|
|
|
|
|
|
|
6,906
|
|
|
|
|
|
|
|
6,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
10,975
|
|
|
$
|
12,575
|
|
|
$
|
23,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
As of September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Measured on a Nonrecurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
|
|
|
$
|
6,549
|
|
|
$
|
12,862
|
|
|
$
|
19,411
|
|
Foreclosed real estate, net
|
|
|
|
|
|
|
3,125
|
|
|
|
|
|
|
|
3,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
9,674
|
|
|
$
|
12,862
|
|
|
$
|
22,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
The following table presents
additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level III Fair Value Measurements
|
As of June 30, 2012
(In Thousands)
|
|
Fair
Value
|
|
|
Valuation Techniques
|
|
Unobservable
Input
|
|
Range (Weighted Average)
|
Impaired loans
|
|
$
|
12,466
|
|
|
Appraisal of collateral (1)
|
|
Liquidation expenses
|
|
5.0% to 10.0% (10.0%)
|
|
|
|
109
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
9.8% (9.8%)
|
Trust preferred securities
|
|
$
|
8,156
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
4.9% to 25.5% (16.0%)
|
|
|
|
|
|
|
|
|
Prepayment speeds
|
|
0.0% to 3.0% (0.9%)
|
|
|
|
|
|
|
|
|
Default/deferral rates
|
|
0.0% to 0.7% (0.5%)
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs which are not
identifiable.
|
(10)
Disclosures About Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Companys financial instruments, however, there are inherent
weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured as of their respective periods, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only
provided for a limited portion of the Companys assets and liabilities.
Due to a wide range of valuation techniques and the degree of
subjectivity used in making the estimates, comparisons between the Companys disclosures and those of other companies may not be meaningful. The Company, in estimating its fair value disclosures for financial instruments, used the following
methods and assumptions:
Cash and Due From Banks
The carrying amounts reported approximate those assets fair value.
Interest Bearing
Demand Deposits with Other Institutions
The carrying amounts reported approximate those assets fair value.
Securities
Fair values of securities
are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Prices on pooled trust preferred securities were calculated by a third party using
a discounted projected cash-flow technique. Cash flows were estimated based on credit quality and prepayment assumptions. The present value of the projected cash flows was calculated using an adjusted discount rate which reflects higher credit
spreads due to economic stresses in the marketplace and lower credit ratings.
35
Loans Receivable (including loans held for sale)
The net loan portfolio, except certain impaired loans, has been valued using a present value discounted cash flow. The discount rate used in these
calculations is based upon the treasury yield curve, as of June 30, 2012, adjusted for non-interest operating costs, credit loss, current market prices and assumed prepayment risk. The carrying amounts of loans held for sale approximate their
fair values.
Federal Home Loan Bank Stock
The carrying amounts reported approximate those assets fair value.
Accrued Interest
Receivable and Payable
The carrying amounts of accrued interest receivable and payable approximate their fair value.
Deposits
Deposits with stated
maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Deposits with no stated maturities have an estimated fair value equal to both the amount
payable on demand and the recorded book balance.
Securities Sold Under Agreements to Repurchase
The fair values for securities sold under agreement to repurchase were estimated using the interest rate currently available from the party that holds the
existing debt.
Short-Term Borrowings
The carrying amounts for short-term borrowings approximate the estimated fair value of such liabilities.
Long-Term Debt
The fair values for long-term debt were estimated using the interest rate
currently available from the party that holds the existing debt.
Subordinated Debt
Fair values for subordinated debt are estimated using a discounted cash flow calculation similar to that used in valuing fixed rate certificate of deposit
liabilities.
Advance Payments by Borrowers for Taxes and Insurance
The fair value of the advance payments by borrowers for taxes and insurance approximates the carrying value of those commitments at those dates.
Interest Rate Swap Contracts
Estimated fair values of interest rate swap contracts are
based on quoted market prices.
Off-Balance Sheet Instruments
Fair values for the Companys off-balance sheet instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
counterparties credit standing.
36
The carrying amounts and fair values of the
Companys financial instruments are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
|
(In Thousands)
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
8,233
|
|
|
$
|
8,233
|
|
|
$
|
8,233
|
|
|
$
|
|
|
|
$
|
|
|
Interest bearing demand deposits with other institutions
|
|
|
33,108
|
|
|
|
33,108
|
|
|
|
33,108
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
173,472
|
|
|
|
173,472
|
|
|
|
5,343
|
|
|
|
159,973
|
|
|
|
8,156
|
|
Securities held-to-maturity
|
|
|
69,729
|
|
|
|
71,218
|
|
|
|
|
|
|
|
71,218
|
|
|
|
|
|
Loans receivable, net (including loans held for sale)
|
|
|
334,529
|
|
|
|
340,218
|
|
|
|
|
|
|
|
|
|
|
|
340,218
|
|
Federal Home Loan Bank stock
|
|
|
7,007
|
|
|
|
7,007
|
|
|
|
7,007
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
2,103
|
|
|
|
2,103
|
|
|
|
2,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
469,295
|
|
|
|
471,849
|
|
|
|
300,070
|
|
|
|
|
|
|
|
171,779
|
|
Securities sold under agreements to repurchase
|
|
|
63,956
|
|
|
|
67,450
|
|
|
|
|
|
|
|
|
|
|
|
67,450
|
|
Long-term debt
|
|
|
65,000
|
|
|
|
69,180
|
|
|
|
|
|
|
|
|
|
|
|
69,180
|
|
Subordinated debt
|
|
|
7,732
|
|
|
|
7,732
|
|
|
|
|
|
|
|
|
|
|
|
7,732
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
2,591
|
|
|
|
2,591
|
|
|
|
2,591
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
725
|
|
|
|
725
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
361
|
|
|
|
361
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2011
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
7,035
|
|
|
$
|
7,035
|
|
Interest bearing demand deposits with other institutions
|
|
|
17,821
|
|
|
|
17,821
|
|
Securities available-for-sale
|
|
|
170,790
|
|
|
|
170,790
|
|
Securities held-to-maturity
|
|
|
80,423
|
|
|
|
82,036
|
|
Loans receivable, net (including loans held for sale)
|
|
|
348,122
|
|
|
|
353,286
|
|
Federal Home Loan Bank stock
|
|
|
8,173
|
|
|
|
8,173
|
|
Accrued interest receivable
|
|
|
2,382
|
|
|
|
2,382
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
446,102
|
|
|
|
449,904
|
|
Securities sold under agreements to repurchase
|
|
|
76,373
|
|
|
|
82,006
|
|
Short-term borrowings
|
|
|
302
|
|
|
|
302
|
|
Long-term debt
|
|
|
80,000
|
|
|
|
84,744
|
|
Subordinated debt
|
|
|
7,732
|
|
|
|
7,732
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
1,212
|
|
|
|
1,212
|
|
Accrued interest payable
|
|
|
843
|
|
|
|
843
|
|
Interest rate swap contracts
|
|
|
532
|
|
|
|
532
|
|
37
(11)
Federal Home Loan Bank (FHLB) Stock Dividends
The FHLB of Pittsburgh paid a cash dividend equal to an annual yield of 0.10% on April 27, 2012 and February 23, 2012. These
were the first payments received since the FHLB announced it was suspending dividend payments and the repurchasing of excess capital stock from members in December 2008. On October 20, 2010, the FHLB repurchased approximately $200 million in
excess capital stock held by its members. The amount of excess stock repurchased from each member was the lesser of 5% of the members total capital stock outstanding or its excess capital stock outstanding. Similar repurchases were made in
subsequent quarters, with the most recent occurring on April 27, 2012. The Banks investment in the FHLB of Pittsburgh was $7.0 million at June 30, 2012 and is valued at the par issue amount of $100 per share.
(12)
TARP Capital Purchase Program
The Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the Purchase Agreement) with
the United States Department of the Treasury (Treasury) under the TARP Capital Purchase Program, pursuant to which the Company sold (i) 7,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series B
(the Series B Preferred Stock) and (ii) a warrant (the Warrant) to purchase 121,387 shares of the Companys common stock, par value $0.01 per share (the Common Stock), for an aggregate purchase price of
$7.0 million in cash.
The Series B Preferred Stock will qualify as Tier 1 capital and will pay cumulative dividends at a rate of 5% per
annum for the first five years, and 9% per annum thereafter. Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for
consideration, shares of its Junior Stock (as defined below) and Parity Stock (as defined below) will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share ($0.14) declared
on the Common Stock prior to the issuance date. The Company may redeem the Series B Preferred Stock at a price of $1,000 per share plus accrued and unpaid dividends, subject to the concurrence of the Treasury and its federal banking regulators.
The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution
adjustments, equal to $8.65 per share of the Common Stock. Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.
The Series B Preferred Stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the request of
Treasury at any time, the Company has agreed to promptly enter into a deposit arrangement pursuant to which the Series B Preferred Stock may be deposited and depositary shares (Depositary Shares), representing fractional shares of Series
B Preferred Stock, may be issued. The Company has agreed to register the Series B Preferred Stock, the Warrant, the shares of Common Stock underlying the Warrant (the Warrant Shares) and Depositary Shares, if any, as soon as practicable
after the date of the issuance of the Series B Preferred Stock and the Warrant. Neither the Series B Preferred Stock nor the Warrant will be subject to any contractual restrictions on transfer, except that Treasury may only transfer or exercise an
aggregate of one-half of the Warrant Shares prior to the redemption of 100% of the shares of Series B Preferred Stock.
The fair value of the
preferred stock and the common stock warrants was determined based on their relative fair values calculated as of their issuance date. Based on their relative fair values, the TARP proceeds (net of issuance costs) were allocated between preferred
stock and additional paid in capital (for the warrant component). The market/discount rate used when deriving the fair value of the preferred stock was 10.00%. This rate was determined by calculating the average dividend rate of the five most recent
preferred equity offerings completed by banks and thrifts. A Black-Scholes model was used to calculate the fair value of the common stock warrants. Key assumptions input into the model included: amount of common stock, $1,050,000 (based on 15% of
the gross TARP proceeds); market price of the common stock on the warrant grant date, $6.75; exercise price of the warrant, $8.65 (20 day trailing average of the common stock as of the Treasurys approval date); number of common stock warrants
issued, 121,387; expected life of the warrants, 5 years; the risk free interest rate, 1.55%; the continuous annualized volatility of the change in the underlying common stocks price, 32.00%; and the simple annual expected cash dividend yield
on common stock, 8.30%. Based on the calculations, the fair value of the preferred stock represented 95.65% of the total fair value of the preferred stock and common stock warrants, while the fair value of the common stock warrants represented 4.35%
of the total. The discount on the preferred stock is being amortized on a straight-line basis over five years.
38
(13)
Subsequent Events
On July 19, 2012, Fidelity Bancorp, Inc. (Fidelity), Fidelity Savings Bank, WesBanco, Inc. (WesBanco) and
WesBanco Bank, Inc. entered into an Agreement and Plan of Merger (the Merger Agreement) pursuant to which Fidelity will merge with and into WesBanco (the Merger). Under the terms of the Merger Agreement, WesBanco will
exchange a combination of its common stock and cash for Fidelity common stock. Fidelity shareholders will be entitled to receive 0.8275 shares of WesBanco common stock and cash in the amount of $4.50 per share for each share of Fidelity common
stock. The transaction is expected to close late in the December 31, 2012 quarter or in early 2013.
39
Item
2. Managements Discussion and Analysis of Financial Condition and Results of Operations
FIDELITY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words believes,
anticipates, contemplates, expects, and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of integrating newly acquired businesses, the ability to control costs and expenses, and general economic
conditions. The Company does not undertake to, and specifically disclaims any obligation to, update any such forward-looking statements.
Fidelity Bancorp, Inc.s (Fidelity or the Company) business is conducted principally through its wholly-owned subsidiary,
Fidelity Bank PaSB, (the Bank). All references to the Company refer collectively to the Company and the Bank, unless the context indicates otherwise.
Proposed Merger
On July 19, 2012, WesBanco, Inc. (WesBanco), WesBanco
Bank, Inc., the Company and the Bank entered into an Agreement and Plan of Merger (the Merger Agreement) under which the Company will be merged with and into WesBanco. Concurrent with or immediately following the merger, the Bank will be
merged with and into WesBanco Bank, a wholly-owned subsidiary of WesBanco.
Under the terms of the Merger Agreement, each share of the
Companys common stock will be converted into the right to receive, 0.8275 shares of WesBanco common stock and $4.50 in cash. The Company has the right to terminate the Merger Agreement if (1) the average closing price of WesBancos
common stock for the 20 consecutive trading days ending on the day before the later of the date (i) on which the last bank regulatory approval or (ii) that the Companys shareholders approve the Merger Agreement, is received is less
than 85% of the closing price of WesBanco common stock on July 18, 2012, the last trading day preceding announcement of the Merger Agreement and (2) from July 19, 2012 through such date, WesBancos common stock has underperformed
the Nasdaq Bank Index by more than 15%, unless WesBanco elects to increase the merger consideration per share pursuant to a formula specified in the Merger Agreement.
The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of the Company. The merger is currently expected to be completed
in the fourth quarter of 2012 or in early 2013.
All of the Companys directors and executive officers entered into voting agreements
with WesBanco in which they have agreed to vote their shares in favor of the approval of the Merger Agreement at the shareholders meeting to be held for the purpose of voting on the proposed transaction. In the event the Merger Agreement is
terminated under certain circumstances, the Company has agreed to pay WesBanco a termination fee of $3,200,000.
The Merger Agreement also
contains customary representations and warranties that WesBanco and the Company made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement, and are
subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what
may be viewed as material to shareholders, and the representations and warranties may have been used for the purpose of allocating risk between WesBanco and the Company rather than establishing matters as facts.
The foregoing summary of the Merger Agreement is not complete and is qualified in its entirety by reference to the complete text of such document, which
is filed as Exhibit 2.1 to the Current Report on Form 8-K that was filed with the Securities and Exchange Commission on July 20, 2012.
40
Critical Accounting Policies
Note 1 on pages 61 through 70 of the Companys 2011 Annual Report to Shareholders lists significant accounting policies used in the development and presentation of its financial statements. This
discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the
Company and its results of operations.
The most significant estimates in the preparation of the Companys financial statements are for
the allowance for loan losses, evaluation of investments for other-than-temporary impairment, income taxes, and accounting for stock options. Please refer to the discussion of the allowance for loan losses in Note 7, Loans Receivable and
Related Allowance for Loan Losses, on pages 23 through 30 above. In addition, further discussion of the estimates used in determining the allowance for loan losses is contained in the discussion on Provision for Loan Losses on page
48 of the Companys 2011 Annual Report to Shareholders. Please refer to the discussion of other-than-temporary impairment in Note 6, Securities, on pages 14 through 23 above and in Note 2, Securities, on pages 71 through
78 of the Companys 2011 Annual Report to Shareholders. Please refer to the discussion of income taxes on page 49 below and in Note 10, Income Taxes, on pages 94 through 96 of the Companys 2011 Annual Report to Shareholders.
Stock based compensation expense is reported in net income utilizing the fair value-based method in accordance with U.S. generally accepted accounting principles. The fair value of each option award is estimated at the date of grant using the
Black-Scholes option-pricing model. Please refer to the discussion of stock based compensation in Note 4, Stock Based Compensation, on page 12 above. In addition, further discussion of the assumptions used in determining stock based
compensation is contained in Note 13, Stock Option Plans, on pages 99 through 100 of the Companys 2011 Annual Report to Shareholders.
Comparison of Financial Condition
Total assets of the Company decreased $1.3 million, or
0.2%, to $665.6 million at June 30, 2012 from $666.9 million at September 30, 2011. Significant changes in individual categories include decreases in securities held-to-maturity of $10.7 million and net loans outstanding of $11.8 million,
offset by increases in cash and cash equivalents of $16.5 million and foreclosed real estate of $3.8 million. The decrease in securities held-to-maturity is a result of maturities and repayments. The decrease in net loans reflects $74.4 million of
repayments, partially offset by $59.0 million in loan originations. The increase in cash and cash equivalents is a result of an increase in maturities and repayments of loans and securities. The increase in foreclosed real estate is a result of one
large commercial real estate property that was acquired.
Total liabilities of the Company decreased $3.6 million, or 0.6%, to $612.9 million
at June 30, 2012 from $616.4 million at September 30, 2011. The decrease is primarily due to a decrease in long-term debt of $15.0 million, and a decrease in securities sold under agreement to repurchase of $12.4 million, partially offset
by an increase in deposits of $23.2 million. The decrease in long-term debt and securities sold under agreement to repurchase are a result of maturities. The increase in deposits reflects managements ongoing efforts to attract and retain
deposits.
Stockholders equity increased to $52.7 million at June 30, 2012, compared to $50.5 million at September 30, 2011.
This result reflects total comprehensive income for the nine-month period ended June 30, 2012 of $2.7 million; stock issued under the Dividend Reinvestment Plan of $18,000; stock-based compensation expense of $14,000; and stock options
exercised of $7,000. Offsetting these increases were common and preferred stock cash dividends paid of $446,000. Approximately $3.4 million of the balances in retained earnings as of June 30, 2012 and September 30, 2011 represent base year
bad debt deductions for tax purposes only, as they are considered restricted accumulated earnings.
Non-Performing Assets
The following table sets forth information regarding non-accrual loans and foreclosed real estate held by the Company at the dates indicated. The table
does not include $6.6 million and $5.5 million of accruing loans at June 30, 2012 and September 30, 2011, respectively, that were more than 90 days past due but were otherwise performing in accordance with their terms. Included in the $6.6
million of accruing loans at June 30, 2012 are $3.8 million of commercial construction loans, $1.6 million of commercial business loans, and $930,000 of home equity loans that have reached their maturity dates and are in the process of renewing
or payoff.
41
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(Dollars in Thousands)
|
|
Non-accrual residential real estate loans
(one-to-four family)
|
|
$
|
1,067
|
|
|
$
|
1,764
|
|
Non-accrual construction, multi-family residential and commercial real estate loans
|
|
|
4,106
|
|
|
|
4,398
|
|
Non-accrual installment loans
|
|
|
345
|
|
|
|
726
|
|
Non-accrual commercial business loans
|
|
|
783
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
$
|
6,301
|
|
|
$
|
6,897
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percent of net loans receivable
|
|
|
1.88
|
%
|
|
|
1.99
|
%
|
|
|
|
|
|
|
|
|
|
Total foreclosed real estate
|
|
$
|
6,906
|
|
|
$
|
3,125
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and foreclosed real estate as a percent of total assets
|
|
|
1.98
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
Included in non-performing loans at June 30, 2012 are fifteen single-family residential real estate loans totaling
$1.1 million, four commercial real estate loans totaling $4.1 million, sixteen installment loans totaling $345,000, and seven commercial business loans totaling $783,000. Non-performing loans decreased $596,000 to $6.3 million at June 30, 2012
from $6.9 million at September 30, 2011. The decrease was primarily attributed to non-accrual residential real estate loans and non-accrual installment loans, which was offset by increases in non-accrual commercial business loans added during
the current fiscal year.
At June 30, 2012, the Company had an allowance for loan losses of $4.3 million or 1.3% of gross loans
receivable, as compared to an allowance of $5.8 million or 1.7% of gross loans receivable at September 30, 2011. The allowance for loan losses equals 68.1% of non-performing loans at June 30, 2012 compared to 83.6% at September 30,
2011. The level of the allowance for loan losses as a percentage of non-performing loans reflects the concentration of non-performing loans in the commercial real estate category, most of which are collateral-dependent loans that do not have a
related allowance for loan losses as a result of applying impairment tests prescribed under U.S. generally accepted accounting principles (see Footnote 7). Management believes the balance in the allowance for loan losses is adequate based on its
analysis of quantitative and qualitative factors as of June 30, 2012. Management has evaluated its entire loan portfolio, including these non-performing loans, and the overall allowance for loan losses and believes that the allowance for losses
on loans at June 30, 2012 is reasonable. See also Provision for Loan Losses on page 46. However, there can be no assurance that the allowance for loan losses is sufficient to cover possible future loan losses.
The Company recognizes that it must maintain an Allowance for Loan and Lease Losses (ALLL) at a level that is adequate to absorb estimated
credit losses associated with the loan and lease portfolio. The Companys Board of Directors has adopted an ALLL policy designed to provide management with a systematic methodology for determining and documenting the ALLL each reporting period.
This methodology was developed to provide a consistent process and review procedure to ensure that the ALLL is in conformity with the Companys policies and procedures and other supervisory and regulatory guidelines.
The Companys ALLL methodology incorporates managements current judgments about the credit quality of the loan portfolio. The following
factors are considered when analyzing the adequacy of the allowance: historical loss experience; volume; type of lending conducted by the Bank; industry standards; the level and status of past due and non-performing loans; the general economic
conditions in the Banks lending area; and other factors affecting the collectability of the loans in its portfolio. The primary elements of the Banks methodology include portfolio segmentation and impairment measurement. Management
acknowledges that this is a dynamic process and consists of factors, many of which are external and out of managements control, that can change often, rapidly and substantially. The adequacy of the ALLL is based upon estimates considering all
the aforementioned factors as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.
42
Comparison of Results of Operations
for the Three and Nine Months Ended June 30, 2012 and 2011
Net Income
The Company recorded net income for the three months ended June 30, 2012
of $181,000 and net income available to common stockholders of $78,000 or $.03 per diluted common share compared to a net income of $413,000 and net income available to common stockholders of $310,000 or $0.10 per diluted common share for the same
period in 2011. The $232,000 decrease in net income primarily reflects a decrease in net interest income of $221,000, an increase in provision for loan losses of $300,000, and an increase in noninterest expense of $183,000, partially offset by a
decrease in other-than-temporary impairment (OTTI) charges of $55,000, an increase in non-interest income (excluding OTTI charges) of $324,000, and a decrease in income tax provision of $93,000.
The Company recorded net income for the nine months ended June 30, 2012 of $856,000 and net income available to common stockholders of $548,000 or
$0.17 per diluted common share compared to net income of $938,000 and net income available to common stockholders of $630,000 or $0.21 per diluted common share for the same period in fiscal 2011. The $82,000 decrease in net income primarily reflects
a decrease in OTTI charges of $460,000, an increase in income tax benefit of $173,000, and an increase in non-interest income (excluding OTTI charges) of $446,000, partially offset by a decrease in net interest income of $491,000, an increase in
provision for loan losses of $375,000, and an increase in noninterest expense of $295,000. OTTI charges were $951,000 for the nine months ended June 30, 2012 compared to $1.4 million for the prior year period.
The Companys net income available to common stockholders and diluted earnings per common share for the three and nine months ended June 30,
2012 and 2011 reflects the impact of $103,000 and $308,000, respectively, of preferred stock dividends and discount accretion in each period.
43
Interest Rate Spread
The Companys interest rate spread, the difference between average yields calculated on a tax-equivalent basis on interest-earning assets and the average cost of funds, decreased to 2.07%
(annualized) in the three months ended June 30, 2012 from 2.14% (annualized) in the same period in 2011. The Companys tax-equivalent interest rate spread was 2.12% (annualized) in the nine months ended June 30, 2012 and 2011. Between
the nine-month periods, average yields and cost of funds both declined by 29 basis points. The decrease in interest rate spread for the three month period ended June 30, 2012 is the result of the average rate paid on interest-bearing
liabilities decreasing more than the average yield on interest-earning assets. The decrease in average rate paid on interest-bearing liabilities reflects the repayment of higher rate long-term debt and structured wholesale borrowings between the
periods. The following table shows the average yields earned on the Companys interest-earning assets and the average rates paid on its interest-bearing liabilities for the periods indicated, the resulting interest rate spreads, and the net
yields on interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Nine Months Ended June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Average yield on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
5.15
|
%
|
|
|
5.51
|
%
|
|
|
5.28
|
%
|
|
|
5.61
|
%
|
Mortgage-backed securities
|
|
|
2.27
|
|
|
|
2.88
|
|
|
|
2.31
|
|
|
|
2.83
|
|
Installment loans
|
|
|
4.87
|
|
|
|
5.26
|
|
|
|
5.00
|
|
|
|
5.32
|
|
Commercial business loans and leases
|
|
|
4.26
|
|
|
|
4.88
|
|
|
|
4.37
|
|
|
|
4.84
|
|
Interest-earning deposits with other institutions, investment securities, and FHLB stock (1)
|
|
|
2.49
|
|
|
|
2.66
|
|
|
|
2.68
|
|
|
|
2.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
3.80
|
|
|
|
4.16
|
|
|
|
3.94
|
|
|
|
4.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rates paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
0.96
|
|
|
|
1.10
|
|
|
|
1.01
|
|
|
|
1.14
|
|
Securities sold under agreement to repurchase
|
|
|
4.84
|
|
|
|
4.74
|
|
|
|
4.72
|
|
|
|
4.78
|
|
Short-term borrowings
|
|
|
0.16
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.19
|
|
Long-term debt
|
|
|
3.18
|
|
|
|
3.38
|
|
|
|
3.18
|
|
|
|
3.38
|
|
Subordinated debt
|
|
|
5.29
|
|
|
|
5.28
|
|
|
|
5.29
|
|
|
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1.73
|
|
|
|
2.02
|
|
|
|
1.82
|
|
|
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate spread
|
|
|
2.07
|
%
|
|
|
2.14
|
%
|
|
|
2.12
|
%
|
|
|
2.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
2.29
|
%
|
|
|
2.37
|
%
|
|
|
2.34
|
%
|
|
|
2.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Interest income on tax-exempt investments has been adjusted for federal income tax purposes using a rate of 34%. Interest income on tax-exempt investment securities was
$277,000 and $349,000 and the yield was 3.76% and 4.03%, prior to adjusting for federal income tax for the three months ended June 30, 2012 and 2011, respectively. Interest income on tax-exempt investment securities was $896,000 and $1.1
million and the yield was 3.81% and 4.08%, prior to adjusting for federal income tax for the nine months ended June 30, 2012 and 2011, respectively.
|
Interest Income
Interest on loans decreased $382,000 or 8.3% to $4.2 million for the three
months ended June 30, 2012, compared to $4.6 million in the same period in 2011. Interest on loans decreased $1.4 million or 9.5% to $13.3 million for the nine months ended June 30, 2012, compared to $14.7 million in the same period in
2011. The decrease for both periods reflects a decrease in the average size of the loan portfolio and a decrease in the average yield earned on the loan portfolio. For the three-month period ended June 30, 2012, the average outstanding loan
balances decreased $830,000 or 0.2% and the average yield decreased by 43 basis points from 5.37% in the prior period to 4.94% in the current period. For the nine-month period ended June 30, 2012, the average outstanding loan balances decreased
$10.1 million or 2.8% and the average yield decreased by 37 basis points from 5.44% in the prior period to 5.07% in the current period. The average loan balances continued to decrease primarily due to increases in principal repayments mainly caused
by customers refinancing their mortgage loans. Also, due to the current low interest rate environment, for asset/liability purposes, the Bank continues to sell a portion of the fixed rate, single-family mortgage loans that it originates.
44
Interest on mortgage-backed securities decreased $190,000 or 21.1% to $712,000 for the three-month period
ended June 30, 2012, compared to $902,000 in the same period in 2011. Interest on mortgage-backed securities decreased $224,000 or 9.2% to $2.2 million for the nine-month periods ended June 30, 2012, as compared to $2.4 million in the same
period in 2011. The decrease for both periods reflects an increase in the average balance of mortgage-backed securities owned, offset by a decrease in the average yield earned on the portfolio. For the three-month period ended June 30, 2012,
the average balance of mortgage-backed securities increased $132,000 or 0.1% and the average yield decreased by 61 basis points from 2.88% in the prior period to 2.27% in the current period. For the nine-month period ended June 30, 2012, the
average balance of mortgage-backed securities increased $12.8 million or 11.2% and the average yield decreased by 52 basis points from 2.83% in the prior period to 2.31% in the current period. The yield earned on mortgage-backed securities is
affected, to some degree, by the repayment rate of loans underlying the securities. Premiums or discounts on the securities, if any, are amortized to interest income over the life of the securities using the level yield method. During periods of
falling interest rates, repayments of the loans underlying the securities generally increase, which shortens the average life of the securities and accelerates the amortization of the premium or discount. Falling rates, however, also tend to
increase the market value of the securities.
Interest on interest-bearing demand deposits with other institutions and investment securities
(non-tax equivalent) decreased $166,000 or 16.7% to $830,000 for the three months ended June 30, 2012, as compared to $996,000 in the same period in 2011. Interest on interest-bearing demand deposits with other institutions and investment
securities (non-tax equivalent) decreased $560,000 or 17.9% to $2.6 million for the nine months ended June 30, 2012, as compared to $3.1 million in the same period in 2011. The decrease for both periods reflects a decrease in the average
balance of investment securities in the portfolio and a decrease in the yield earned on these investments. For the three-month period ended June 30, 2012, the average balance of interest-bearing demand deposits with other institutions and
investment securities decreased $19.5 million or 11.2% and the average tax-equivalent yield decreased by 17 basis points from 2.66% in the prior period to 2.49% in the current period. For the nine-month period ended June 30, 2012, the average
balance of interest-bearing demand deposits with other institutions and investment securities decreased $30.8 million or 17.1% and the average tax-equivalent yield decreased by 3 basis points from 2.71% in the prior period to 2.68% in the current
period. The lower average balances were primarily related to repayments, calls and maturities of investment securities. The decreases in the yields are a result of the current lower interest rate environment.
Interest Expense
Interest on deposits
decreased $116,000 or 10.8% to $967,000 for the three-month period ended June 30, 2012, as compared to $1.1 million during the same period in 2011. Interest on deposits decreased $340,000 or 10.1% to $3.0 million for the nine-month period ended
June 30, 2012, as compared to $3.4 million during the same period in 2011. The decrease for both periods reflects both an increase in the average balance of deposits and a decrease in the average cost of the deposits. For the three-month period
ended June 30, 2012, the average balance of deposits increased $12.2 million or 3.1% and the average yield decreased by 14 basis points from 1.10% in the prior period to 0.96% in the current period. For the nine-month period ended June 30,
2012, the average balance of deposits increased $6.7 million or 1.7% and the average yield decreased by 13 basis points from 1.14% in the prior period to 1.01% in the current period. The Company manages its cost of interest-bearing deposit accounts
by diligently monitoring the interest rates on its products as well as the rates being offered by its competition through bi-weekly interest rate committee meetings and utilizing rate surveys and subsequently adjusting rates accordingly.
Interest on securities sold under agreement to repurchase, including retail, term, and wholesale structured borrowings, decreased $242,000 or 24.0% to
$765,000 for the three-month period ended June 30, 2012, as compared to $1.0 million during the same period in 2011. Interest on securities sold under agreement to repurchase, including retail, term, and wholesale structured borrowings,
decreased $960,000 or 27.7% to $2.5 million for the nine-month period ended June 30, 2012, as compared to $3.5 million during the same period in 2011. The decrease for the three months ended June 30, 2012 reflects a lower level of average
securities sold under agreement to repurchase offset by a slight increase in the cost of these funds. The decrease for the nine-month period ended June 30, 2012 reflects both a decrease in the cost of these funds and a lower level of average
securities sold under agreement to repurchase. For the three-month period ended June 30, 2012, the average balance of securities sold under agreement to repurchase decreased $21.7 million or 25.5% and the average yield increased by 10 basis
points from 4.74% in the prior period to 4.84% in the current period. For the nine-month period ended June 30, 2012, the average balance of securities sold under agreement to repurchase decreased $26.0 million or 26.8% and the average yield
decreased by 6 basis points from 4.78% in the prior period to 4.72% in the current period. The Bank had $55.0 million and $65.0 million of wholesale structured borrowings outstanding at June 30, 2012 and 2011, respectively.
45
Interest on long-term debt, including FHLB fixed-rate advances and Convertible Select advances,
decreased $159,000 or 23.6% to $516,000 for the three-month period ended June 30, 2012, as compared to $675,000 in the same period in 2011. Interest on long-term debt, including FHLB fixed rate advances and Convertible Select
advances, decreased $386,000 or 19.1% to $1.6 million for the nine-month period ended June 30, 2012, as compared to $2.0 million in the same period in 2011. The decrease for both periods reflects both a decrease in the average balance of the
debt and a decrease in the average cost of the debt. For the three-month period ended June 30, 2012, the average balance of long-term debt decreased $15.0 million or 18.8% and the average cost decreased by 20 basis points from 3.38% in the
prior period to 3.18% in the current period. For the nine-month period ended June 30, 2012, the average balance of long-term debt decreased $11.1 million or 13.8% and the average cost decreased by 20 basis points from 3.38% in the prior period
to 3.18% in the current period. The decrease in the average balance and average cost reflects the Companys decision to de-leverage the balance sheet and was accomplished by using its excess cash to pay off higher rate long-term debt that has
matured between the periods.
Net Interest Income
The Companys net interest income decreased $221,000 or 6.0% to $3.4 million, for the three-month period ended June 30, 2012, as compared to $3.7 million in the same period in 2011. The
Companys net interest income decreased $491,000 or 4.4% to $10.6 million, for the nine-month period ended June 30, 2012, as compared to $11.1 million in the same period in 2011. The decrease in net interest income for the three-month
period ended June 30, 2012 reflects interest income decreasing more than interest expense. Interest income decreased $738,000 or 11.3% to $5.8 million as compared to $6.5 million in the same period in 2011. The decrease reflects both a decrease
in the average balance of interest earning assets and a decrease in the yields earned on these assets. Interest expense decreased $517,000 or 18.0% to $2.4 million as compared to $2.9 million in the same period in 2011. The decrease reflects both a
decrease in the average balance of interest-bearing liabilities and a decrease in the interest rates paid on interest-bearing liabilities. The decrease in net interest income for the nine-month period ended June 30, 2012 reflects interest
income decreasing more than interest expense. Interest income decreased $2.2 million or 10.8% to $18.0 million as compared to $20.2 million in the same period in 2011. The decrease reflects both a decrease in the average balance of interest-earning
assets and a decrease in the yields earned on these assets. Interest expense decreased $1.7 million or 18.4% to $7.5 million as compared to $9.1 million in the same period in 2011. The decrease reflects both a decrease in the average balance of
interest-bearing liabilities and a decrease in the interest rates paid on interest-bearing liabilities. For the three months ended June 30, 2012 and 2011 the ratio of average interest-earning assets to average interest-bearing liabilities was
114.5% and 113.0%, respectively. For the nine months ended June 30, 2012 and 2011 the ratio of average interest-earning assets to average interest-bearing liabilities was 113.7% and 112.6%, respectively.
Provision for Loan Losses
The provision
for loan losses was $600,000 and $300,000 for the three-month periods ended June 30, 2012 and 2011. The provision for loan losses was $1.3 million and $900,000 for the nine-month periods ended June 30, 2012 and 2011. At June 30, 2012,
the allowance for loan losses decreased to $4.3 million from $5.8 million at September 30, 2011. Net loan charge-offs were $168,000 for the three months ended June 30, 2012 as compared to net loan charge-offs of $803,000 for the three
months ended June 30, 2011. Net loan charge-offs were $2.8 million for the nine months ended June 30, 2012 as compared to net loan charge-offs of $1.1 million for the nine months ended June 30, 2011.
The provision for loan losses is charged to operations to bring the total allowance for loan losses to a level that represents managements best
estimates of the losses inherent in the portfolio based on a quarterly review by management of factors such as historical loss experience, volume, type of lending conducted by the Bank, industry standards, the level and status of past due and
non-performing loans, the general economic conditions in the Banks lending area, and other factors affecting the collectability of the loans in its portfolio. However, there can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future and that additional provisions for losses will not be required.
46
Non-interest Income
Excluding OTTI charges recognized in earnings of $951,000 for the nine months ended June 30, 2012, and $55,000 and $1.4 million for the three and nine months ended June 30, 2011, respectively,
total non-interest income increased $324,000 or 36.9% to $1.2 million and increased $446,000 or 12.7% to $4.0 million for the three and nine-month periods ended June 30, 2012, respectively, as compared to $877,000 and $3.5 million during the
same periods in 2011. There were no OTTI charges recognized in earnings for the three months ended June 30, 2012. The increase for the three month period ended June 30, 2012 is primarily attributed to an increase in the gain on sales of
loans, and an increase in other operating income, partially offset by a decrease in deposit service charges and fees. The increase for the nine month period ended June 30, 2012 is primarily attributed to an increase in loan service charges and
fees, an increase in the gain on sales of loans, and an increase in other operating income, partially offset by a decrease in the gains on the sale of securities.
There were no impairment charges on securities for the three months ended June 30, 2012 compared to $55,000 for the three months ended June 30, 2011. The impairment charges for the prior
three-month period related to one private label mortgage-backed security. Impairment charges on securities were $951,000 and $1.4 million for the nine months ended June 30, 2012 and 2011, respectively. The impairment charges for the current
nine-month period relate to the Companys holdings of a private label mortgage-backed security, a pooled trust preferred security, and common stock holdings of three local financial institutions. The impairment charges for the prior nine-month
period related to the Companys holdings of a private label mortgage-backed security, five pooled trust preferred securities, a single issuer trust preferred security, and common stock of a local financial institution.
Loan service charges and fees, which include late charges on loans and other miscellaneous loan fees, increased $62,000 or 46.6% to $195,000 for the
three months ended June 30, 2012 as compared to $133,000 during the same period in 2011. Loan service charges and fees increased $91,000 or 18.5% to $582,000 for the nine months ended June 30, 2012 as compared to $491,000 during the same
period in 2011. The increase for the three and nine month periods ended June 30, 2012 is primarily attributed to an increase in non-deferred loan fees and title insurance fees.
The Company recognized $381,000 in net realized gains on the sales of securities for the nine months ended June 30, 2012, as compared to $586,000 during the same period in 2011.Sales were made from
the available-for-sale portfolio as part of managements asset/liability management strategies. There were no sales of securities during the three months ended June 30, 2012 and 2011.
Gains on the sales of loans were $200,000 and $558,000 for the three and nine months ended June 30, 2012, respectively, as compared to $21,000 and
$249,000 during the same periods in 2011. The three-month period ended June 30, 2012 results reflect the sale of approximately $11.7 million of fixed-rate, single-family mortgage loans, compared to $1.3 million of similar loan sales during the
prior year period. The nine-month period ended June 30, 2012 results reflect the sale of approximately $31.3 million of fixed-rate, single-family mortgage loans, compared to $12.8 million of similar loan sales during the prior year period. Due
to the low interest rate environment, the Bank continues to sell a portion of the fixed rate, single-family mortgage loans it originates.
Deposit service charges and fees were $279,000 and $875,000 for the three and nine months ended June 30, 2012 as compared to $309,000 and $909,000
during the same periods in 2011. The decrease for both periods is attributed to a decrease in the net volume of fees collected for returned checks.
Automated teller machine (ATM) fees were $268,000 and $786,000 for the three and nine months ended June 30, 2012 as compared to $258,000 and $733,000 during the same periods in 2011. The increase for
the three and nine months ended June 30, 2012 is attributed to an increase in the interchange fees earned on debit card transactions due to an increase in the volume of these transactions.
Non-insured investment product income was $60,000 and $167,000 for the three and nine months ended June 30, 2012 as compared to $46,000 and $152,000
for the same periods in 2011. The increase for both periods is primarily attributed to an increase in the commissions earned on the sales of these products due to higher volumes of sales.
47
Other income was $141,000 and $426,000 for the three and nine months ended June 30, 2012 as compared to
$49,000 and $193,000 for the same periods in 2011. The increase for both periods is primarily attributable to an increase in the rents received from certain foreclosed real estate properties held by the Company.
Non-interest Expense
Total non-interest
expense for the three-month period ended June 30, 2012 increased $183,000, or 4.9%, to $3.9 million, as compared to $3.7 million in the same period in 2011. Total non-interest expense for the nine-month period ended June 30, 2012 increased
$295,000, or 2.6%, to $11.6 million, as compared to $11.3 million for the same period in 2011. The increase for the three months ended June 30, 2012 is primarily attributed to an increase in salary and benefits expense, an increase in real
estate owned expense, and an increase in other operating expenses, partially offset by a decrease in advertising expense. The increase for the nine months ended June 30, 2012 is primarily attributed to an increase in real estate owned expense
and an increase in other operating expense, partially offset by a decrease in FDIC insurance premiums and a decrease in advertising expense.
Compensation and benefits expense was $2.2 million for the three-month period ended June 30, 2012, as compared to $2.1 million for the same period
in 2011. Compensation and benefits expense was $6.6 million for the nine-month period ended June 30, 2012, as compared to $6.5 million for the same period in 2011. The increase for the three months ended June 30, 2012 is attributed to an
increase in salaries expense and commission expense. Variances for the nine months ended June 30, 2012 include an increase in salaries expense and a decrease in retirement fund expense. The decrease in retirement fund expense is attributed to
an accrual adjustment posted in the prior period to fulfill the contributions made to the Employee Stock Ownership Plan in December 2010; there were no similar adjustments made in the current period.
Office occupancy and equipment expense was $261,000 and $800,000 for the three and nine months ended June 30, 2012, respectively, as compared to
$258,000 and $786,000 for the same periods in 2011. The increase for the nine months ended June 30, 2012 is primarily attributed to an increase in rent expense, as a full period was recognized for the McCandless Crossing branch for the current
period as opposed to a partial amount for the prior year period.
Depreciation and amortization expense was $128,000 and $403,000 for the
three and nine months ended June 30, 2012, respectively, as compared to $142,000 and $429,000 for the same period in 2011. The decrease for both periods is attributed to depreciation on furniture and fixtures, as items depreciating in the prior
period were fully depreciated in the current period.
Advertising expense was $200,000 for the nine months ended June 30, 2012, as
compared to $100,000 and $300,000 for the same period in 2011. There was no advertising expense recognized for the three months ended June 30, 2012. The decrease for both periods is attributed to a reduction in the advertising accrual.
Professional fees were $106,000 and $328,000 for the three and nine months ended June 30, 2012, respectively, as compared to $102,000
and $336,000 for the same periods in 2011. The decrease for the nine months ended June 30, 2012 is primarily attributed to a decrease in legal fees, partially offset by an increase in audit expense.
Federal deposit insurance premiums were $224,000 and $665,000 for the three and nine months ended June 30, 2012, respectively, as compared to
$225,000 and $820,000 for the same periods in 2011. The decrease for the nine months ended June 30, 2012 is primarily due to a change in how deposit assessments are calculated. Assessments are now based on average consolidated total assets less
tangible equity capital of a financial institution as opposed to its domestic deposit base used previously.
Other operating expenses were
$841,000 and $2.2 million for the three and nine months ended June 30, 2012, respectively, as compared to $634,000 and $1.7 million for the same periods in 2011. The increase for both periods is primarily attributed to an increase in consulting
fees and foreclosed real estate expense and write-downs.
48
Income Taxes
An income tax benefit of $68,000 was recorded for the three months ended June 30, 2012 as compared to a provision of $25,000 for the same period in 2011. An income tax benefit of $182,000 was
recorded for the nine months ended June 30, 2012 as compared to a benefit of $9,000 for the same period in 2011. The tax benefits in the current periods were significantly impacted by the OTTI charges during the periods. The OTTI charges
recorded in the respective periods caused pre-tax income to be lower than tax-exempt income; therefore a tax benefit was recorded. Tax-exempt income includes: income earned on certain municipal investments that qualify for state and/or federal
income tax exemption; income earned by the Banks Delaware subsidiary, which is not subject to state income tax; and earnings on Bank-owned life insurance policies, which are exempt from federal taxation. State and federal tax-exempt income for
the three-month period ended June 30, 2012 was $1.3 million and $274,000, respectively, compared to $1.5 million and $332,000, respectively, for the three-month period ended June 30, 2011. State and federal tax-exempt income for the
nine-month period ended June 30, 2012 was $4.2 million and $874,000, respectively, compared to $4.7 million and $1.1 million, respectively, for the nine-month period ended June 30, 2011.
Capital Requirements
The Federal
Reserve Board measures capital adequacy for bank holding companies on the basis of a risk-based capital framework and a leverage ratio. The guidelines include the concept of Tier 1 capital and total capital. Tier 1 capital is essentially common
equity, excluding net unrealized gains (losses) on securities available-for-sale, goodwill, and cash flow hedges, plus certain types of preferred stock, including the Series B Preferred Stock, and a portion of the Preferred Securities issued by FB
Statutory Trust III in 2007. The Preferred Securities may comprise up to 25% of the Companys Tier 1 capital. The Series B Preferred Stock constitutes Tier 1 Capital for both the risk-weighted and leverage capital requirements. Total capital
includes Tier 1 capital and other forms of capital such as the allowance for loan losses, subject to limitations, and subordinated debt. The guidelines establish a minimum standard risk-based target ratio of 8%, of which at least 4% must be in the
form of Tier 1 capital. At June 30, 2012, the Company had Tier 1 capital as a percentage of risk-weighted assets of 13.17% and total risk-based capital as a percentage of risk-weighted assets of 14.23%.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines currently provide
for a minimum ratio of Tier 1 capital as a percentage of average total assets (the Leverage Ratio) of 3% for bank holding companies that meet certain criteria, including that they maintain the highest regulatory rating. All other bank
holding companies are required to maintain a Leverage Ratio of at least 4% or be subject to prompt corrective action by the Federal Reserve. At June 30, 2012, the Company had a leverage ratio of 8.10%.
The FDIC has issued regulations that require insured institutions, such as the Bank, to maintain minimum levels of capital. In general, current
regulations require a leverage ratio of Tier 1 capital to average total assets of not less than 3% for the most highly rated institutions and an additional 1% to 2% for all other institutions. At June 30, 2012, the Bank complied with the
minimum leverage ratio having Tier 1 capital of 7.79% of average total assets, as defined.
The Bank is also required to maintain a ratio of
qualifying total capital to risk-weighted assets and off-balance sheet items of a minimum of 8%. At June 30, 2012, the Banks total capital to risk-weighted assets ratio calculated under the FDIC capital requirement was 13.76%.
Liquidity
The Companys Asset
Liability Committee (ALCO) is responsible for monitoring liquidity risk and implementing strategies to ensure it has sufficient sources of funds to meet customers withdrawals of deposits and borrowing needs. ALCO also reviews
liquidity contingency funding reports that reflect possible liquidity stress due to unanticipated funding or market limitations. The Companys primary sources of funds have historically consisted of deposits, repurchase agreements, amortization
and prepayments of outstanding loans, borrowings from the FHLB of Pittsburgh and other sources, including sales of securities and, to a limited extent, loans. At June 30, 2012, the total of approved loan commitments amounted to $4.5 million. In
addition, the Company had $6.5 million of undisbursed loan funds at that date. The amount of savings certificates, which mature during the next twelve months totals approximately $105.3 million, a substantial portion of which management believes, on
the basis of
49
prior experience as well as its competitive pricing strategy, will remain in the Company. At June 30, 2012, the Banks maximum borrowing capacity at the FHLB was $98.5 million and $5
million was available on a fed funds facility with a correspondent bank. At June 30, 2012, the market value of investment securities available for pledging purposes was approximately $117.9 million.
Off Balance Sheet Commitments
The Bank
is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The
Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
A summary of the
contractual amount of the Companys financial instrument commitments is as follows:
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June 30,
2012
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September 30,
2011
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(in thousands)
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Commitments to grant loans
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$
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4,521
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$
|
15,375
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Unfunded commitments under lines of credit
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83,626
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80,270
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Financial and performance standby letters of credit
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1,941
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592
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The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby
letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit as deemed necessary. Management believes that the
proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of liability as of June 30, 2012 for
guarantees under standby letters of credit issued is not material.
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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Not Applicable
Item 4.
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Controls and Procedures
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The Companys management evaluated, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, the effectiveness of the Companys disclosure controls and
procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.
50
There were no changes in the Companys internal control over financial reporting that
occurred during the Companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Part II - Other Information
Item 1.
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Legal Proceedings
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The Company is not involved in any pending legal proceedings other than non-material legal proceedings undertaken in the ordinary course of business.
Not Applicable
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
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Not Applicable
Item 3.
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Defaults Upon Senior Securities
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Not Applicable
Item 4.
|
Mine Safety Disclosures
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Not Applicable
Item 5.
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Other Information
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(a) Not applicable
(b) Not applicable
The following exhibits are filed as part of this Report.
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2.1
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Agreement and Plan of Merger by and among WesBanco, Inc., WesBanco Bank, Inc., Fidelity Bancorp, Inc. and Fidelity Savings Bank, dated as of July 19, 2012 (16)
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3.1
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Articles of Incorporation (1)
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3.2
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Amended Bylaws (14)
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3.3
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Statement with Respect to Shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B (15)
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4.1
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Common Stock Certificate (1)
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4.2
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Rights Agreement dated as of June 30, 2003 by and between Fidelity Bancorp, Inc. and Registrar and Transfer
Company (3)
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4.3
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Amendment No. 1 to Rights Agreement (4)
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4.4*
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Indenture, dated as of September 20, 2007, between Fidelity Bancorp, Inc. and Wilmington Trust Company
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4.5*
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Amended and Restated Declaration of Trust, dated as of September 20, 2007, by and among Wilmington Trust Company as Institutional Trustee, Fidelity Bancorp, Inc., as Sponsor and
Richard G. Spencer, Lisa L. Griffith, and Michael A. Mooney as Administrators
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51
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4.6*
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Guarantee Agreement, as dated as of September 20, 2007, by and between Fidelity Bancorp, Inc. and Wilmington Trust Company
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4.7
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Form of Certificate for the Series B Preferred Stock (15)
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4.8
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Warrant for Purchase of Shares of Common Stock (15)
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4.9
|
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Amendment No. 2 to Rights Agreement (17)
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10.1
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Employee Stock Ownership Plan, as amended (1)
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10.4
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1997 Employee Stock Compensation Program (6)
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10.6
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1998 Group Term Replacement Plan (7)
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10.8
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1998 Salary Continuation Plan Agreement by and between R.G. Spencer, the Company and the Bank (7)
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10.9
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1998 Salary Continuation Plan Agreement by and between M.A. Mooney, the Company and the Bank (7)
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10.10
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Salary Continuation Plan Agreement with Lisa L. Griffith (2)
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10.11
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1998 Stock Compensation Plan (8)
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10.12
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2000 Stock Compensation Plan (9)
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10.13
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2001 Stock Compensation Plan (10)
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10.14
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2002 Stock Compensation Plan (11)
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10.15
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2005 Stock-Based Incentive Plan (12)
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10.16
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Form of Directors Indemnification Agreement (13)
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10.17
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Employment Agreement, dated January 1, 2002, between Fidelity Bancorp, Inc. and Fidelity Bank, PaSB and Richard G. Spencer (14)
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10.18
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Employment Agreement, dated January 1, 2000, between Fidelity Bancorp, Inc. and Fidelity Bank, PaSB and Michael A. Mooney (14)
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10.19
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Severance Agreement, dated February 10, 2004, between Fidelity Bank, PaSB and Lisa L. Griffith (14)
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10.20
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Severance Agreement, dated December 19, 1997, between Fidelity Bank, PaSB and Anthony F. Rocco (14)
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10.21
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Severance Agreement, dated December 19, 1997, between Fidelity Bank, PaSB and Sandra L. Lee (14)
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10.22
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Letter Agreement, dated December 12, 2008, between Fidelity Bancorp, Inc. and United States Department of the Treasury, with respect to the issuance and sale of the Series B
Preferred Stock and the Warrant (15)
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10.23
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Form of Waiver, executed by each of Messrs. Spencer, Rocco, and Mooney and Ms. Lee and Ms. Griffith (15)
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10.24
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Form of Letter Agreement, executed by each of Messrs. Spencer, Rocco, and Mooney and Ms. Lee and Ms. Griffith (15)
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
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32
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Section 1350 Certification
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101**
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Interactive Data Files
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*
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Not filed in accordance with the provisions of Item 601(b)(4)(iii) of Regulation S-K. The Company agrees to provide a copy of these documents to the Commission
upon request.
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**
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Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of
Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.
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(1)
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Incorporated by reference from the exhibits attached to the Prospectus and Proxy Statement of the Company included in its Registration Statement on Form S-4 (SEC File
No. 33-55384) filed with the SEC on December 3, 1992 (the Registration Statement).
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(2)
|
Incorporated by reference from the identically numbered exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2003.
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(3)
|
Incorporated by reference from Exhibit 1 to the Companys Registration Statement on Form 8-A filed June 30, 2003.
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(4)
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Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Companys Registration Statement on Form 8-A filed March 17, 2005.
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(6)
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Incorporated by reference from an exhibit to the Registration Statement on Form S-8 for the year ended September 30, 1998 (SEC File No. 333-47841) filed with
the SEC on March 12, 1998.
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52
(7)
|
Incorporated by reference to an identically numbered exhibit to the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 1998 filed
with the SEC on December 29, 1998.
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(8)
|
Incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 (SEC File No. 333-71145) filed with the SEC on January 25, 1999.
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(9)
|
Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (SEC File No. 333-53934) filed with the SEC on January 19, 2001.
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(10)
|
Incorporated by reference from Exhibit 4.1 to the Registration Statement on Form S-8 (SEC File No. 333-81572) filed with the SEC on January 29, 2002.
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(11)
|
Incorporated by reference from Exhibit 4.1 to Registration Statement on Form S-8 (SEC File No. 333-103448) filed with the SEC on February 26, 2003.
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(12)
|
Incorporated by reference from Exhibit 4.1 to Registration Statement on Form S-8 (SEC File No. 333-123168) filed with the SEC on March 7, 2005.
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(13)
|
Incorporated by reference to an identically numbered exhibit in Form 10-Q filed with the SEC on February 13, 2007.
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(14)
|
Incorporated by reference to an identically numbered exhibit to the Registrants Annual Report on Form 10-K for the fiscal year ended September 30, 2007.
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(15)
|
Incorporated by reference to an exhibit to the Registrants Current Report on Form 8-K filed December 12, 2008.
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(16)
|
Incorporated by reference to an exhibit on the Registrants Current Report on Form 8-K filed on July 20, 2012.
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(17)
|
Incorporated by reference to Exhibit 4.3 to Amendment No. 2 to the Registrants Registration Statement on Form 8-A filed on July 24, 2012.
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53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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FIDELITY BANCORP, INC.
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Date: August 14, 2012
|
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By:
|
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/s/ Richard G. Spencer
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Richard G. Spencer
President and Chief Executive Officer
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Date: August 14, 2012
|
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By:
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/s/ Lisa L. Griffith
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Lisa L. Griffith
Sr. Vice President and Chief Financial Officer
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54
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