UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 2020 |
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 number: 000-55084 |
Prudential Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania | 46-2935427 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1834 West Oregon Avenue Philadelphia, Pennsylvania |
19145 |
(Address of Principal Executive Offices) | (Zip Code) |
(215) 755-1500 |
(Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | PBIP | Nasdaq Stock Market |
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 every Interactive Data File required to be submitted 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 such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer x |
Non-accelerated filer ¨ | Smaller reporting company x |
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date: as of April 30, 2020, 10,819,006 shares were issued and 8,202,479 were outstanding.
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
1
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||
ASSETS | ||||||||
Cash and amounts due from depository institutions | $ | 3,791 | $ | 2,395 | ||||
Interest-bearing deposits | 72,897 | 45,573 | ||||||
Total cash and cash equivalents | 76,688 | 47,968 | ||||||
Certificates of deposit | 2,351 | 2,351 | ||||||
Investment and mortgage-backed securities available for sale at fair value | 511,333 | 512,822 | ||||||
Investment and mortgage-backed securities held to maturity (fair value—March 31, 2020, $30,045; September 30, 2019, $69,507) | 28,937 | 68,635 | ||||||
Equity securities | 37 | 95 | ||||||
Loans receivable—net of allowance for loan losses (March 31, 2020, $5,961; | ||||||||
September 30, 2019, $5,393) | 572,122 | 585,456 | ||||||
Accrued interest receivable | 4,412 | 4,549 | ||||||
Real estate owned | 406 | 348 | ||||||
Restricted stock—at cost | 15,552 | 16,406 | ||||||
Office properties and equipment—net | 7,171 | 7,206 | ||||||
Bank owned life insurance | 32,175 | 31,841 | ||||||
Deferred tax assets-net | 4,117 | 2,358 | ||||||
Goodwill | 6,102 | 6,102 | ||||||
Core deposit intangible | 392 | 448 | ||||||
Prepaid expenses and other assets | 5,439 | 2,849 | ||||||
TOTAL ASSETS | $ | 1,267,234 | $ | 1,289,434 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES: | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 19,524 | $ | 16,949 | ||||
Interest-bearing | 711,960 | 728,495 | ||||||
Total deposits | 731,484 | 745,444 | ||||||
Advances from Federal Home Loan Bank (short-term) | 80,000 | 90,000 | ||||||
Advances from Federal Home Loan Bank (long-term) | 274,624 | 286,904 | ||||||
Accrued interest payable | 2,847 | 4,328 | ||||||
Advances from borrowers for taxes and insurance | 2,667 | 2,332 | ||||||
Accounts payable and accrued expenses | 43,366 | 20,815 | ||||||
Total liabilities | 1,134,988 | 1,149,823 | ||||||
STOCKHOLDERS' EQUITY: | ||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued | - | - | ||||||
Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 issued and 8,782,025 outstanding at March 31, 2020; 10,819,006 issued and 8,889,447 outstanding at September 30, 2019 | 108 | 108 | ||||||
Additional paid-in capital | 118,123 | 118,384 | ||||||
Treasury stock, at cost: 2,036,981 shares at March 31, 2020 and 1,929,559 at September 30, 2019 | (30,994 | ) | (29,698 | ) | ||||
Retained earnings | 49,862 | 49,625 | ||||||
Accumulated other comprehensive (loss) income | (4,853 | ) | 1,192 | |||||
Total stockholders' equity | 132,246 | 139,611 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,267,234 | $ | 1,289,434 |
See notes to unaudited consolidated financial statements.
2
PRUDENTIAL bancorp, inc. and subsidiarIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||||||
INTEREST INCOME: | ||||||||||||||||
Interest on loans | $ | 6,333 | $ | 6,722 | $ | 13,163 | $ | 13,184 | ||||||||
Interest on mortgage-backed securities | 2,563 | 2,553 | 5,356 | 4,308 | ||||||||||||
Interest and dividends on investments | 1,764 | 1,716 | 3,566 | 3,248 | ||||||||||||
Interest on interest-bearing assets | 350 | 144 | 752 | 396 | ||||||||||||
Total interest income | 11,010 | 11,135 | 22,837 | 21,136 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
Interest on deposits | 2,866 | 3,540 | 5,991 | 6,580 | ||||||||||||
Interest on advances from Federal Home Loan Bank(short-term) | 425 | 122 | 965 | 189 | ||||||||||||
Interest on advances from Federal Home Loan Bank(long-term) | 1,931 | 1,149 | 3,750 | 2,028 | ||||||||||||
Total interest expense | 5,222 | 4,811 | 10,706 | 8,797 | ||||||||||||
NET INTEREST INCOME | 5,788 | 6,324 | 12,131 | 12,339 | ||||||||||||
PROVISION FOR LOAN LOSSES | 500 | - | 625 | - | ||||||||||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 5,288 | 6,324 | 11,506 | 12,339 | ||||||||||||
NON-INTEREST INCOME: | ||||||||||||||||
Fees and other service charges | 150 | 156 | 315 | 334 | ||||||||||||
Gain on sale of loans, net | 239 | - | 265 | - | ||||||||||||
Gain on the sale of investments and mortgage-backed securities | 2,364 | 117 | 2,682 | 117 | ||||||||||||
Income from bank owned life insurance | 164 | 149 | 334 | 303 | ||||||||||||
Gain (loss) on equity securities, net | (39 | ) | 34 | (58 | ) | 34 | ||||||||||
SWAP expense | (333 | ) | (41 | ) | (300 | ) | (107 | ) | ||||||||
Other | 123 | 127 | 262 | 241 | ||||||||||||
Total non-interest income | 2,668 | 542 | 3,500 | 922 | ||||||||||||
NON-INTEREST EXPENSE: | ||||||||||||||||
Salaries and employee benefits | 2,624 | 2,209 | 4,922 | 4,383 | ||||||||||||
Data processing | 234 | 201 | 426 | 384 | ||||||||||||
Professional services | 308 | 374 | 712 | 775 | ||||||||||||
Office occupancy | 218 | 275 | 422 | 513 | ||||||||||||
Depreciation | 113 | 155 | 268 | 310 | ||||||||||||
Director compensation | 74 | 65 | 133 | 130 | ||||||||||||
Deposit insurance premium | 195 | 126 | 376 | 303 | ||||||||||||
Advertising | 53 | 72 | 92 | 153 | ||||||||||||
Real estate owned expense | 93 | 4 | 140 | 1 | ||||||||||||
Core deposit amortization | 26 | 29 | 56 | 63 | ||||||||||||
Other | 522 | 636 | 934 | 1,123 | ||||||||||||
Total non-interest expense | 4,460 | 4,146 | 8,481 | 8,138 | ||||||||||||
INCOME BEFORE INCOME TAXES | 3,496 | 2,720 | 6,525 | 5,123 | ||||||||||||
INCOME TAXES: | ||||||||||||||||
Current expense | 419 | 676 | 985 | 1,235 | ||||||||||||
Deferred expense (benefit) | 153 | (296 | ) | 153 | (426 | ) | ||||||||||
Total income tax expense | 572 | 380 | 1,138 | 809 | ||||||||||||
NET INCOME | $ | 2,924 | $ | 2,340 | $ | 5,387 | $ | 4,314 | ||||||||
BASIC EARNINGS PER SHARE | $ | 0.33 | $ | 0.27 | $ | 0.61 | $ | 0.49 | ||||||||
DILUTED EARNINGS PER SHARE | $ | 0.32 | $ | 0.26 | $ | 0.60 | $ | 0.48 | ||||||||
DIVIDENDS PER SHARE | $ | 0.50 | $ | 0.05 | $ | 0.57 | $ | 0.10 |
See notes to unaudited consolidated financial statements.
3
PRUDENTIAL bancorp, inc. and subsidiarIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three months ended March 31, | Six months ended March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net income | $ | 2,924 | $ | 2,340 | $ | 5,387 | $ | 4,314 | ||||||||
Unrealized holding gains on available-for-sale securities | 4,825 | 4,522 | 3,652 | 7,945 | ||||||||||||
Tax effect | (1,013 | ) | (949 | ) | (767 | ) | (1,668 | ) | ||||||||
Unrealized holding losses on interest rate swaps | (10,914 | ) | (2,466 | ) | (8,622 | ) | (3,204 | ) | ||||||||
Tax effect | 2,292 | 518 | 1,811 | 673 | ||||||||||||
Reclassification adjustment for net gains recorded in net income | (2,364 | ) | (117 | ) | (2,682 | ) | (117 | ) | ||||||||
Tax effect | 496 | 25 | 563 | 25 | ||||||||||||
Total other comprehensive income (loss) | (6,678 | ) | 1,533 | (6,045 | ) | 3,654 | ||||||||||
Comprehensive income (loss) | $ | (3,754 | ) | $ | 3,873 | $ | (658 | ) | $ | 7,968 |
See notes to unaudited consolidated financial statements.
4
PRUDENTIAL bancorp, inc. and subsidiarIES UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Treasury | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
Stock | Capital | Stock | Earnings | Income (Loss) | Equity | |||||||||||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||||||||||||||
BALANCE, January 1, 2020 | $ | 108 | $ | 118,673 | $ | (29,698 | ) | $ | 51,391 | $ | 1,825 | $ | 142,299 | |||||||||||
Net income | 2,924 | 2,924 | ||||||||||||||||||||||
Other comprehensive loss | (6,678 | ) | (6,678 | ) | ||||||||||||||||||||
Dividends paid ($0.50 per share) | (4,453 | ) | (4,453 | ) | ||||||||||||||||||||
Purchase of treasury stock (152,009 shares) | (1,999 | ) | (1,999 | ) | ||||||||||||||||||||
Treasury stock used for employee benefit plans (44,587 shares) | (787 | ) | 703 | (84 | ) | |||||||||||||||||||
Stock option expense | 117 | 117 | ||||||||||||||||||||||
Restricted share award expense | 120 | 120 | ||||||||||||||||||||||
BALANCE, March 31, 2020 | $ | 108 | $ | 118,123 | $ | (30,994 | ) | $ | 49,862 | $ | (4,853 | ) | $ | 132,246 |
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Treasury | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
Stock | Capital | Stock | Earnings | Income (Loss) | Equity | |||||||||||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||||||||||||||
BALANCE, January 1, 2019 | $ | 108 | $ | 118,621 | $ | (29,399 | ) | $ | 47,381 | $ | (6,033 | ) | $ | 130,678 | ||||||||||
Net income | 2,340 | 2,340 | ||||||||||||||||||||||
Other comprehensive income | 1,533 | 1,533 | ||||||||||||||||||||||
Dividends paid ($0.05 per share) | (446 | ) | (446 | ) | ||||||||||||||||||||
Purchase of treasury stock (10,200 shares) | (179 | ) | (179 | ) | ||||||||||||||||||||
Treasury stock used for employee benefit plans (48,636 shares) | (921 | ) | 610 | (311 | ) | |||||||||||||||||||
Stock option expense | 126 | 126 | ||||||||||||||||||||||
Restricted share award expense | 150 | 150 | ||||||||||||||||||||||
Reclassification for adoption of ASU 2016-01 | 25 | (25 | ) | - | ||||||||||||||||||||
BALANCE, March 31, 2019 | $ | 108 | $ | 117,976 | $ | (28,968 | ) | $ | 49,300 | $ | (4,525 | ) | $ | 133,891 |
See notes to unaudited consolidated financial statements
5
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Treasury | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
Stock | Capital | Stock | Earnings | Income (Loss) | Equity | |||||||||||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||||||||||||||
BALANCE, October 1, 2019 | $ | 108 | $ | 118,384 | $ | (29,698 | ) | $ | 49,625 | $ | 1,192 | $ | 139,611 | |||||||||||
Net income | 5,387 | 5,387 | ||||||||||||||||||||||
Other comprehensive loss | (6,045 | ) | (6,045 | ) | ||||||||||||||||||||
Dividends paid ($0.57 per share) | (5,075 | ) | (5,075 | ) | ||||||||||||||||||||
Purchase of treasury stock (152,009 shares) | (1,999 | ) | (1,999 | ) | ||||||||||||||||||||
Treasury stock used for employee benefit plans (44,587 shares) | (787 | ) | 703 | (84 | ) | |||||||||||||||||||
Stock option expense | 270 | 270 | ||||||||||||||||||||||
Restricted share award expense | 256 | 256 | ||||||||||||||||||||||
Reclassification for adoption of ASC Topic 842 | (75 | ) | (75 | ) | ||||||||||||||||||||
BALANCE, March 31, 2020 | $ | 108 | $ | 118,123 | $ | (30,994 | ) | $ | 49,862 | $ | (4,853 | ) | $ | 132,246 |
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid-In | Treasury | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
Stock | Capital | Stock | Earnings | Loss | Equity | |||||||||||||||||||
BALANCE, October 1, 2018 | $ | 108 | $ | 118,345 | $ | (27,744 | ) | $ | 45,854 | $ | (8,154 | ) | $ | 128,409 | ||||||||||
Net income | 4,314 | 4,314 | ||||||||||||||||||||||
Other comprehensive income | 3,654 | 3,654 | ||||||||||||||||||||||
Dividends paid ($0.10 per share) | (893 | ) | (893 | ) | ||||||||||||||||||||
Purchase of treasury stock (106,365 shares) | (2,248 | ) | (2,248 | ) | ||||||||||||||||||||
Treasury stock used for employee benefit plans (50,409 shares) | (953 | ) | 1,024 | 71 | ||||||||||||||||||||
Stock option expense | 277 | 277 | ||||||||||||||||||||||
Restricted share award expense | 307 | 307 | ||||||||||||||||||||||
Reclassification for adoption of ASU 2016-01 | 25 | (25 | ) | - | ||||||||||||||||||||
BALANCE, March 31, 2019 | $ | 108 | $ | 117,976 | $ | (28,968 | ) | $ | 49,300 | $ | (4,525 | ) | $ | 133,891 |
See notes to unaudited consolidated financial statements
6
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in Thousands) | ||||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 5,387 | $ | 4,314 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 268 | 310 | ||||||
Net accretion of premiums/discounts | (877 | ) | (766 | ) | ||||
Provision for loan losses | 625 | - | ||||||
Net amortization of deferred loan fees and costs | (35 | ) | (58 | ) | ||||
Share-based compensation expense for stock options and share awards | 526 | 584 | ||||||
Income from bank owned life insurance | (334 | ) | (303 | ) | ||||
Loss (gain) on sale of other real estate owned | - | 46 | ||||||
Gain on sale of investments available for sale | (2,682 | ) | (117 | ) | ||||
Proceeds from the sale of loans | 20,713 | - | ||||||
Gain on sale of loans | (265 | ) | - | |||||
Originations of loans held for sale | (6,186 | ) | - | |||||
Holding losses (gains) on equity securities | 58 | (34 | ) | |||||
Deferred income tax (benefit) expense | (153 | ) | (426 | ) | ||||
Changes in assets and liabilities which used cash: | ||||||||
Accrued interest receivable | 137 | (489 | ) | |||||
Accrued interest payable | (1,481 | ) | (418 | ) | ||||
Other, net | 106 | 601 | ||||||
Net cash provided by operating activities | 15,807 | 3,244 | ||||||
INVESTING ACTIVITIES: | ||||||||
Purchase of investment and mortgage-backed securities available for sale | (130,257 | ) | (153,282 | ) | ||||
Purchase of investment and mortgage-backed securities held to maturity | (2,500 | ) | - | |||||
Sale of investments available for sale | 81,953 | 12,770 | ||||||
Loans originated | (55,211 | ) | (45,722 | ) | ||||
Principal collected on loans | 53,750 | 67,157 | ||||||
Principal payments received on investment and mortgage-backed securities: | ||||||||
Held-to-maturity | 42,179 | 2,455 | ||||||
Available-for-sale | 65,441 | 9,461 | ||||||
Redemption of FHLB Stock | 5,489 | 5,589 | ||||||
Purchase of FHLB stock | (4,635 | ) | (8,387 | ) | ||||
Proceeds from sale of other real estate owned | - | 603 | ||||||
Purchases of equipment | (233 | ) | (225 | ) | ||||
Net cash provided by (used in) investing activities | 55,976 | (109,581 | ) | |||||
FINANCING ACTIVITIES: | ||||||||
Net increase in demand deposits, NOW accounts, and savings accounts | 45,814 | 10,792 | ||||||
Net (decrease) increase in certificates of deposit | (59,774 | ) | 30,449 | |||||
Net (decrease) increase in FHLB advances - short term | (10,000 | ) | 15,500 | |||||
Proceeds from FHLB advances - long term | - | 74,223 | ||||||
Repayment of FHLB advances - long term | (12,280 | ) | (19,312 | ) | ||||
Increase in advances from borrowers for taxes and insurance | 335 | 177 | ||||||
Cash dividends paid | (5,075 | ) | (893 | ) | ||||
Treasury stock used for employee benefit plans | (84 | ) | 71 | |||||
Purchase of treasury stock | (1,999 | ) | (2,248 | ) | ||||
Net cash (used in) provided by financing activities | (43,063 | ) | 108,759 |
7
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
Six Months Ended March 31. | ||||||||
2020 | 2019 | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 28,720 | 2,422 | ||||||
CASH AND CASH EQUIVALENTS—Beginning of period | 47,968 | 48,171 | ||||||
CASH AND CASH EQUIVALENTS—End of period | $ | 76,688 | $ | 50,593 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW | ||||||||
INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest on deposits and advances from Federal | ||||||||
Home Loan Bank | $ | 12,187 | $ | 9,215 | ||||
Income taxes paid | $ | 1,195 | $ | 25 | ||||
SUPPLEMENTAL DISCLOSURES OF NONCASH ITEMS | ||||||||
Loans transferred to other real estate owned | 183 | - | ||||||
Lease adoption: | ||||||||
Right of use lease asset | $ | 1,415 | - | |||||
Lease Liability | $ | 1,536 | - |
See the accompany notes to the unaudited consolidated financial statements
8
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | SIGNIFICANT ACCOUNTING POLICIES |
Prudential Bancorp, Inc. (the “Company”) is a Pennsylvania corporation and the parent holding company for Prudential Bank (the “Bank”). The Company is a registered bank holding company.
The Bank is a community-oriented, Pennsylvania-chartered savings bank headquartered in South Philadelphia. The banking office network currently consists of the headquarters and main office (which includes a branch office), administrative office, and nine additional full-service branch offices. Eight of the branch offices are located in Philadelphia (Philadelphia County), one is in Drexel Hill, Delaware County, and one is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 10 of the banking offices. The Bank also provides on-line and mobile banking services.
The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities (the “Department”), as its chartering authority and primary regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up to applicable limits. As a bank holding company, the Company is subject to the regulation of the Board of Governors of the Federal Reserve System.
Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and six months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The significant accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 81 through 85 of the Annual Report on Form 10-K for the year ended September 30, 2019.
Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions in the Company’s consolidated financial statements are recorded in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, and the fair value measurement for financial instruments. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
Effective October 1, 2019, the Company adopted ASU 2016-02 – Leases. This Update and all subsequent ASU’s that modified Topic 842 set forth a new lease accounting model for lessors and lessees. For lessees, virtually all leases will have to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting provided by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The Update and its related amendments resulted in the recognition of operating right-of-use assets totaling $1.5 million and operating lease liabilities totaling $1.6 million. A $75,000 prior period adjustment to retained earnings was recognized as of October 1, 2019. The Company has presented the necessary disclosures in Note 15.
9
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10-3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In November 2019, the FASB issued ASU 2019-08, Compensation ‒ Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which requires entities to measure and classify share based payments to a customer, in accordance with the guidance in ASC 718, Compensation ‒ Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and, in doing so, superseded guidance in Subtopic 505-50, Equity ‒ Equity-Based Payments to Non-Employees. The amount that would be recorded as a reduction in revenue would be measured based on the grant date fair value of the share based payment, in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments in Update 2018-07, the amendments in this Update are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in Update 2018-07, the amendments in this Update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this Update, but not before it adopts the amendments in Update 2018-07. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
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In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intra period allocation if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
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2. | EARNINGS PER SHARE |
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock issued, net of any treasury shares and unearned restricted share awards, during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period.
The calculated basic and diluted earnings per share are as follows:
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
(Dollars in Thousands, Except Share and Per Share Data) | ||||||||||||||||
Net income | $ | 2,924 | $ | 2,924 | $ | 2,340 | $ | 2,340 | ||||||||
Weighted average shares outstanding | 8,884,760 | 8,884,760 | 8,777,252 | 8,777,252 | ||||||||||||
Effect of common stock equivalents | - | 117,342 | - | 144,309 | ||||||||||||
Adjusted weighted average shares used in earnings per share computation | 8,884,760 | 9,002,102 | 8,777,252 | 8,921,561 | ||||||||||||
Earnings per share - basic and diluted | $ | 0.33 | $ | 0.32 | $ | 0.27 | $ | 0.26 |
Six Months Ended March 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
(Dollars in Thousands, Except Share and Per Share Data) | ||||||||||||||||
Net income | $ | 5,387 | $ | 5,387 | $ | 4,314 | $ | 4,314 | ||||||||
Weighted average shares outstanding | 8,885,972 | 8,885,972 | 8,790,822 | 8,790,822 | ||||||||||||
Effect of common stock equivalents | - | 133,815 | - | 131,262 | ||||||||||||
Adjusted weighted average shares used in earnings per share computation | 8,885,972 | 9,019,787 | 8,790,822 | 8,922,084 | ||||||||||||
Earnings per share - basic and diluted | $ | 0.61 | $ | 0.60 | $ | 0.49 | $ | 0.48 |
As of March 31, 2020 and 2019, there were 528,004 and 584,832 shares of common stock, respectively, subject to options with exercise prices less than the then current market and which were included in the computation of diluted earnings per share. At March 31, 2020 and 2019, there were 265,030 and 202,500 shares, respectively, that had exercise prices greater than the then current market value and were considered anti-dilutive at such dates.
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3. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax, for the periods presented:
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||
2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Unrealized gain (loss) on AFS securities (a) | Unrealized gain (loss) on interest rate swaps (a) | Total accumulated other comprehensive (loss) income | Unrealized gain (loss) on AFS securities (a) | Unrealized gain (loss) on interest rate swaps (a) | Total accumulated other comprehensive (loss) income | |||||||||||||||||||
Beginning balance, January 1 | $ | 6,920 | $ | (5,096 | ) | $ | 1,824 | $ | (5,615 | ) | $ | (418 | ) | $ | (6,033 | ) | ||||||||
Other comprehensive (loss) income before reclassifications | 3,812 | (8,621 | ) | (4,809 | ) | 3,572 | (1,947 | ) | 1,625 | |||||||||||||||
Total | 10,732 | (13,717 | ) | (2,985 | ) | (2,043 | ) | (2,365 | ) | (4,408 | ) | |||||||||||||
Reclassification from adoption of ASU 2016-01 | - | - | - | (25 | ) | - | (25 | ) | ||||||||||||||||
Reclassification for net gains recorded in net income | (1,868 | ) | - | (1,868 | ) | (92 | ) | - | (92 | ) | ||||||||||||||
Ending balance, March 31 | $ | 8,864 | $ | (13,717 | ) | $ | (4,853 | ) | $ | (2,160 | ) | $ | (2,365 | ) | $ | (4,525 | ) |
(a) | All amounts are net of tax. Amounts in parentheses indicate debits. |
Six Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||
2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Unrealized gain (loss) on AFS securities (a) | Unrealized gain (loss) on interest rate swaps (a) | Total accumulated other comprehensive (loss) income | Unrealized gain (loss) on AFS securities (a) | Unrealized gain (loss) on interest rate swaps (a) | Total accumulated other comprehensive (loss) income | |||||||||||||||||||
Beginning balance, October 1 | $ | 8,098 | $ | (6,906 | ) | $ | 1,192 | $ | (8,320 | ) | $ | 166 | $ | (8,154 | ) | |||||||||
Other comprehensive (loss) income before reclassification | 2,885 | (6,811 | ) | (3,926 | ) | 6,277 | (2,531 | ) | 3,746 | |||||||||||||||
Total | 10,983 | (13,717 | ) | (2,734 | ) | (2,043 | ) | (2,365 | ) | (4,408 | ) | |||||||||||||
Reclassification from adoption of ASU 2016-01 | - | - | - | (25 | ) | (25 | ) | |||||||||||||||||
Reclassification for net gains recorded in net income | (2,119 | ) | - | (2,119 | ) | (92 | ) | - | (92 | ) | ||||||||||||||
Ending balance, March 31 | $ | 8,864 | $ | (13,717 | ) | $ | (4,853 | ) | $ | (2,160 | ) | $ | (2,365 | ) | $ | (4,525 | ) |
(a) | All amounts are net of tax. Amounts in parentheses indicate debits. |
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4. | INVESTMENT AND MORTGAGE-BACKED SECURITIES |
The amortized cost and fair value of investment and mortgage-backed securities, with gross unrealized gains and losses, are as follows:
March 31, 2020 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Securities Available for Sale: | ||||||||||||||||
U.S. government and agency obligations | $ | 37,433 | $ | 119 | $ | (95 | ) | $ | 37,457 | |||||||
State and political subdivisions | 71,957 | 1,991 | (2,453 | ) | 71,495 | |||||||||||
Mortgage-backed securities - U.S. government agencies | 312,448 | 10,776 | (63 | ) | 323,161 | |||||||||||
Corporate debt securities | 78,273 | 1,650 | (703 | ) | 79,220 | |||||||||||
Total securities available for sale | $ | 500,111 | $ | 14,536 | $ | (3,314 | ) | $ | 511,333 | |||||||
Securities Held to Maturity: | ||||||||||||||||
U.S. government and agency obligations | $ | 6,500 | $ | 253 | $ | - | $ | 6,753 | ||||||||
State and political subdivisions | 18,130 | 588 | (22 | ) | 18,696 | |||||||||||
Mortgage-backed securities - U.S. government agencies | 4,307 | 289 | - | 4,596 | ||||||||||||
Total securities held to maturity | $ | 28,937 | $ | 1,130 | $ | (22 | ) | $ | 30,045 |
The Company recognized net realized losses on equity securities of $58,000 and $39,000 for the six and three months ended March 31, 2020, respectively. Net gains on equity securities were $34,000 and $0 during the three and six months ended March 31, 2019.
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September 30, 2019 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Securities Available for Sale: | ||||||||||||||||
U.S. government and agency obligations | $ | 24,960 | $ | 3 | $ | (98 | ) | $ | 24,865 | |||||||
State and political subdivisions | 47,909 | 484 | (747 | ) | 47,646 | |||||||||||
Mortgage-backed securities - U.S. government agencies | 362,342 | 8,836 | (406 | ) | 370,772 | |||||||||||
Corporate debt securities | 67,360 | 2,217 | (38 | ) | 69,539 | |||||||||||
Total debt securities available for sale | $ | 502,571 | $ | 11,540 | $ | (1,289 | ) | $ | 512,822 | |||||||
Securities Held to Maturity: | ||||||||||||||||
U.S. government and agency obligations | $ | 43,349 | $ | 181 | $ | (188 | ) | $ | 43,342 | |||||||
State and political subdivisions | 20,474 | 645 | - | 21,119 | ||||||||||||
Mortgage-backed securities - U.S. government agencies | 4,812 | 238 | (4 | ) | 5,046 | |||||||||||
Total securities held to maturity | $ | 68,635 | $ | 1,064 | $ | (192 | ) | $ | 69,507 |
The amortized cost and fair value of equity securities:
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As of March 31, 2020, the Bank maintained $270.4 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral and convenience. As of March 31, 2020, The Bank was only required to hold $144.1 million as specific collateral for its borrowings; therefore the $126.3 million excess securities are not restricted and could be sold or transferred if needed.
The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of March 31, 2020:
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Securities Available for Sale: | ||||||||||||||||||||||||
U.S. government and agency obligations | $ | (24 | ) | $ | 4,976 | $ | (71 | ) | $ | 3,364 | $ | (95 | ) | $ | 8,340 | |||||||||
State and political subdivisions | - | - | (2,453 | ) | 23,285 | (2,453 | ) | 23,285 | ||||||||||||||||
Mortgage-backed securities - U.S. government agencies | (18 | ) | 7,181 | (45 | ) | 3,510 | (63 | ) | 10,691 | |||||||||||||||
Corporate bonds | (703 | ) | 16,749 | - | - | (703 | ) | 16,749 | ||||||||||||||||
Total securities available for sale | $ | (745 | ) | $ | 28,906 | $ | (2,569 | ) | $ | 30,159 | $ | (3,314 | ) | $ | 59,065 | |||||||||
Securities Held to Maturity: | ||||||||||||||||||||||||
State and political subdivisions | $ | (22 | ) | $ | 2,002 | $ | - | $ | - | $ | (22 | ) | $ | 2,002 | ||||||||||
Total securities held to maturity | $ | (22 | ) | $ | 2,002 | $ | - | $ | - | $ | (22 | ) | $ | 2,002 | ||||||||||
Total | $ | (767 | ) | $ | 30,908 | $ | (2,569 | ) | $ | 30,159 | $ | (3,336 | ) | $ | 61,067 |
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The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2019:
Less than 12 months | More than 12 months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | |||||||||||||||||||
Losses | Value | Losses | Value | Losses | Value | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Securities Available for Sale: | ||||||||||||||||||||||||
U.S. government and agency obligations | $ | (3 | ) | $ | 6,997 | $ | (95 | ) | $ | 3,866 | $ | (98 | ) | $ | 10,863 | |||||||||
State and political subdivisions | (4 | ) | 890 | (743 | ) | 23,784 | (747 | ) | 24,674 | |||||||||||||||
Mortgage-backed securities - US government agencies | (86 | ) | 50,057 | (320 | ) | 37,056 | (406 | ) | 87,113 | |||||||||||||||
Corporate bonds | (13 | ) | 1,989 | (25 | ) | 3,014 | (38 | ) | 5,003 | |||||||||||||||
Total securities available for sale | $ | (106 | ) | $ | 59,933 | $ | (1,183 | ) | $ | 67,720 | $ | (1,289 | ) | $ | 127,653 | |||||||||
Securities Held to Maturity: | ||||||||||||||||||||||||
U.S. government and agency obligations | $ | (188 | ) | $ | 14,811 | $ | - | $ | - | $ | (188 | ) | $ | 14,811 | ||||||||||
Mortgage-backed securities - US government agencies | (4 | ) | 794 | - | - | (4 | ) | 794 | ||||||||||||||||
Total securities held to maturity | $ | (192 | ) | $ | 15,605 | $ | - | $ | - | $ | (192 | ) | $ | 15,605 | ||||||||||
Total | $ | (298 | ) | $ | 75,538 | $ | (1,183 | ) | $ | 67,720 | $ | (1,481 | ) | $ | 143,258 |
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term prospects of the issuer.
The Company assesses whether a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where impairment in value is deemed to be other than temporary between the component representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a charge to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected, discounted at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security. The Company uses the cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity of defaults, estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a discount rate equal to the effective yield of the security. The difference between the present value of the expected cash flows and the amortized book value is considered a credit loss. The fair value of the security is determined using the same expected cash flows; the discount rate is a rate the Company determines from open market and other sources as appropriate for the particular security. The difference between the fair value and the security’s remaining amortized cost is recognized in other comprehensive income (loss).
For both the three and six months ended March 31, 2020 and 2019, the Company did not record any credit losses on investment securities through earnings.
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U.S. Government and Agency Obligations - At March 31, 2020, there was one security in a gross unrealized loss position for less than 12 months and there was one security in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020.
Mortgage-Backed Securities – At March 31, 2020, there were five mortgage-backed securities in a gross unrealized loss position for less than 12 months, while there were seven securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and all of them are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020.
Corporate Debt Securities – At March 31, 2020, there were six securities in a gross unrealized loss for less than 12 months, while there were no securities in a gross unrealized loss position for more than 12 months at such date. These securities were issued by publicly reporting companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020.
State and political subdivisions – At March 31, 2020, there was one security in a gross unrealized loss for less than 12 months, while there were seven securities in a gross unrealized loss position for more than 12 months at such date. The unrealized losses on these debt securities relate principally to the changes in market interest rates in the financial markets and are not as a result of projected short fall of cash flows. These securities were issued by local municipalities/school districts with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020.
The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The maturity table below excludes mortgage-backed securities because the contractual maturities of such securities are not indicative of actual maturities due to significant prepayments.
March 31, 2020 | ||||||||||||||||
Held to Maturity | Available for Sale | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Due after one through five years | $ | - | $ | - | $ | 20,546 | $ | 20,300 | ||||||||
Due after five through ten years | 17,098 | 17,693 | 58,912 | 60,185 | ||||||||||||
Due after ten years | 7,532 | 7,756 | 108,205 | 107,687 | ||||||||||||
Total | $ | 24,630 | $ | 25,449 | $ | 187,663 | $ | 188,172 |
During the three month period ended March 31, 2020, the Company sold securities with an aggregate amortized cost of $44.6 million for a recognized aggregate gain of $2.4 million. For the six month period ended March 31, 2020, the Company sold securities with an aggregate amortized value of $62.1 million and a recognized gain of $2.7 million.During both the three and six month periods ended March 31, 2019, the Company sold three mortgage-back securities with an aggregate amortized cost of $12.8 million for a recognized aggregate gain of $117,000 (pre-tax).
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5. | LOANS RECEIVABLE |
Loans receivable consist of the following:
March 31, | September 30, | |||||||
2020 | 2019 | |||||||
(Dollars in Thousands) | ||||||||
One-to-four family residential | $ | 243,326 | $ | 268,780 | ||||
Multi-family residential | 25,864 | 30,582 | ||||||
Commercial real estate | 125,193 | 128,521 | ||||||
Construction and land development | 245,745 | 253,368 | ||||||
Commercial business | 21,999 | 19,630 | ||||||
Loans to financial institutions | 6,000 | 6,000 | ||||||
Leases | 298 | 518 | ||||||
Consumer | 768 | 834 | ||||||
Total loans | 669,193 | 708,233 | ||||||
Undisbursed portion of loans-in-process | (88,645 | ) | (114,528 | ) | ||||
Deferred loan fees | (2,465 | ) | (2,856 | ) | ||||
Allowance for loan losses | (5,961 | ) | (5,393 | ) | ||||
Net loans | $ | 572,122 | $ | 585,456 |
The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at March 31, 2020:
One- to-four family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial Business | Loans to financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Collectively evaluated for impairment | 1,301 | 295 | 1,365 | 2,090 | 257 | 70 | 4 | 3 | 576 | 5,961 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 1,301 | $ | 295 | $ | 1,365 | $ | 2,090 | $ | 257 | $ | 70 | $ | 4 | $ | 3 | $ | 576 | $ | 5,961 | ||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 3,797 | $ | - | $ | 1,417 | $ | 8,700 | $ | - | $ | - | $ | - | $ | - | $ | 13,914 | ||||||||||||||||||||||
Collectively evaluated for impairment | 239,529 | 25,864 | 123,776 | 237,045 | 21,999 | 6,000 | 298 | 768 | 655,279 | |||||||||||||||||||||||||||||||
Total loans | $ | 243,326 | $ | 25,864 | $ | 125,193 | $ | 245,745 | $ | 21,999 | $ | 6,000 | $ | 298 | $ | 768 | $ | 669,193 |
19
The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at September 30, 2019:
One- to four - family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial business | Loanss to financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
Allowance for Loan Losses: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||
Collectively evaluated for impairment | 1,002 | 315 | 1,257 | 2,034 | 206 | 63 | 5 | 13 | 498 | 5,393 | ||||||||||||||||||||||||||||||
Total ending allowance balance | $ | 1,002 | $ | 315 | $ | 1,257 | $ | 2,034 | $ | 206 | $ | 63 | $ | 5 | $ | 13 | $ | 498 | $ | 5,393 | ||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 4,827 | $ | - | $ | 1,965 | $ | 8,750 | $ | - | $ | - | $ | - | $ | - | $ | 15,542 | ||||||||||||||||||||||
Collectively evaluated for impairment | 263,953 | 30,582 | 126,556 | 244,618 | 19,630 | 6,000 | 518 | 834 | 692,691 | |||||||||||||||||||||||||||||||
Total loans | $ | 268,780 | $ | 30,582 | $ | 128,521 | $ | 253,368 | $ | 19,630 | $ | 6,000 | $ | 518 | $ | 834 | $ | 708,233 |
The loan portfolio is segmented at a level that allows management to monitor both risk and performance. Management evaluates for potential impairment all construction loans, multi-family loans, commercial real estate loans, commercial business loans, loans to financial institutions, leases and all loans and leases more than 90 days delinquent as to principal and/or interest. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect in full the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
Once the determination is made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is generally measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following three methods: (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. Management primarily utilizes the fair value of collateral method as a practically expedient alternative. On collateral method evaluations, any portion of the loan deemed uncollectible is charged-off against the loan loss allowance.
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The following table presents impaired loans by class as of March 31, 2020, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.
Impaired | ||||||||||||||||||||
Loans with | ||||||||||||||||||||
Impaired Loans with | No Specific | |||||||||||||||||||
Specific Allowance | Allowance | Total Impaired Loans | ||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Unpaid | ||||||||||||||||||||
Recorded | Related | Recorded | Recorded | Principal | ||||||||||||||||
Investment | Allowance | Investment | Investment | Balance | ||||||||||||||||
One-to-four family residential | $ | - | $ | - | $ | 3,797 | $ | 3,797 | $ | 4,147 | ||||||||||
Commercial real estate | - | - | 1,417 | 1,417 | 1,536 | |||||||||||||||
Construction and land development | - | - | 8,700 | 8,700 | 11,081 | |||||||||||||||
Total impaired loans | $ | - | $ | - | $ | 13,914 | $ | 13,914 | $ | 16,764 |
The following table presents impaired loans by class as of September 30, 2019, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.
Impaired | ||||||||||||||||||||
Loans with | ||||||||||||||||||||
Impaired Loans with | No Specific | |||||||||||||||||||
Specific Allowance | Allowance | Total Impaired Loans | ||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Unpaid | ||||||||||||||||||||
Recorded | Related | Recorded | Recorded | Principal | ||||||||||||||||
Investment | Allowance | Investment | Investment | Balance | ||||||||||||||||
One-to-four family residential | $ | - | $ | - | $ | 4,827 | $ | 4,827 | $ | 5,179 | ||||||||||
Commercial real estate | - | - | 1,965 | 1,965 | 2,125 | |||||||||||||||
Construction and land development | - | - | 8,750 | 8,750 | 11,131 | |||||||||||||||
Total impaired loans | $ | - | $ | - | $ | 15,542 | $ | 15,542 | $ | 18,435 |
The following tables present the average recorded investment in impaired loans and related interest income recognized for the periods indicated:
21
Three Months Ended March 31, 2020 | ||||||||||||
Average Recorded Investment | Income Recognized on Accrual Basis | Income Recognized on Cash Basis | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 4,195 | $ | - | $ | 8 | ||||||
Multi-family residential | 74 | - | - | |||||||||
Commercial real estate | 1,593 | - | - | |||||||||
Construction and land development | 8,726 | - | - | |||||||||
Consumer | 16 | - | - | |||||||||
Total impaired loans | $ | 14,603 | $ | - | $ | 8 |
Three Months Ended March 31, 2019 | ||||||||||||
Average Recorded Investment | Income Recognized on Accrual Basis | Income Recognized on Cash Basis | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 4,952 | $ | 21 | $ | 5 | ||||||
Multi-family residential | 290 | 5 | - | |||||||||
Commercial real estate | 2,202 | 10 | 1 | |||||||||
Construction and land development | 8,752 | - | - | |||||||||
Consumer | 10 | - | - | |||||||||
Total impaired loans | $ | 16,206 | $ | 36 | $ | 6 |
Six Months Ended March 31, 2020 | ||||||||||||
Average Recorded Investment | Income Recognized on Accrual Basis | Income Recognized on Cash Basis | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 4,195 | $ | 3 | $ | 17 | ||||||
Multi-family residential | 74 | - | - | |||||||||
Commercial real estate | 1,593 | - | 1 | |||||||||
Construction and land development | 8,725 | - | - | |||||||||
Commercial business | 4 | - | 1 | |||||||||
Consumer | 16 | - | - | |||||||||
Total impaired loans | $ | 14,607 | $ | 3 | $ | 19 |
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Six Months Ended March 31, 2019 | ||||||||||||
Average Recorded Investment | Income Recognized on Accrual Basis | Income Recognized on Cash Basis | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 5,055 | $ | 44 | $ | 10 | ||||||
Multi-family residential | 293 | 10 | - | |||||||||
Commercial real estate | 2,133 | 20 | 2 | |||||||||
Construction and land development | 8,752 | - | - | |||||||||
Consumer | 8 | - | - | |||||||||
Total impaired loans | $ | 16,241 | $ | 74 | $ | 12 |
Federal regulations and our loan policy require that the Company utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of its credit monitoring system. Management currently classifies problem and potential problem assets as “special mention”, “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the three aforementioned categories but possess weaknesses are required to be designated “special mention.”
The following tables present the classes of the loan portfolio in which a formal risk weighting system is utilized summarized by the aggregate “Pass” and the criticized category of “special mention”, and the classified categories of “substandard”, “doubtful” and “loss” within the Company’s risk rating system as applied to the loan portfolio. The Company had no loans classified as “doubtful” or “loss” at either of the dates presented.
March 31, 2020 | ||||||||||||||||
Special | Total | |||||||||||||||
Pass | Mention | Substandard | Loans | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
One-to-four family residential | $ | 238,046 | $ | 1,483 | $ | 3,797 | $ | 243,326 | ||||||||
Multi-family residential | 25,864 | - | - | 25,864 | ||||||||||||
Commercial real estate | 122,671 | 1,105 | 1,417 | 125,193 | ||||||||||||
Construction and land development | 237,045 | - | 8,700 | 245,745 | ||||||||||||
Loans to financial institutions | 6,000 | - | - | 6,000 | ||||||||||||
Commercial business | 21,999 | - | - | 21,999 | ||||||||||||
Total loans | $ | 651,625 | $ | 2,588 | $ | 13,914 | $ | 668,127 |
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September 30, 2019 | ||||||||||||||||
Special | Total | |||||||||||||||
Pass | Mention | Substandard | Loans | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
One-to-four family residential | $ | 262,164 | $ | 1,789 | $ | 4,827 | $ | 268,780 | ||||||||
Multi-family residential | 30,582 | - | - | 30,582 | ||||||||||||
Commercial real estate | 122,838 | 3,718 | 1,965 | 128,521 | ||||||||||||
Construction and land development | 244,618 | - | 8,750 | 253,368 | ||||||||||||
Loans to financial institutions | 6,000 | - | - | 6,000 | ||||||||||||
Commercial business | 19,630 | - | - | 19,630 | ||||||||||||
Total loans | $ | 685,832 | $ | 5,507 | $ | 15,542 | $ | 706,881 |
The Company evaluates the classification of one-to-four family residential, leases and consumer loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a loan, the loan is downgraded following the above definitions of special mention, substandard, doubtful and loss.
The following tables represent loans in which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency status. Non-performing loans that would be included in the table are those loans greater than 90 days past due as to principal and/or interest that do not have a designated risk rating.
March 31, 2020 | ||||||||||||
Non- | Total | |||||||||||
Performing | Performing | Loans | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 239,999 | $ | 3,327 | $ | 243,326 | ||||||
Leases | 298 | - | 298 | |||||||||
Consumer | 768 | - | 768 | |||||||||
Total loans | $ | 241,065 | $ | 3,327 | $ | 244,392 |
September 30, 2019 | ||||||||||||
Non- | Total | |||||||||||
Performing | Performing | Loans | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family residential | $ | 265,068 | $ | 3,712 | $ | 268,780 | ||||||
Leases | 518 | - | 518 | |||||||||
Consumer | 834 | - | 834 | |||||||||
Total loans | $ | 266,420 | $ | 3,712 | $ | 270,132 |
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 due or overdue, as the case may be. The following tables present the loan categories of the loan portfolio summarized by the aging categories of performing loans, delinquent loans and nonaccrual loans:
24
March 31, 2020 | ||||||||||||||||||||||||||||
90 Days+ | ||||||||||||||||||||||||||||
30-89 Days | 90 Days + | Total | Total | Non- | Past Due | |||||||||||||||||||||||
Current | Past Due | Past Due | Past Due | Loans | Accrual | and Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family residential | $ | 239,740 | $ | 1,017 | $ | 2,569 | $ | 3,586 | $ | 243,326 | $ | 3,327 | $ | - | ||||||||||||||
Multi-family residential | 25,864 | - | - | - | 25,864 | - | - | |||||||||||||||||||||
Commercial real estate | 122,091 | 1,685 | 1,417 | 3,102 | 125,193 | 1,417 | - | |||||||||||||||||||||
Construction and land development | 237,045 | - | 8,700 | 8,700 | 245,745 | 8,700 | - | |||||||||||||||||||||
Commercial business | 21,999 | - | - | - | 21,999 | - | - | |||||||||||||||||||||
Financial institutions | 6,000 | - | - | - | 6,000 | - | - | |||||||||||||||||||||
Leases | 298 | - | - | - | 298 | - | - | |||||||||||||||||||||
Consumer | 700 | 68 | - | 68 | 768 | - | - | |||||||||||||||||||||
Total loans | $ | 653,737 | $ | 2,770 | $ | 12,686 | $ | 15,456 | $ | 669,193 | $ | 13,444 | $ | - |
September 30, 2019 | ||||||||||||||||||||||||||||
90 Days+ | ||||||||||||||||||||||||||||
30-89 Days | 90 Days + | Total | Total | Non- | Past Due | |||||||||||||||||||||||
Current | Past Due | Past Due | Past Due | Loans | Accrual | and Accruing | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family residential | $ | 264,784 | $ | 750 | $ | 3,246 | $ | 3,996 | $ | 268,780 | $ | 3,712 | $ | - | ||||||||||||||
Multi-family residential | 30,582 | - | - | - | 30,582 | - | - | |||||||||||||||||||||
Commercial real estate | 127,104 | - | 1,417 | 1,417 | 128,521 | 1,473 | - | |||||||||||||||||||||
Construction and land development | 244,618 | - | 8,750 | 8,750 | 253,368 | 8,750 | - | |||||||||||||||||||||
Commercial business | 19,630 | - | - | - | 19,630 | - | - | |||||||||||||||||||||
Loans to financial institutions | 6,000 | - | - | - | 6,000 | - | - | |||||||||||||||||||||
Leases | 518 | - | - | - | 518 | - | - | |||||||||||||||||||||
Consumer | 739 | 95 | - | 95 | 834 | - | - | |||||||||||||||||||||
Total loans | $ | 693,975 | $ | 845 | $ | 13,413 | $ | 14,258 | $ | 708,233 | $ | 13,935 | $ | - |
The allowance for loan losses is established through a provision for loan losses charged to expense. The Company maintains the allowance at a level believed to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent losses and to assess the overall collection probability for the loan portfolio in view of these inherent losses. For each primary type of loan, a loss factor is established reflecting an estimate of the known and inherent losses in such loan type contained in the portfolio using both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the Company’s loans, the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience. For the three months ended March 31, 2020 the analysis took into account the pandemic and its effects on the Company’s business, especially with respect to commercial real estate, commercial business and construction and land development loans.
25
Commercial real estate loans entail significant additional credit risks compared to owner-occupied one-to-four family residential mortgage loans, as they generally involve large loan balances concentrated with a single borrower or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. These events may adversely affect the sale of the properties, potentially reducing both the borrowers’ ability to make required payments as well as reducing the value of the collateral property. Such lending is additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company potentially will be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of value proves to be inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount. If the Company is forced to foreclose on a construction project prior to completion, there is no assurance that the Company would be able to recover the entire unpaid portion of the loan.
The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for the both three and six month periods ended March 31, 2020 and 2019:
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial business | Financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
ALLL. balance at December 31, 2019 | $ | 999 | $ | 255 | $ | 1,281 | $ | 2,205 | $ | 201 | $ | 63 | $ | 4 | $ | 12 | $ | 508 | $ | 5,528 | ||||||||||||||||||||
Charge-offs | (3 | ) | - | - | - | (15 | ) | - | - | (56 | ) | - | (74 | ) | ||||||||||||||||||||||||||
Recoveries | 1 | - | - | - | - | - | - | 6 | - | 7 | ||||||||||||||||||||||||||||||
Provision | 304 | 40 | 84 | (115 | ) | 71 | 7 | - | 41 | 68 | 500 | |||||||||||||||||||||||||||||
ALLL balance at March 31, 2020 | $ | 1,301 | $ | 295 | $ | 1,365 | $ | 2,090 | $ | 257 | $ | 70 | $ | 4 | $ | 3 | $ | 576 | $ | 5,961 |
Six Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial business | Financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
ALLL balance at September 30, 2019 | $ | 1,002 | $ | 315 | $ | 1,257 | $ | 2,034 | $ | 206 | $ | 63 | $ | 5 | $ | 13 | $ | 498 | $ | 5,393 | ||||||||||||||||||||
Charge-offs | (3 | ) | - | - | - | (15 | ) | - | - | (56 | ) | - | (74 | ) | ||||||||||||||||||||||||||
Recoveries | 1 | - | - | - | - | - | 10 | 6 | - | 17 | ||||||||||||||||||||||||||||||
Provision | 301 | (20 | ) | 108 | 56 | 66 | 7 | (11 | ) | 40 | 78 | 625 | ||||||||||||||||||||||||||||
ALLL balance at March 31, 2020 | $ | 1,301 | $ | 295 | $ | 1,365 | $ | 2,090 | $ | 257 | $ | 70 | $ | 4 | $ | 3 | $ | 576 | $ | 5,961 |
26
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial business | Financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
ALLL balance at December 31, 2018 | $ | 1,427 | $ | 372 | $ | 1,147 | $ | 1,445 | $ | 193 | $ | 67 | $ | 16 | $ | 13 | $ | 487 | $ | 5,167 | ||||||||||||||||||||
Charge-offs | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Recoveries | 60 | - | - | - | - | - | - | - | - | 60 | ||||||||||||||||||||||||||||||
Provision | (173 | ) | 13 | 195 | (75 | ) | 42 | 1 | (3 | ) | 7 | (7 | ) | - | ||||||||||||||||||||||||||
ALLL balance at March 31, 2019 | $ | 1,314 | $ | 385 | $ | 1,342 | $ | 1,370 | $ | 235 | $ | 68 | $ | 13 | $ | 20 | $ | 480 | $ | 5,227 |
Six Months Ended March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
One- to four-family residential | Multi-family residential | Commercial real estate | Construction and land development | Commercial business | Financial institutions | Leases | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||||||||||||||
ALLL balance at September 30, 2018 | $ | 1,343 | $ | 347 | $ | 1,154 | $ | 1,554 | $ | 187 | $ | 64 | $ | 18 | $ | 18 | $ | 482 | $ | 5,167 | ||||||||||||||||||||
Charge-offs | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Recoveries | 60 | - | - | - | - | - | - | - | - | 60 | ||||||||||||||||||||||||||||||
Provision | (89 | ) | 38 | 188 | (184 | ) | 48 | 4 | (5 | ) | 2 | (2 | ) | - | ||||||||||||||||||||||||||
ALLL balance at March 31, 2019 | $ | 1,314 | $ | 385 | $ | 1,342 | $ | 1,370 | $ | 235 | $ | 68 | $ | 13 | $ | 20 | $ | 480 | $ | 5,227 |
The Company recorded a provision for loan losses of $500,000 and $625,000 for the three and six months period ended March 31, 2020, respectively, compared to no provision for loan losses for the comparable three and six months periods in fiscal 2019. The provision expense incurred during the 2020 periods was primarily as a precaution due to the uncertainty associated with the economic effects of COVID-19 and the potential credit deterioration caused thereby. Although no delinquencies have occurred as of March 31, 2020 due to the effects of the COVID-19 pandemic, a number of borrowers contacted the Bank regarding deferments of upcoming loan payments. These deferments are not anticipated to be troubled debt restructurings (“TDRs”) as all the borrowers requesting deferments were current as of December 31, 2019 and the request for the deferments were related to the current economic conditions caused by COVID-19, not underlying weaknesses within the respective loans. Notwithstanding the foregoing, the Company believes there is a material risk that credit losses and non-performing assets may increase due to current economic conditions. During the quarter ended March 31, 2020, the Company recorded $74,000 in charge offs and recoveries of $7,000. During the six months ended March 31, 2020, the Company recorded charge offs of $74,000 and recoveries of $17,000. During both the quarter and six months ended March 31, 2019, the Company recorded no charge offs and recoveries of $60,000.
At March 31, 2020, the Company had four loans aggregating $5.3 million that were classified as TDRs. Three of the TDRs, totaling $4.9 million, which are classified as non-accrual are a part of a troubled lending relationship totaling $10.6. The remaining TDR is also on non-accrual and consists of a $424,000 loan secured by a single-family property; the loan is performing in accordance with the restructured terms.
The Company did not restructure any loans during the three and six months ended March 31, 2020, or during the three and six months ending March 31, 2019.
No TDRs defaulted during the six-month period ending March 31, 2020 or 2019.
27
6. | DEPOSITS |
Deposits consist of the following major classifications:
March 31, | September 30, | |||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Money market deposit accounts | $ | 114,215 | 15.6 | % | $ | 75,766 | 10.2 | % | ||||||||
Interest-bearing checking accounts | 66,827 | 9.1 | % | 58,647 | 7.9 | % | ||||||||||
Non interest-bearing checking accounts | 19,524 | 2.7 | % | 16,949 | 2.3 | % | ||||||||||
Passbook, club and statement savings | 77,497 | 10.6 | % | 80,899 | 10.8 | % | ||||||||||
Certificates maturing in six months or less | 233,006 | 31.9 | % | 294,343 | 39.4 | % | ||||||||||
Certificates maturing in more than six months | 220,415 | 30.1 | % | 218,840 | 29.4 | % | ||||||||||
Total | $ | 731,484 | 100.0 | % | $ | 745,444 | 100.0 | % |
Certificates in the amount of $250,000 and over totaled $159.1 million as of March 31, 2020 and $182.8 million as of September 30, 2019.
7. | ADVANCES FROM FEDERAL HOME LOAN BANK – SHORT TERM |
As of March 31, 2020 and September 30, 2019 outstanding balances and related information of short-term borrowings from the FHLB are summarized as follows:
March 31, | September 30, | |||||||
(Dollar Amounts in Thousands) | 2020 | 2019 | ||||||
Balance at period end | $ | 80,000 | $ | 90,000 | ||||
Weighted-average rate at period end | 1.16 | % | 2.32 | % |
As of March 31, 2020, the $80.0 million of borrowings consisted of four 30-day and one 90-day FHLB advances associated with interest rate swap contracts.
As of September 30, 2019, the $90.0 million of borrowings consisted of seven 30-day FHLB advances associated with interest rate swap contracts.
The Bank maintains borrowing facilities with the FHLB of Pittsburgh, Atlantic Community Bankers Bank (“ACBB”) and the Federal Reserve Bank of Philadelphia, the terms and interest rates of which are subject to change on the date of execution of borrowings. Available borrowings are based on collateral with the facility. The Bank maintains unsecured borrowing facilities with ACBB and PNC for $12.5 million and $10.0 million, respectively.
28
8. | ADVANCES FROM FEDERAL HOME LOAN BANK – LONG TERM |
Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Company and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of March 31, 2020 and September 30, 2019 are as follows:
Weighted | ||||||||||||||||||||||||
Long-term FHLB advances: | Maturity range | average interest | Stated interest rate range | March 31, | September 30, | |||||||||||||||||||
Description | from | to | rate | from | to | 2020 | 2019 | |||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Fixed Rate - Amortizing | 1-Oct-19 | 30-Sep-20 | $ | - | $ | 236 | ||||||||||||||||||
Fixed Rate - Amortizing | 1-Oct-20 | 30-Sep-21 | 2.71 | % | 1.94 | % | 2.83 | % | 9,797 | 14,354 | ||||||||||||||
Fixed Rate - Amortizing | 1-Oct-21 | 30-Sep-22 | 2.82 | % | 1.99 | % | 3.05 | % | 7,137 | 8,729 | ||||||||||||||
Fixed Rate - Amortizing | 1-Oct-22 | 30-Sep-23 | 2.88 | % | 1.94 | % | 3.11 | % | 6,104 | 6,931 | ||||||||||||||
Total | 2.79 | % | 23,038 | 30,250 | ||||||||||||||||||||
Fixed Rate - Advances | 1-Oct-19 | 30-Sep-20 | 2.76 | % | 1.38 | % | 3.06 | % | 7,268 | 12,304 | ||||||||||||||
Fixed Rate - Advances | 1-Oct-20 | 30-Sep-21 | 2.37 | % | 1.42 | % | 2.92 | % | 18,006 | 18,017 | ||||||||||||||
Fixed Rate - Advances | 1-Oct-21 | 30-Sep-22 | 2.31 | % | 1.94 | % | 3.23 | % | 63,315 | 63,336 | ||||||||||||||
Fixed Rate - Advances | 1-Oct-22 | 30-Sep-23 | 2.52 | % | 2.00 | % | 3.22 | % | 94,999 | 94,999 | ||||||||||||||
Fixed Rate - Advances | 1-Oct-23 | 30-Sep-24 | 2.88 | % | 2.38 | % | 3.20 | % | 67,998 | 67,998 | ||||||||||||||
Total | 2.56 | % | 251,586 | 256,654 | ||||||||||||||||||||
2.58 | % | Total | $ | 274,624 | $ | 286,904 |
9. | DERIVATIVES |
The Company has contracted with a third party to participate in interest rate swap contracts. One of the swaps is a cash flow hedge associated with FHLB advances at both March 31, 2020 and September 30, 2019, while there are eleven additional cash flow hedges tied to wholesale funding at March 31, 2020. These interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments. During the quarter ended March 31, 2020, $5,000 of expense was recognized as ineffectiveness through earnings, while $3,000 of expense was recognized as ineffectiveness through earnings during the comparable period in fiscal 2019. During the six months ended March 31, 2019, $3,000 of expense was recognized as ineffectiveness through earnings, while $5,000 of expense was recognized as ineffectiveness through earnings during the comparable period in 2019. There were nine interest rate swaps designated as fair value hedges involving the receipt of variable-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements that were applicable to three loans and seven investment securities as of both March 31, 2020 and September 30, 2019. The fair value is recorded in the other liabilities section of the statement of financial condition.
29
Below is a summary of the interest rate swap agreements and their terms as of March 31, 2020.
Hedged | Notional | Pay Rate | Receive | Maturity Date | Unrealized | |||||||||||||||||
Item | Amount | from | to | Rate | from | to | Loss | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
FHLB advances | $ | 10,000 | 2.70 | % | 2.70 | % | 1 Mth Libor | 10-Apr-25 | 10-Apr-25 | $ | (1,151 | ) | ||||||||||
State and political subdivisions | 21,570 | 3.06 | % | 3.07 | % | 3 Mth Libor | 1-Feb-27 | 1-May-28 | (3,878 | ) | ||||||||||||
Commercial loans | 17,339 | 4.10 | % | 5.74 | % | 1 Mth Libor +225 to 276 bp | 13-Jun-25 | 1-Aug-26 | - | |||||||||||||
30 day wholesale funding | 65,000 | 1.94 | % | 2.51 | % | 1 Mth Libor | 15-Feb-24 | 12-Jun-26 | (4,836 | ) | ||||||||||||
90 day wholesale funding | 135,000 | 2.51 | % | 2.78 | % | 3 Mth Libor | 11-Jan-24 | 27-Mar-24 | (11,378 | ) | ||||||||||||
$ | (21,243 | ) |
Below is a summary of the interest rate swap agreements and their terms as of September 30, 2019.
Hedged | Notional | Pay Rate | Receive | Maturity Date | Unrealized | |||||||||||||||||
Item | Amount | from | to | Rate | from | to | Loss | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||
FHLB advances | $ | 10,000 | 2.70 | % | 2.70 | % | 1 Mth Libor | 10-Apr-25 | 10-Apr-25 | $ | (719 | ) | ||||||||||
State and political subdivisions | 21,570 | 3.06 | % | 3.07 | % | 3 Mth Libor | 1-Feb-27 | 1-May-28 | (2,502 | ) | ||||||||||||
Commercial loans | 17,339 | 4.10 | % | 5.74 | % | 1 Mth Libor +225 to 276 bp | 13-Jun-25 | 1-Aug-26 | - | |||||||||||||
30 day wholesale funding | 65,000 | 1.94 | % | 2.51 | % | 1 Mth Libor | 15-Feb-24 | 12-Jun-26 | (1,415 | ) | ||||||||||||
90 day wholesale funding | 135,000 | 2.51 | % | 2.78 | % | 3 Mth Libor | 11-Jan-24 | 27-Mar-24 | (6,605 | ) | ||||||||||||
$ | (11,241 | ) |
All interest swaps are carried at fair value in accordance with FASB ASC 815 “Derivatives and Hedging.”
30
10. | INCOME TAXES |
Items that gave rise to significant portions of deferred income taxes are as follows:
For the six months period ended: | March 31, | September 30, | ||||||
2020 | 2019 | |||||||
Deferred tax assets: | (Dollars in Thousands) | |||||||
Allowance for loan losses | $ | 1,571 | $ | 1,488 | ||||
Nonaccrual interest | 531 | 487 | ||||||
Accrued vacation | 7 | 7 | ||||||
Capital loss carryforward | 121 | 121 | ||||||
Split dollar life insurance | 9 | 9 | ||||||
Post-retirement benefits | 73 | 76 | ||||||
Unrealized losses on interest rate swaps | 3,647 | 1,836 | ||||||
Deferred compensation | 784 | 809 | ||||||
Goodwill | 63 | 69 | ||||||
Other | 88 | 64 | ||||||
Employee benefit plans | 293 | 216 | ||||||
Total deferred tax assets | 7,187 | 5,182 | ||||||
Valuation allowance | (121 | ) | (121 | ) | ||||
Total deferred tax assets, net of valuation allowance | 7,066 | 5,061 | ||||||
Deferred tax liabilities: | ||||||||
Property | 134 | 141 | ||||||
Unrealized gain on equity securities | 16 | 19 | ||||||
Unrealized gains on available for sale securities | 2,356 | 2,153 | ||||||
Purchase accounting adjustments | 273 | 215 | ||||||
Deferred loan fees | 170 | 175 | ||||||
Total deferred tax liabilities | 2,949 | 2,703 | ||||||
Net deferred tax assets | $ | 4,117 | $ | 2,358 |
The Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be fully realized through future reversals of existing taxable temporary differences and/or, to a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the Bank and the subsequent impairment charge on the assets acquired through the redemption in kind are considered capital losses and can only be utilized to the extent of capital gains recognized over a five year period, resulting in the establishment of a valuation allowance for the carryforward period. The valuation allowance totaled $121,000 at March 31, 2020 and September 30, 2019, respectively.
31
For the six-month period ended March 31, 2020, the Company recorded income tax expense of $1.1 million compared to income tax expense of $809,000, for the period ended March 31, 2019.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Operations as a component of income tax expense. During fiscal 2017, the Internal Revenue Service conducted an audit of the Company’s tax return for the year ended September 30, 2014, and no adverse findings were reported. The Company’s federal and state income tax returns for taxable years through September 30, 2015 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
11. | STOCK COMPENSATION PLANS |
The Company maintains the 2008 Recognition and Retention Plan (“RRP”) which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the 2008 RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the 2008 RRP to fund these purchases. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015. In August 2016, the Company granted 7,473 awards covering shares under the 2008 RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted awards covering 17,128 shares under the 2014 SIP. In March 2018, the Company granted awards covering 924 shares under the 2008 RRP and 25,576 shares under the 2014 SIP. Shares subject to awards under either plan generally vest at the rate of 20% per year over five years. No further grants may be made pursuant to the RRP in accordance with its terms.
Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and six months ended March 31, 2020, an aggregate of $120,000 and $256,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. During the three and six months ended March 31, 2019, $150,000 and $307,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. At March 31, 2020, approximately $443,000 in additional compensation expense for unvested shares awarded related to the 2008 RRP and 2014 SIP remained unrecognized.
32
A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2020 is presented in the following tables:
Six Months Ended March 31, 2020 | ||||||||
Number of Shares (1) | Weighted Average Grant Date Fair Value | |||||||
Non-vested stock awards at October 1, 2019 | 68,980 | $ | 15.05 | |||||
Granted | - | - | ||||||
Forfeited | - | - | ||||||
Vested | (42,024 | ) | 13.44 | |||||
Non-vested stock awards at the March 31, 2020 | 26,956 | $ | 17.56 |
The Company maintains the 2008 Stock Option Plan (the “Option Plan”) which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares (on a converted basis) of common stock were approved for future issuance pursuant to the Option Plan. As of September 30, 2018, all of the options had been awarded under the Option Plan. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options to purchase 605,000 shares were awarded during February 2015 pursuant to the 2014 SIP. During August 2016, the Company granted options covering 18,866 shares under the Option Plan and 8,634 shares under the 2014 SIP. In March 2017, the Company granted options covering 22,828 shares under the 2014 SIP. In May 2017, the Company granted options covering 25,000 shares under the 2014 SIP and 283 shares under the Option Plan. In March 2018, the Company granted options covering 159,265 shares under the 2014 SIP and 18,235 shares under the Option Plan. In July 2019, the Company granted options covering 39,702 shares under the 2014 SIP. No further grants can be made under the Option Plan in accordance with its terms and no further shares are available for grant under the 2014 SIP unless options are forfeited.
A summary of the status of the Company’s stock options under the 2008 Option Plan and the 2014 SIP as of March 31, 2020 is presented below:
Six Months Ended March 31, 2020 | ||||||||
Number of Shares | Weighted Average Exercise Price | |||||||
Outstanding at October 1, 2019 | 793,034 | $ | 13.86 | |||||
Granted | - | - | ||||||
Exercised | (13,345 | ) | - | |||||
Forfeited | - | - | ||||||
Outstanding at March 31, 2020 | 779,689 | $ | 13.93 | |||||
Exercisable at March 31, 2020 | 598,356 | $ | 12.67 |
The weighted average remaining contractual term was approximately 6.0 years for options outstanding as of March 31, 2020.
33
The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options granted during fiscal 2016, $3.18 for options granted during fiscal 2017, $3.63 for options granted during fiscal 2018 and $3.38 for options granted in 2019. The fair value for grants made in fiscal 2017 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $17.43, term of seven years, volatility rate of 14.37%, interest rate of 2.22% and a yield rate of 0.69%. The fair value for grants made in fiscal 2018 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.46, term of seven years, volatility rate of 15.90%, interest rate of 2.82% and a yield rate of 1.08%. The fair value for grants made in fiscal 2019 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.16, term of seven years, volatility rate of 17.76%, interest rate of 1.87% and a yield rate of 1.10%.
During the three and six months ended March 31, 2020, $117,000 and $270,000, respectively, was recognized in compensation expense for options granted pursuant to the Option Plan and the 2014 SIP.
At March 31, 2020, there was approximately $566,000 in additional compensation expense to be recognized for awarded options which remained outstanding and unvested at such date. The weighted average period over which this expense will be recognized is approximately 3.1 years.
12. | COMMITMENTS AND CONTINGENT LIABILITIES |
At March 31, 2020, the Company had $29.7 million in outstanding commitments to originate loans with market interest rates ranging from 2.38% to 5.00%. At September 30, 2019, the Company had $32.4 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 1.99% to 6.50%. The aggregate undisbursed portion of loans-in-process amounted to $88.7 million at March 31, 2020 and $114.5 million at September 30, 2019.
The Company also had commitments under unused lines of credit of $35.3 million as of March 31, 2020 and $37.5 million as of September 30, 2019 and letters of credit outstanding of $1.1 million as of March 31, 2020 and $1.5 million as of September 30, 2019.
Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation interests. At March 31, 2020, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $1.3 million. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred.
The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company's interests and not have a material adverse effect on the financial condition and operations of the Company.
13. | FAIR VALUE MEASUREMENT |
The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2020 and September 30, 2019, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
34
Generally accepted accounting principles used in the United States establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The three broad levels of hierarchy are as follows:
Level 1 | Quoted prices in active markets for identical assets or liabilities. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Those assets and liabilities as of March 31, 2020 which are measured at fair value on a recurring basis are as follows:
Category Used for Fair Value Measurement | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Government and agency obligations | $ | - | $ | 37,457 | $ | - | $ | 37,457 | ||||||||
State and political subdivisions | - | 71,495 | - | 71,495 | ||||||||||||
Mortgage-backed securities - U.S. Government agencies | - | 323,161 | - | 323,161 | ||||||||||||
Corporate bonds | - | 79,220 | - | 79,220 | ||||||||||||
Equity securities | 37 | - | - | 37 | ||||||||||||
Total | $ | 37 | $ | 511,333 | $ | - | $ | 511,370 | ||||||||
Liabilities | ||||||||||||||||
Interest rate swap contracts | $ | - | $ | 21,243 | $ | - | $ | 21,243 | ||||||||
Total | $ | - | $ | 21,243 | $ | - | $ | 21,243 |
35
Those assets as of September 30, 2019 which are measured at fair value on a recurring basis are as follows:
Category Used for Fair Value Measurement | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Securities available for sale: | ||||||||||||||||
U.S. Government and agency obligations | $ | - | $ | 24,865 | $ | - | $ | 24,865 | ||||||||
State and political subdivisions | - | 47,646 | - | 47,646 | ||||||||||||
Mortgage-backed securities - U.S. Government agencies | - | 370,772 | - | 370,772 | ||||||||||||
Corporate bonds | - | 69,539 | - | 69,539 | ||||||||||||
Equity security - FHLMC preferred stock | 95 | - | - | 95 | ||||||||||||
Total | $ | 95 | $ | 512,822 | $ | - | $ | 512,917 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swap contracts | $ | - | $ | 11,241 | $ | - | $ | 11,241 | ||||||||
Total | $ | - | $ | 11,241 | $ | - | $ | 11,241 |
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and real estate owned at fair value on a non-recurring basis.
Impaired Loans
The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest) in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value of approximately $13.9 million as of March 31, 2020.
36
Other Real Estate Owned
Once an asset is determined to be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals, less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.
Summary of Non-Recurring Fair Value Measurements
At March 31, 2020 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Impaired loans | $ | - | $ | - | $ | 13,914 | $ | 13,914 | ||||||||
Other real estate owned | - | - | 406 | 406 | ||||||||||||
Total | $ | - | $ | - | $ | 14,320 | $ | 14,320 |
At September 30, 2019 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Impaired loans | $ | - | $ | - | $ | 15,542 | $ | 15,542 | ||||||||
Other real estate owned | - | - | 348 | 348 | ||||||||||||
Total | $ | - | $ | - | $ | 15,890 | $ | 15,890 |
37
The following table provides information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:
At March 31, 2020 | ||||||||||
(Dollars in Thousands) | ||||||||||
Valuation | Range/ | |||||||||
Fair Value | Technique | Unobservable Input | Weighted Ave. | |||||||
Impaired loans | $ | 13,914 | Property appraisals (1) (3) | Management discount for selling costs, property type and market volatility (2) | 6% to 9% discount/ 7% | |||||
Other real estate owned | $ | 406 | Property appraisals (1)(3) | Management discount for selling costs, property type and market volatility (2) | 22% discount |
At September 30, 2019 | ||||||||||
(Dollars in Thousands) | ||||||||||
Valuation | Range/ | |||||||||
Fair Value | Technique | Unobservable Input | Weighted Ave. | |||||||
Impaired loans | $ | 15,542 | Property appraisals (1) (3) | Management discount for selling costs, property type and market volatility (2) | 6% to 9% discount/ 7% | |||||
Other real estate owned | $ | 348 | Property appraisals (1)(3) | Management discount for selling costs, property type and market volatility (2) | 22% discount |
(1) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various Level 3 inputs, which are not identifiable. |
(2) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. |
(3) | Includes qualitative adjustments by management and estimated liquidation expenses. |
The fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
38
Fair Value Measurements at | ||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
Amount | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 76,688 | $ | 76,688 | $ | 76,688 | $ | - | $ | - | ||||||||||
Certificates of deposit | 2,351 | 2,351 | 2,351 | - | - | |||||||||||||||
Investment and mortgage-backed | ||||||||||||||||||||
securities available for sale | 511,333 | 511,333 | - | 511,333 | - | |||||||||||||||
Equity securities | 37 | 37 | 37 | |||||||||||||||||
Investment and mortgage-backed | ||||||||||||||||||||
securities held to maturity | 28,937 | 30,045 | - | 30,045 | - | |||||||||||||||
Loans receivable, net | 572,122 | 572,192 | - | - | 572,192 | |||||||||||||||
Accrued interest receivable | 4,412 | 4,412 | 4,412 | - | - | |||||||||||||||
Restricted bank stock | 15,552 | 15,552 | 15,552 | - | - | |||||||||||||||
Bank owned life insurance | 32,175 | 32,175 | 32,175 | - | - | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Checking accounts | 86,351 | 86,351 | 86,351 | - | - | |||||||||||||||
Money market deposit accounts | 114,215 | 114,215 | 114,215 | - | - | |||||||||||||||
Passbook, club and statement | ||||||||||||||||||||
savings accounts | 77,497 | 77,497 | 77,497 | - | - | |||||||||||||||
Certificates of deposit | 453,421 | 468,543 | - | - | 468,543 | |||||||||||||||
Advances from FHLB short-term | 80,000 | 80,000 | 80,000 | - | ||||||||||||||||
Advances from FHLB long-term | 274,624 | 289,943 | - | - | 289,943 | |||||||||||||||
Accrued interest payable | 2,847 | 2,847 | 2,847 | - | - | |||||||||||||||
Advances from borrowers for taxes and | ||||||||||||||||||||
insurance | 2,667 | 2,667 | 2,667 | - | - | |||||||||||||||
Interest rate swap contracts | 21,243 | 21,243 | - | 21,243 | - |
39
Fair Value Measurements at | ||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
Amount | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 47,968 | $ | 47,968 | $ | 47,968 | $ | - | $ | - | ||||||||||
Certificates of deposit | 2,351 | 2,351 | 2,351 | - | - | |||||||||||||||
Investment and mortgage-backed | ||||||||||||||||||||
securities held to maturity | 68,635 | 69,507 | - | 69,507 | - | |||||||||||||||
Loans receivable, net | 585,456 | 585,476 | - | - | 585,476 | |||||||||||||||
Accrued interest receivable | 4,549 | 4,549 | 4,549 | - | - | |||||||||||||||
Restricted bank stock | 16,406 | 16,406 | 16,406 | - | - | |||||||||||||||
Bank owned life insurance | 31,841 | 31,841 | 31,841 | - | - | |||||||||||||||
Liabilities: | ||||||||||||||||||||
Checking accounts | 75,596 | 75,596 | 75,596 | - | - | |||||||||||||||
Money market deposit accounts | 75,766 | 75,766 | 75,766 | - | - | |||||||||||||||
Passbook, club and statement | ||||||||||||||||||||
savings accounts | 80,899 | 80,899 | 80,899 | - | - | |||||||||||||||
Certificates of deposit | 513,183 | 529,099 | - | - | 529,099 | |||||||||||||||
Accrued interest payable | 4,328 | 4,328 | 4,328 | - | - | |||||||||||||||
Advances from FHLB -short-term | 90,000 | 90,000 | 90,000 | - | - | |||||||||||||||
Advances from FHLB -long-term | 286,904 | 293,839 | - | - | 293,839 | |||||||||||||||
Advances from borrowers for taxes and | ||||||||||||||||||||
insurance | 2,332 | 2,332 | 2,332 | - | - | |||||||||||||||
Interest rate swap contracts | 11,241 | 11,241 | 11,241 | - | - |
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14. | GOODWILL AND OTHER INTANGIBLE ASSETS |
The Company’s goodwill and intangible assets are related to the acquisition of Polonia Bancorp on January 1, 2017.
Balance | Balance | |||||||||||||||||||
October 1, | Additions/ | March 31, | Amortization | |||||||||||||||||
2019 | Adjustments | Amortization | 2020 | Period | ||||||||||||||||
Goodwill | $ | 6,102 | $ | - | $ | - | $ | 6,102 | ||||||||||||
Core deposit intangible | 448 | - | (56 | ) | 392 | 10 years | ||||||||||||||
$ | 6,550 | $ | - | $ | (56 | ) | $ | 6,494 |
As of March 31, 2020, the current fiscal year and the future fiscal periods amortization expense for the core deposit intangible is:
(In Thousands) | ||||
2020 | $ | 52 | ||
2021 | 93 | |||
2022 | 78 | |||
2023 | 64 | |||
2024 | 49 | |||
Thereafter | 56 | |||
Total | $ | 392 |
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15. | LEASES |
Operating leases in which the Company is the lessee are recorded as operating lease Right of Use (“ROU”) assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated statement of financial condition. The Company does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized as of the date of adoption based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the date of initial application.
Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the lease term of the operating basis, and is recorded in office occupancy expense in the consolidated statements of operations. The leases relate to Bank branches with remaining lease terms of generally 5 to 9 years.
As of March 31, 2020, operating lease ROU assets were $1.4 million and operating lease liabilities were $1.5 million. Operating lease costs of $60,000 and $117,000 were recognized for the three and six month periods ended March 31, 2020.
The following table summarizes other information related to our operating leases:
March 31, 2020 | ||||
Weighted-average remaining lease term - operating leases in years | 6.75 | |||
Weighted-average discount rate - operating leases | 2.0 | % |
The following table presents aggregate lease maturities and obligations as of March 31, 2020:
(Dollars in Thousands) | ||||
2020 | $ | 104 | ||
2021 | 210 | |||
2022 | 213 | |||
2023 | 216 | |||
2024 | 220 | |||
2025 and thereafter | 647 | |||
Total lease payments | 1,610 | |||
Less: interest | 116 | |||
Present value of lease liabilities | $ | 1,494 |
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16. | SUBSEQUENT EVENTS |
Paycheck Protection Program
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.
As of May 1, 2020, we had received approximately 55 applications for up to $5.0 million of loans under the PPP.
Loan Modification/Troubled Debt Restructurings
As of May 1, 2020 we have modified 90 loans aggregating $146.6 million in loan principal, primarily consisting of deferral of principal and interest payments and extension of maturity date corresponding to the period of deferral. All of the loans provided modifications were performing in accordance with their terms.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, 2019 (the “Form 10-K”).
Overview. Prudential Bancorp, Inc. (the “Company”) was formed by Prudential Bancorp, Inc. of Pennsylvania to become the successor holding company for Prudential Bank (the “Bank”) (formerly known as Prudential Savings Bank) as a result of the second-step conversion of Prudential Mutual Holding Company completed in October 2013. The Company’s results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The Company’s results of operations depend to a large extent on net interest income, which primarily is the difference between the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid on deposits and borrowings. Results of operations are also affected by our provisions for loan losses, non-interest income (which includes impairment charges) and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy expense, depreciation, data processing expense, payroll taxes and other expenses. Our results of operations are also significantly affected by general economic and competitive conditions, especially changes resulting from the COVID-19 pandemic and the governmental actions taken to address it including shelter-in-place orders and required closing of non-essential businesses, as well as changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (the “FDIC”) and the Pennsylvania Department of Banking and Securities (the “Department”). The Bank’s main office is located in Philadelphia, Pennsylvania, with nine additional full-service banking offices located in Philadelphia, Delaware and Montgomery Counties in Pennsylvania. The Bank’s primary business consists of attracting deposits from the general public and using those funds together with borrowings to originate loans and to invest primarily in U.S. Government and agency securities and mortgage-backed securities. In 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation, as a subsidiary of the Bank. In 2006, all mortgage-backed securities then owned by the Company’s predecessor were transferred to PSB Delaware, Inc. PSB Delaware, Inc.’s activities are included as part of the consolidated financial statements.
Critical Accounting Policies. In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our unaudited consolidated financial statements included in Item 1 hereof as well as in Note 2 to our audited consolidated financial statements included in the Form 10-K. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Losses are charged against the allowance for loan losses when management believes that the collectability in full of the principal of a loan is unlikely. Subsequent recoveries are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both probable and reasonable to estimate. For the quarter ended March 31, 2020, the analysis took into account the exposure to credit deterioration due to the COVID-19 pandemic. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and classified loans.
44
Management monitors its allowance for loan losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In this context, a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan portfolio. Included in these qualitative factors are:
• | Levels of past due, classified, criticized and non-accrual loans, troubled debt restructurings and loan modifications; |
• | Nature and volume of loans; |
• | Changes in lending policies and procedures, underwriting standards, collections, charge-offs and recoveries and for commercial loans, the level of loans being approved with exceptions to the Bank’s lending policy; |
• | Experience, ability and depth of management and staff; |
• | National and local economic and business conditions, including various market segments, especially in light of the COVID-19 pandemic on both the national and local economies; |
• | Quality of the Bank’s loan review system and the degree of Board oversight; |
• | Concentrations of credit and changes in levels of such concentrations; and |
• | Effect of external factors on the level of estimated credit losses in the current portfolio. |
In determining the allowance for loan losses, management has established a general pooled allowance. Values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (the general pooled allowance) and those for criticized and classified loans. The amount of the specific allowance is determined through a loan-by-loan analysis of certain large dollar commercial real estate loans, construction and land development loans and multi-family loans. Loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above. In determining the appropriate level of the general pooled allowance, management makes estimates based on internal risk ratings, which take into account such factors as debt service coverage, loan-to-value ratios and external factors. Estimates are periodically measured against actual loss experience.
This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical loss experience. All of these estimates may be susceptible to significant change. While management analyzed its allowance in light of the COVID-19 pandemic, such analysis will need to be continually refined and reviewed in light of the ongoing nature of the effects of the COVID-19 pandemic.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, the Department and the FDIC, as an integral part of their examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examination. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods.
Investment and mortgage-backed securities available for sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. There were no securities with a Level 3 classification as of March 31, 2020 or September 30, 2019.
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Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In light of the COVID-19 pandemic, management is taking into account the effects the pandemic may have on securities and their impairment. The Company determines whether the unrealized losses are temporary or are considered other than temporary. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. In addition, the Company also considers the likelihood that the security will be required to be sold because of regulatory concerns, our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered, management evaluates other facts and circumstances that may be indicative of an “other-than-temporary” impairment condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.
In addition, certain assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and other real estate owned at fair value on a non-recurring basis.
Valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.
Derivatives. The Company uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively. The Company uses interest rate swaps to manage its exposure to changes in fair value. Interest rate swaps designated as fair value hedges involve the receipt of variable-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount.
Income Taxes. The Company accounts for income taxes in accordance with U.S. GAAP. The Company records deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.
In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.
U.S. GAAP prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. Assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management's analysis of tax regulations and interpretations. Significant judgment may be involved in the assessment of the tax position.
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Forward-looking Statements. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business performance, conditions relating to the Company. These forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Company’s control). The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements.
In addition to factors previously disclosed in the reports filed by the Company with the Securities and Exchange Commission (“SEC”) and those identified elsewhere in this press release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations; general economic conditions; the scope and duration of the COVID-19 pandemic; the effects of the COVID-19 pandemic, including on the Company’s credit quality and operations as well as its impact on general economic conditions; legislative and regulatory changes including actions taken by governmental authorities in response to the COVID-19 pandemic; monetary and fiscal policies of the federal government; changes in tax policies, rates and regulations of federal, state and local tax authorities including the effects of the Tax Reform Act; changes in interest rates, deposit flows, the cost of funds, demand for loan products and the demand for financial services, in each case as may be affected by the COVID-19 pandemic, competition, changes in the quality or composition of the Company’s loan, investment and mortgage-backed securities portfolios; geographic concentration of the Company’s business; fluctuations in real estate values; the adequacy of loan loss reserves; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in accounting principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and fees.
The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company to reflect events or circumstances occurring after the date of this Form 10-Q.
For a complete discussion of the assumptions, risks and uncertainties related to our business, readers are encouraged to review the Company’s filings with the SEC, including the “Risk Factors” section in the Company’s most recent Form 10-K, as supplemented by this Form 10-Q and as further supplemented by its quarterly or other reports subsequently filed with the SEC.
Market Overview. The worldwide COVID-19 pandemic has caused significant volatility and disruption in the financial markets both in the United States and globally. We are working with both residential and commercial borrowers to help them meet the unexpected financial challenges stemming from the COVID-19 pandemic and will continue to do so. As of May 1, 2020 we have modified 90 loans aggregating $146.6 million in loan principal, primarily consisting of deferral of principal and interest payments and extension of maturity date corresponding to the period of deferral. All of the loans provided modifications were performing in accordance with their terms
The Company continues to focus on the credit quality of its customers, especially in light of the COVID-19 pandemic, closely monitoring the financial status of borrowers throughout the Company’s markets, gathering information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis required to maintain adequate reserves for loan losses.
The Company continues to maintain capital well in excess of regulatory requirements.
The following discussion provides further details on the financial condition of the Company at March 31, 2020 and September 30, 2019, and the results of operations for the three and six months ended March 31, 2020 and 2019.
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COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2020 AND SEPTEMBER 30, 2019
At March 31, 2020, The Company had total assets of $1.3 billion at both March 31, 2020 and September 30, 2019. At March 31, 2020, the investment portfolio decreased by $51.2 million to $530.3 million as compared to $581.5 million at September 30, 2019 primarily as a result of investment securities sales and calls. Net loans receivable decreased slightly by $13.4 million to $572.1 million at March 31, 2020 from $585.5 million at September 30, 2019 both due to the continued intense competition for quality loans as well as to the sale of a $14.0 million package of long-term, fixed-rate mortgage loans undertaken to address the Company’s interest-rate margin compression.
Total liabilities were $1.1 billion at both March 31, 2020 and September 30, 2019, although deposits and FHLB borrowings decreased modestly as the Company has been allowing higher costing certificates of deposit and FHLB borrowings to run-off as they mature in order to reduce its cost of funds.
Total stockholders’ equity decreased by $7.4 million to $132.2 million at March 31, 2020 from $139.6 million at September 30, 2019. The decrease was primarily due to a $6.0 million decrease in the appreciation in the fair market value of interest rate swaps and available for sale securities. The decrease in the value of the swaps was due to the large decrease in market rates of interest in light of recent periods of declines in market conditions. Also contributing to the decrease were dividend payments totaling $5.1 million and treasury stock repurchases, net of stock plan activity, of $1.3 million. For the six months ended March 31, 2020, the Company repurchased 148,351 shares at an average cost of $13.45 per share. These decreases were partially offset by net income of $5.4 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2020 AND 2019
Net income. The Company reported net income of $2.9 million, or $0.33 per basic share and $0.32 per diluted share, for the quarter ended March 31, 2020 as compared to $2.3 million, or $0.27 per basic share and $0.26 per diluted share, for the same quarter in fiscal 2019. For the six months ended March 31, 2020, the Company reported net income of $5.4 million, or $0.61 per basic share and $0.60 per diluted share as compared to $4.3 million, or $0.49 per basic and $0.48 per diluted share, for the same period in fiscal 2019.
Net interest income. For the three months ended March 31, 2020, net interest income decreased to $5.8 million as compared to $6.3 million for the same period in fiscal 2019. The decrease reflected the effects of an increase of $411,000, or 8.5%, in interest paid on deposits and borrowings combined with a $124,000 or 1.1%, decrease in interest income. The increase in the interest paid on deposits and borrowings was due to an $82.6 million increase in the average balance of such liabilities. Net-interest income continued to reflect, as well, the effects of margin compression. The yield on interest-earning assets decreased by 38 basis points, to 3.60% for the quarter ended March 31, 2020 from the comparable period in 2019 due to a reduction in market yields of interest in all interest-earning asset categories.
As part of the Company’s strategic lending initiatives, the Company increased its involvement in commercial and construction lending. The yields on such loans are typically tied to the Wall Street Journal Prime Rate (“WSJ Prime”) and adjust rapidly with changes in the WSJ Prime. With the recent unexpected significant decline in the WSJ Prime during the quarter ended March 31, 2020, a significant portion of the Company’s commercial and construction loan portfolio experienced downward adjustments in the interest rates on such loans.
For the six months ended March 31, 2020, net interest income was $12.1 million as compared to $12.3 million for the same period in fiscal 2019. The decrease was due to an increase of $1.9 million, or 21.7%, in interest paid on deposits and borrowings. Partially offsetting the increase in interest expense was an increase in interest income of $1.7 million, or 8.1%. The weighted average cost of borrowings and deposits increased to 1.96% during the six months ended March 31, 2020 from 1.83% during the comparable period in 2019 primarily due to increases in market rates of interest, reflecting in part the competitive market for deposits in the areas in which the Company operates. The increase in interest income was primarily due to the increase in the weighted average balance of interest-earning assets partially offset by the 20 basis point decline in the weighted average yield earned on our interest-earning assets.
For the three and six months ended March 31, 2020, the net interest margin was 1.89% and 1.96%, respectively, compared to 2.26% and 2.27% for the same periods in fiscal 2019, respectively. The margin compression experienced in the 2020 periods in large part reflected the more rapid decline in asset yields as compared to liability costs in response to the declining interest rate environment. The Company’s interest-earning assets are more rate sensitive than its interest-bearing liabilities and as a consequence, the Company’s yield on its interest-earning assets more rapidly experience the impact of declines in market rates.
Average balances, net interest income, and yields earned and rates paid. The following table shows for the periods indicated the total dollar amount of interest earned from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities and the resulting costs, expressed both in dollars and rates, the interest rate spread and the net interest margin. Average yields and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.
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Three Months | ||||||||||||||||||||||||
Ended March 31, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
Balance | Interest | (1) | Balance | Interest | (1) | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Investment securities | $ | 233,774 | $ | 2,010 | 3.45 | % | $ | 196,030 | $ | 1,681 | 3.48 | % | ||||||||||||
Mortgage-backed securities | 360,822 | 2,562 | 2.85 | 309,638 | 2,553 | 3.34 | ||||||||||||||||||
Loans receivable(2) | 574,912 | 6,334 | 4.42 | 587,857 | 6,722 | 4.64 | ||||||||||||||||||
Other interest-earning assets | 58,881 | 104 | 0.71 | 41,244 | 178 | 1.75 | ||||||||||||||||||
Total interest-earning assets | 1,228,389 | 11,010 | 3.60 | 1,134,769 | 11,134 | 3.98 | ||||||||||||||||||
Cash and non interest-bearing balances | 2,509 | 2,339 | ||||||||||||||||||||||
Other non interest-earning assets | 50,648 | 22,547 | ||||||||||||||||||||||
Total assets | $ | 1,281,546 | $ | 1,159,655 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 78,491 | 7 | 0.04 | $ | 86,826 | 8 | 0.04 | ||||||||||||||||
Money market deposit and NOW accounts | 172,790 | 409 | 0.95 | 119,831 | 209 | 0.71 | ||||||||||||||||||
Certificates of deposit | 464,866 | 2,449 | 2.11 | 601,503 | 3,323 | 2.24 | ||||||||||||||||||
Total deposits | 716,147 | 2,865 | 1.60 | 808,160 | 3,540 | 1.78 | ||||||||||||||||||
Advances from Federal Home Loan Bank | 368,336 | 2,356 | 2.57 | 195,007 | 1,270 | 2.64 | ||||||||||||||||||
Advances from borrowers for taxes and | ||||||||||||||||||||||||
insurance | 3,205 | 1 | 0.13 | 1,958 | 1 | 0.21 | ||||||||||||||||||
Total interest-bearing liabilities | 1,087,688 | 5,222 | 1.93 | 1,005,125 | 4,811 | 1.94 | ||||||||||||||||||
Non interest-bearing liabilities: | ||||||||||||||||||||||||
Non interest-bearing demand accounts | 18,873 | 14,962 | ||||||||||||||||||||||
Other liabilities | 33,731 | 7,333 | ||||||||||||||||||||||
Total liabilities | 1,140,292 | 1,027,420 | ||||||||||||||||||||||
Stockholders' equity | 141,254 | 132,235 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,281,546 | $ | 1,159,655 | ||||||||||||||||||||
Net interest-earning assets | $ | 140,701 | $ | 129,644 | ||||||||||||||||||||
Net interest income; interest rate spread | $ | 5,788 | 1.67 | % | $ | 6,323 | 2.04 | % | ||||||||||||||||
Net interest margin(3) | 1.89 | % | 2.26 | % | ||||||||||||||||||||
Average interest-earning assets to average | ||||||||||||||||||||||||
interest-bearing liabilities | 112.94 | % | 112.90 | % |
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Six Months | ||||||||||||||||||||||||
Ended March 31, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||
Balance | Interest | (1) | Balance | Interest | (1) | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Investment securities | $ | 232,582 | $ | 4,095 | 3.51 | % | $ | 189,535 | $ | 3,240 | 3.43 | % | ||||||||||||
Mortgage-backed securities | 366,061 | 5,355 | 2.92 | 267,232 | 4,308 | 3.23 | ||||||||||||||||||
Loans receivable(2) | 582,709 | 13,163 | 4.51 | 586,559 | 13,184 | 4.51 | ||||||||||||||||||
Other interest-earning assets | 52,171 | 224 | 0.86 | 46,126 | 404 | 1.76 | ||||||||||||||||||
Total interest-earning assets | 1,233,523 | 22,837 | 3.69 | 1,089,452 | 21,136 | 3.89 | ||||||||||||||||||
Cash and non interest-bearing balances | 2,316 | 2,246 | ||||||||||||||||||||||
Other non interest-earning assets | 53,446 | 39,078 | ||||||||||||||||||||||
Total assets | $ | 1,289,285 | $ | 1,130,776 | ||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 79,229 | 13 | 0.03 | $ | 88,551 | 105 | 0.24 | ||||||||||||||||
Money market deposit and NOW accounts | 150,559 | 774 | 1.03 | 115,768 | 334 | 0.58 | ||||||||||||||||||
Certificates of deposit | 477,511 | 5,201 | 2.17 | 583,795 | 6,139 | 2.11 | ||||||||||||||||||
Total deposits | 707,299 | 5,988 | 1.69 | 788,114 | 6,578 | 1.67 | ||||||||||||||||||
Advances from Federal Home Loan Bank | 379,041 | 4,716 | 2.48 | 175,100 | 2,217 | 2.54 | ||||||||||||||||||
Advances from borrowers for taxes and | ||||||||||||||||||||||||
insurance | 2,985 | 2 | 0.13 | 2,272 | 2 | 0.18 | ||||||||||||||||||
Total interest-bearing liabilities | 1,089,325 | 10,706 | 1.96 | 965,486 | 8,797 | 1.83 | ||||||||||||||||||
Non interest-bearing liabilities: | ||||||||||||||||||||||||
Non interest-bearing demand accounts | 18,807 | 15,644 | ||||||||||||||||||||||
Other liabilities | 32,734 | 18,917 | ||||||||||||||||||||||
Total liabilities | 1,140,866 | 1,000,047 | ||||||||||||||||||||||
Stockholders' equity | 148,419 | 130,729 | ||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 1,289,285 | $ | 1,130,776 | ||||||||||||||||||||
Net interest-earning assets | $ | 144,198 | $ | 123,966 | ||||||||||||||||||||
Net interest income; interest rate spread | $ | 12,131 | 1.73 | % | $ | 12,339 | 2.06 | % | ||||||||||||||||
Net interest margin(3) | 1.96 | % | 2.27 | % | ||||||||||||||||||||
Average interest-earning assets to average | ||||||||||||||||||||||||
interest-bearing liabilities | 113.24 | % | 112.84 | % |
(1) | Yields and rates for the three and six month periods are annualized. |
(2) | Includes non-accrual loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process and the allowance for loan losses. |
(3) | Equals net interest income divided by average interest-earning assets. |
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Provision for loan losses. The Company recorded a provision for loan losses of $500,000 and $625,000, respectively, for the three and six months ended March 31, 2020, compared to no provisions for loan losses for the same periods in fiscal 2019, primarily as a precaution due to the uncertainty associated with the economic effects of the COVID-19 pandemic and the potential credit deterioration caused thereby. Although no delinquencies had occurred as of March 31, 2020 due to the effects of the COVID-19 pandemic, a number of borrowers have contacted the Company regarding deferments of upcoming loan payments. These deferments are not anticipated to be TDRs as all applicable borrowers were current as of December 31, 2019 and the request for the deferments were related to the current economic conditions caused by the COVID-19 pandemic, not underlying weaknesses within the respective loans. Notwithstanding the foregoing, the Company believes there is a material risk that credit losses and non-performing assets may increase due to current economic conditions and the effects of the COVID-19 pandemic. During the three and six months ending March 31, 2020, the Company recorded three charge offs aggregating $74,000. During the three and six months ended March 31, 2020, the Company recorded recoveries aggregating $7,000 and $17,000, respectively. During the three and six months ended March 31, 2019, the Company recorded no charge offs and one recovery in the amount of $58,000.
The allowance for loan losses totaled $6.0 million, or 1.0% of total loans and 44.3% of total non-performing loans at March 31, 2020 as compared to $5.4 million, or 0.9% of total loans and 38.7% of total non-performing loans at September 30, 2019. The Company believes that the allowance for loan losses at March 31, 2020 was sufficient to cover all inherent and known losses associated with the loan portfolio at such date.
The Company’s methodology for assessing the adequacy of the allowance establishes both specific and general pooled allocations of the allowance. Loans are assigned ratings, either individually for larger credits or in homogeneous pools, based on an internally developed grading system. The resulting determinations are reviewed and approved by senior management.
At March 31, 2020, the Company’s non-performing assets totaled $13.9 million or 1.1% of total assets as compared to $14.3 million or 1.1% of total assets at September 30, 2019. Non-performing assets at March 31, 2020 included five construction loans aggregating $8.7 million, 24 one-to-four family residential loans aggregating $3.3 million, and four commercial real estate loans aggregating $1.4 million. Non-performing assets at March 31, 2020 also included real estate owned consisting of two single-family residential properties with an aggregate carrying value of $406,000. At March 31, 2020, the Company had four loans totaling $5.3 million that were classified as troubled debt restructurings (“TDRs”). One TDR is on non-accrual and consists of a $423,000 loan secured by a single-family residential property and is performing in accordance with the restructured terms. The three remaining TDRs totaling $4.9 million are also classified as non-accrual and are part of a lending relationship totaling $10.6 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter ending March 31, 2017 related to this borrowing relationship). The primary project of the borrower (the development of a 169-unit townhouse project in Bristol Borough, Pennsylvania) is the subject of litigation between the Bank and the borrower (see Item 1. Legal Proceeding in Part II of this Form 10-Q). As previously disclosed, subsequent to the commencement of the litigation, the borrower filed for bankruptcy under Chapter 11 (Reorganization) of the federal bankruptcy code in June 2017. The Bank has moved the underlying litigation noted above with the borrower and the Bank from state court to the federal bankruptcy court in which the bankruptcy proceeding is being heard. The state litigation is stayed pending the resolution of the bankruptcy proceedings. Two units have been sold in the project and a portion of the proceeds from such sales have been applied against the outstanding debt.
At March 31, 2020, the Company had $2.8 million of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of 12 one-to-four family residential loans totaling $1.0 million, one non-residential real estate loan in the amount of $1.7 million and one consumer loan in the amount of $68,000. At September 30, 2019, the Company had $845,000 of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of seven one-to-four family residential loans totaling $750,000 and two consumer loans totaling $95,000.
At March 31, 2020, the Company also had a total of 18 loans aggregating $2.6 million that had been designated “special mention”. These loans consist of 13 one-to-four family residential loans totaling $1.5 million and five commercial real estate loans totaling $1.1 million. At September 30, 2019, we had a total of 21 loans aggregating $5.5 million designated as “special mention”.
The following table shows the amounts of non-performing assets (defined as non-accruing loans, accruing loans 90 days or more past due as to principal and/or interest and real estate owned) as of March 31, 2020 and September 30, 2019. At neither date did the Company have any loans 90 days or more past due that were accruing.
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March 31, 2020 | September 30, 2019 | |||||||
(Dollars in Thousands) | ||||||||
Non-accruing loans: | ||||||||
One-to-four family residential | $ | 3,327 | $ | 3,712 | ||||
Commercial real estate | 1,417 | 1,473 | ||||||
Construction and land development | 8,700 | 8,750 | ||||||
Total non-accruing loans | 13,444 | 13,935 | ||||||
Other real estate owned, net: (1) | 406 | 348 | ||||||
Total non-performing assets | $ | 13,850 | $ | 14,283 | ||||
Total non-performing loans as a percentage of loans, net | 2.43 | % | 2.38 | % | ||||
Total non-performing loans as a percentage of total assets | 1.06 | % | 1.08 | % | ||||
Total non-performing assets as a percentage of total assets | 1.09 | % | 1.11 | % |
(1) | Other real estate owned balances are shown net of related loss allowances and consist solely of real property. |
Non-interest income. Non-interest income amounted to $2.7 million and $3.5 million for the three and six month periods ended March 31, 2020, respectively, compared to $542,000 and $922,000, respectively, for the comparable periods in fiscal 2019. The increase experienced in both of the 2020 periods was primarily attributable to the gain on sale of various investment securities of $2.4 million and $2.7 million for the quarter and six month periods ended March 31, 2020, respectively. Also contributing to the increase during the 2020 periods were attributable to the gain on sale of loans of $239,000 and $265,000 for the quarter and six month periods ended March 31, 2020, respectively.
Non-interest expense. For the three and six month periods ended March 31, 2020, non-interest expense increased $314,000 or 7.7% and $343,000 or 4.2%, respectively, compared to the same periods in the prior fiscal year. Non-interest expense increased in both of the fiscal 2020 periods primarily due in part to the hiring of additional personnel in our lending operations to support our expanded lending activities. Partially offsetting these increases were decreases in professional fees and occupancy expense as the Company maintained its focus on the continued implementation of operating efficiencies. The continued improvement of the Company’s efficiency ratio reflects the success of management’s efforts. The efficiency ratio for the six months ended March 31, 2020 improved to 54.3% from 61.7% for the same period in fiscal 2019.
Income tax expense. For the three month period ended March 31, 2020, the Company recorded a tax expense of $572,000, compared to a tax expense of $380,000 for the same period in fiscal 2019. For the six month period ended March 31, 2019, the Company recorded an income tax expense of $1.1 million as compared to a tax expense of $809,000 for the same period in fiscal 2019. The increase in income tax expense in the three and six month periods was commensurate with the increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. Our primary sources of funds are deposits, scheduled principal and interest payments on loans, loan prepayments and the maturity of loans, mortgage-backed securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan and securities prepayments can be greatly influenced by market rates of interest, economic conditions and competition. The Company also maintains excess funds in short-term, interest-earning assets that provide additional liquidity. At March 31, 2020, the Company’s cash and cash equivalents amounted to $76.7 million. In addition, its available-for-sale investment securities amounted to an aggregate of $511.3 million at such date.
We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets, and to meet operating expenses. At March 31, 2020, the Company had $29.7 million in outstanding commitments to originate loans, not including loans in process. The Company also had commitments under unused lines of credit of $35.3 million and letters of credit outstanding of $1.1 million at March 31, 2020. Certificates of deposit as of March 31, 2020 that are maturing in one year or less totaled $342.4 million.
In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs should the need arise. Our borrowings consist solely of advances from the FHLB, of which we are a member. Under terms of the collateral agreement with the FHLB, we pledge residential mortgage loans, certain investment securities as well as our stock in the FHLB as collateral for such advances. At March 31, 2020, we had $354.6 million in outstanding FHLB advances and had the ability to obtain an additional $132.8 million in FHLB advances. The Bank has a line of credit amounting to $12.5 million with ACBB, which has yet to be drawn upon. The Bank has also obtained approval to borrow from the Federal Reserve Bank discount window.
We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.
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The following table summarizes the Company’s and Bank’s regulatory capital ratios as of March 31, 2020 and September 30, 2019 and compares them to current regulatory guidelines. The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is deemed to be a small bank holding company.
To Be | ||||||||||||
Well Capitalized | ||||||||||||
Required for | Under Prompt | |||||||||||
Capital Adequacy | Corrective Action | |||||||||||
Actual Ratio | Purposes | Provisions | ||||||||||
March 31, 2020: | ||||||||||||
Tier 1 capital (to average assets) | ||||||||||||
The Company | 10.26 | % | N/A | N/A | ||||||||
The Bank | 10.13 | % | 4.0 | % | 5.0 | % | ||||||
Tier 1 common (to risk-weighted assets) | ||||||||||||
The Company | 18.32 | % | N/A | N/A | ||||||||
The Bank | 18.04 | % | 4.5 | % | 6.5 | % | ||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||
The Company | 18.32 | % | N/A | N/A | ||||||||
The Bank | 18.04 | % | 6.0 | % | 8.0 | % | ||||||
Total capital (to risk-weighted assets) | ||||||||||||
The Company | 19.22 | % | N/A | N/A | ||||||||
The Bank | 18.94 | % | 8.0 | % | 10.0 | % | ||||||
September 30, 2019: | ||||||||||||
Tier 1 capital (to average assets) | ||||||||||||
Company | 10.89 | % | N/A | N/A | ||||||||
Bank | 10.49 | % | 4.0 | % | 5.0 | % | ||||||
Tier 1 common (to risk-weighted assets) | ||||||||||||
The Company | 18.43 | % | N/A | N/A | ||||||||
The Bank | 18.10 | % | 4.5 | % | 6.5 | % | ||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||
Company | 18.43 | % | N/A | N/A | ||||||||
Bank | 18.10 | % | 6.0 | % | 8.0 | % | ||||||
Total capital (to risk-weighted assets) | ||||||||||||
Company | 19.27 | % | N/A | N/A | ||||||||
Bank | 18.94 | % | 8.0 | % | 10.0 | % |
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements, accompanying notes, and related financial data of the Company presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation to a larger extent than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Company's assets and liabilities are critical to the maintenance of acceptable performance levels.
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How We Manage Market Risk. Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. We have established an Asset/Liability Committee which is comprised of our President and Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, Treasurer and Controller. The Asset/Liability Committee meets on a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent and direction of shifts in interest rates are uncertainties that could have an adverse impact on future earnings.
In recent years, as a part of our asset/liability management strategy we primarily have reduced our investment in longer term fixed-rate callable agency bonds, increased our origination or purchase of hybrid adjustable-rate single-family residential mortgage loans, commercial real estate and construction loans (which typically bear adjustable rates indexed to the WSJ Prime) and increased our portfolio of step-up callable agency bonds and agency issued collateralized mortgage-backed securities (“CMOs”) with short effective lives. In addition, we recently implemented interest rate swaps to reduce funding cost for a five year period. However, notwithstanding the foregoing steps, we remain subject to a significant level of interest rate risk in a low interest rate environment due to the high proportion of our loan portfolio that consists of fixed-rate loans as well as our decision in prior periods to invest a significant amount of our assets in long-term, fixed-rate investment and mortgage-backed securities.
Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.
The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at March 31, 2020, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at March 31, 2020, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for variable-rate and fixed-rate single-family and multi-family residential and commercial mortgage loans are assumed to range from 10.9% to 29.0%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.9% to 25.3%. For savings accounts, checking accounts and money markets, the decay rates vary on an annual basis over a ten year period.
54
More than | More than | More than | ||||||||||||||||||||||
3 Months | 3 Months | 1 Year | 3 Years | More than | Total | |||||||||||||||||||
or Less | to 1 Year | to 3 Years | to 5 Years | 5 Years | Amount | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Interest-earning assets(1): | ||||||||||||||||||||||||
Investment and mortgage-backed securities(2) | $ | 26,036 | $ | 63,749 | $ | 142,255 | $ | 94,383 | $ | 198,784 | $ | 525,207 | ||||||||||||
Loans receivable(3) | 158,793 | 77,751 | 161,261 | 86,702 | 92,205 | 576,712 | ||||||||||||||||||
Other interest-earning assets(4) | 72,897 | - | 17,156 | 747 | - | 90,800 | ||||||||||||||||||
Total interest-earning assets | $ | 257,726 | $ | 141,500 | $ | 320,672 | $ | 181,832 | $ | 290,989 | $ | 1,192,719 | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings accounts | $ | 2,025 | $ | 5,780 | $ | 9,709 | $ | 7,987 | $ | 51,996 | $ | 77,497 | ||||||||||||
Money market deposit and NOW accounts | 5,877 | 17,630 | 17,816 | 159,243 | 0 | 200,566 | ||||||||||||||||||
Certificates of deposit | 103,802 | 128,649 | 70,157 | 150,813 | - | 453,421 | ||||||||||||||||||
Advances from FHLB | 8,563 | 14,604 | 139,681 | 171,776 | 20,000 | 354,624 | ||||||||||||||||||
Advances from borrowers for taxes and insurance | 2,667 | - | - | - | - | 2,667 | ||||||||||||||||||
Total interest-bearing liabilities | $ | 122,934 | $ | 166,663 | $ | 237,363 | $ | 489,819 | $ | 71,996 | $ | 1,088,775 | ||||||||||||
Interest-earning assets less interest-bearing liabilities | $ | 134,792 | ($ | 25,163 | ) | $ | 83,309 | ($ | 307,987 | ) | $ | 218,993 | $ | 103,944 | ||||||||||
Cumulative interest-rate sensitivity gap (5) | $ | 134,792 | $ | 109,629 | $ | 192,938 | ($ | 115,049 | ) | $ | 103,944 | |||||||||||||
Cumulative interest-rate gap as a percentage of total assets at March 31, 2020 | 10.80 | % | 8.82 | % | 14.02 | % | -1.20 | % | 8.03 | % | ||||||||||||||
Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2020 | 209.65 | % | 137.86 | % | 136.61 | % | 88.68 | % | 109.55 | % |
(1) | Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities. |
(2) | For purposes of the gap analysis, investment securities are reflected at amortized cost. |
(3) | For purposes of the gap analysis, loans receivable includes non-performing loans and is gross of the allowance for loan losses and unamortized deferred loan fees, but net of the undisbursed portion of loans-in-process. |
(4) | Includes FHLB stock. |
(5) | Cumulative interest-rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities. |
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as variable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their variable-rate loans may be adversely affected in the event of an interest rate increase.
55
Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The “Sensitivity Measure” is the decline in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The following table sets forth our NPV as of March 31, 2020 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
Change in | NPV as % of Portfolio | |||||||||||||||||||
Interest Rates | Net Portfolio | Value of | ||||||||||||||||||
In Basis Points | Value | Assets | ||||||||||||||||||
(Rate Shock) | Amount | $ Change | % Change | NPV Ratio | Change | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
300 | $ | 101,362 | $ | (37,970 | ) | (27.25 | )% | 8.84 | % | (2.10 | )% | |||||||||
200 | 115,562 | (23,770 | ) | (17.06 | )% | 9.72 | % | (1.22 | )% | |||||||||||
100 | 130,415 | (8,917 | ) | (6.40 | )% | 10.57 | % | (0.37 | )% | |||||||||||
Static | 139,332 | - | - | 10.94 | % | - | ||||||||||||||
(100) | 131,727 | (7,605 | ) | (5.46 | )% | 10.15 | % | (0.79 | )% | |||||||||||
(200) | 141,833 | 2,501 | 1.79 | % | 10.73 | % | (0.21 | )% | ||||||||||||
(300) | 167,098 | 27,766 | 19.93 | % | 12.42 | % | 1.48 | % |
At September 30, 2019, the Company’s NPV was $159.6 million or 12.5% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s “post shock” NPV would be $133.0 million or 16.7% of the market value of assets. Conversely, a 200 basis point decrease in interest rates would result in a post shock NPV of $140.6 million or 11.9% of the market value of assets.
As is the case with the GAP table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
56
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2020, there had not been any material change to the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019, set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation –Exposure to Changes in Interest Rates.”
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of period covered by this report, our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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On March 31, 2016, Island View Properties, Inc. t/a Island View Crossing II and Renato J. Gualtieri (“Plaintiffs”) filed a complaint against Prudential Bank (formerly known as Prudential Savings Bank)in the Court of Common Pleas of Philadelphia County (the “CCP Action”) asserting, among other things, that the Bank breached various loan agreements and related agreements for a development known as Island View Crossing. In its complaint, Plaintiffs seek the amount of $27 million. The Company filed objections to the complaint seeking to dismiss significant portions of Plaintiffs’ claims. On August 31, 2016, the Court dismissed the majority of the claims. After that order, the Company filed an answer denying Plaintiffs’ claims as well as a counterclaim seeking damages for failure to pay the outstanding loans and not completing the project. Discovery was ongoing and a trial was scheduled for October 2, 2017. On June 30, 2017, Plaintiff Island View Crossing II filed a Chapter 11 bankruptcy and on or about July 18, 2017, the Bank removed the CCP Action to Bankruptcy Court (the “Removed Action”).
Within the bankruptcy, Island View Crossing, as the debtor, and the Chapter 11 Trustee, filed a separate adversary proceeding against the Company seeking to avoid certain collateral mortgages made by Island View Crossing as well as seeking to avoid certain loans made to Island View Crossing including, but not limited to, a $1.4 million loan and $5.5 million loan. The complaint was filed on or about December 3, 2018 and that action was ultimately consolidated with the Removed Action.
Currently, the parties are proceeding through the discovery phase of litigation. Fact discovery is scheduled to close on or about July 1, 2020. A pretrial conference is currently scheduled for some time after August 19, 2020. Given the stage of the case and the continuing discovery, we are unable to determine the likelihood of an unfavorable outcome at this time. The Bank intends to vigorously defend against all claims.
On June 30, 2017, Calnshire Estates filed a voluntary petition for relief under Chapter 11 of the United States bankruptcy code. On or about December 18, 2017, the bankruptcy court converted the matter from a Chapter 11 to a Chapter 7 proceeding. On December 20, 2017, the Court appointed Bonnie Finkel (“Trustee”) as the Chapter 7 Trustee for the bankruptcy estate.
On or about June 28, 2019, the Trustee filed an adversary proceeding against the Bank in the bankruptcy court seeking, among other things, a declaratory judgment that certain obligations of Calnshire Estates to the Bank are null and void. The Trustee also asserted various causes of action for breach of contract, breach of fiduciary duty and equitable subordination.
On August 26, 2019, the Bank filed a motion to dismiss a number of the claims filed by the Trustee. Dates for discovery and any potential trial have not been set by the bankruptcy court. Given the relatively early stages of the case, we are unable to determine the likelihood of an unfavorable outcome at this time. The Bank intends to vigorously defend against the claims.
On June 30, 2017, Steeple Run filed a voluntary petition for relief under Chapter 11 of the United States bankruptcy code. On or about December 18, 2017, the Bankruptcy Court converted the matter from a Chapter 11 to a Chapter 7 proceeding. On December 20, 2017, the Court also appointed the Trustee as the Chapter 7 Trustee for the bankruptcy estate.
On or about June 28, 2019, the Trustee filed an adversary proceeding against the Bank in bankruptcy court asserting, among other things, various causes of action for breach of contract, breach of fiduciary duty and equitable subordination in connection with a loan agreement.
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On August 26, 2019, the Bank filed a motion to dismiss a number of the claims filed by the Trustee. Dates for discovery and any potential trial have not been set by the Bankruptcy Court. Given the relatively early stage of the case, we are unable to determine the likelihood of an unfavorable outcome at this time. The Bank intends to vigorously defend against the claims.
The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, does not believe that such proceedings will have a material adverse effect on the financial condition or operations of Prudential Bancorp. There can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company's interests and have a material adverse effect on the financial condition and operations of the Company.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (“2019 Annual Report”), as such factors could materially affect the Company’s business, financial condition, or future results of operations. Except as set forth below, as of March 31, 2020, no material changes have occurred to the risk factors of the Company as reported in the 2019 Annual Report except for the risk factors described below. The risks described in the 2019 Annual Report are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material adverse impact on the Company’s business, financial conditions, or results of operations. The risk factors set forth below supplement the risk factors included in the 2019 Annual Report.
The recent global COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, our business, financial condition, liquidity and results of operations and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and the actions taken by governmental authorities in response to the pandemic.
The Company believes the worldwide COVID-19 pandemic has negatively affected our business and is likely to continue to do so. The outbreak has caused significant volatility and disruption in the financial markets both in the United States and globally. If COVID-19, or another highly infectious or contagious disease, continues to spread or the response to contain it is unsuccessful, we could continue to experience material adverse effects on our business, financial condition, liquidity, and results of operations. The extent of such effects will depend on future developments which are highly uncertain and cannot be predicted, including the geographic spread of the novel coronavirus, the overall severity of the disease, the duration of the outbreak, the measures that may be taken by various governmental authorities in response to the outbreak (such as continued quarantines and travel restrictions) and the possible further impacts on the global economy. The Company’s operations may also be disrupted if significant portions of its workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and the Company has already temporarily limited access to certain of its branches and offices. In response to the pandemic, the Company has also offered fee waivers, payment deferrals, and other expanded assistance to small business and personal lending customers. Future governmental actions may require these and other types of customer-related responses.
Any significant decrease in economic activity or resulting decline in the housing market could have an adverse effect on the Company’s investments in mortgage real estate assets, including the need to recognize credit losses in its loan portfolio and increases in the allowance for loan losses. In addition, as interest rates continue to decline as a result of demand for U.S. Treasury securities and the activities of the Federal Reserve, prepayments on our assets are likely to increase due to refinancing activity, which could have a material adverse effect on our result of operations. Similarly, because of changing economic and market conditions affecting issuers, the Company may be required to recognize impairments on the securities it holds as well as reductions in other comprehensive income.
Further, in light of the current environment related to the COVID-19 pandemic on the overall economy, such as rising unemployment levels or changes in consumer behavior related to loans as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear payment on or refinance their mortgage loans to avail themselves of lower rates, which may adversely affect our result of operations.
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The Company cannot predict the effect that government policies, laws and plans adopted in response to the COVID-19 pandemic and global recessionary economic conditions will have on us.
Governments have adopted, and the Company expects will continue to adopt, policies, laws and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial and mortgage markets. The Company cannot assure you that these programs will be effective, sufficient or otherwise have a positive impact on our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) | and (b) Not applicable. |
(c) | The Company’s repurchase of equity securities for the three months ended March 31, 2020 were as follows: |
Period | Total
Number of Shares Purchased | Average
Price Paid Per Share | Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet Purchased Under Plans or Programs (1) | ||||||||||||
January 1 - 31, 2020 | - | $ | - | - | 833,000 | |||||||||||
February 1 - 29, 2020 | - | - | - | 833,000 | ||||||||||||
March 1 - 31, 2020 | 152,009 | 13.45 | 152,009 | 680,991 | ||||||||||||
152,009 | $ | 13.45 | 152,009 |
(1) | On November 19, 2018, the Company announced that the Board of Directors had approved a third stock repurchase program authorizing the Company to repurchase up 900,000 shares of common stock, approximately 10% of the Company's then outstanding shares. |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable
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Exhibit No. | Description | ||
3.2 | Amended and Restated Bylaws of Prudential Bancorp, Inc. | ||
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | ||
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | ||
32.0 | Section 1350 Certifications | ||
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document. |
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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.
PRUDENTIAL BANCORP, INC. | |
Date: May 11, 2020 | By: /s/ Dennis Pollack |
Dennis Pollack President and Chief Executive Officer | |
Date: May 11, 2020 | By: /s/ Jack E. Rothkopf |
Jack E. Rothkopf Senior Vice President, Chief Financial Officer and Treasurer |
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Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
PRUDENTIAL BANCORP, INC.
(Amended and restated as of February 19, 2020)
ARTICLE I
OFFICES
1.1 Registered Office and Registered Agent. The registered office of Prudential Bancorp, Inc. (“Corporation”) shall be located in the Commonwealth of Pennsylvania at such place as may be fixed from time to time by the Board of Directors upon filing of such notices as may be required by law, and the registered agent shall have a business office identical with such registered office.
1.2 Other Offices. The Corporation may have other offices within or outside the Commonwealth of Pennsylvania at such place or places as the Board of Directors may from time to time determine.
ARTICLE II
SHAREHOLDERS’ MEETINGS
2.1 Place of Meetings. All meetings of the shareholders shall be held at such place within or outside the Commonwealth of Pennsylvania as shall be determined by the Board of Directors.
2.2 Annual Meetings. The annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year on such date and time as may be determined by the Board of Directors and stated in the notice of such meeting.
2.3 Organization and Conduct. Each meeting of the shareholders shall be presided over by the Chairman of the Board or the President, or if neither is present, by any Executive Vice President or such other person as the directors may determine. The Secretary, or in his absence any Assistant Secretary or temporary Secretary, shall act as secretary of each meeting of the shareholders. In the absence of the Secretary, Assistant Secretary and any temporary Secretary, the chairman of the meeting may appoint any person present to act as secretary of the meeting. The chairman of any meeting of the shareholders, unless prescribed by law or regulation or unless the Board of Directors has otherwise determined, shall determine the order of the business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussions as shall be deemed appropriate by him in his sole discretion.
2.4 Notice.
(a) Written notice of every meeting of shareholders shall be given by, or at the direction of, the Secretary of the Corporation or other authorized person to each shareholder of record entitled to vote at the meeting at least (i) ten days prior to the day named for a meeting that will consider a fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law (“BCL”), or any successor thereto, or (ii) five days prior to the day named for a meeting in any other case. A notice of meeting shall specify the place, day and hour of the meeting, and in the case of a special meeting, the general nature of the business to be transacted thereat, as well as any other information required by law.
(b) When a meeting of shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the Board of Directors fixes a new record date for the adjourned meeting or notice of the business to be transacted is required to be given by applicable law and such notice previously has not been given.
2.5 Record Date. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, such date to be not more than 90 days and not less than (i) ten days in the case of a meeting that will consider a fundamental change under Chapter 19 of the BCL, or any successor thereto, or (ii) five days in the case of a meeting for any other purpose, prior to the date of the meeting established by the Board of Directors.
2.6 Voting List. The officer or agent having charge of the transfer books for shares of the Corporation shall make a complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order, with the address of and number of shares held by each. The list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof.
2.7 Quorum. Except as otherwise required by law:
(a) The presence of shareholders entitled to vote at least a majority of the votes that all shareholders are entitled to cast on a particular matter to be acted upon at a meeting of shareholders shall constitute a quorum for the purposes of consideration and action on the matter.
(b) The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the general withdrawal of enough shareholders to leave less than a quorum.
2.8 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the extent that voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation, each shareholder, on each matter submitted to a vote at a meeting of shareholders, shall have one vote for each share of stock registered in his name on the books of the Corporation.
(b) Except as otherwise provided by law, the Corporation’s Articles of Incorporation or paragraph (c) of this Section 2.8, any corporate action to be taken by vote of the shareholders of the Corporation shall be authorized by receiving the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon and, if any shareholders are entitled to vote thereon as a class, upon receiving the affirmative vote of a majority of the votes cast by shareholders entitled to vote as a class.
(c) Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. If, at any meeting of the shareholders, due to a vacancy or vacancies or otherwise, directors of more than one class of the Board of Directors are to be elected, each class of directors to be elected at the meeting shall be elected in a separate election by a plurality vote.
2.9 Proxies. Every shareholder entitled to vote at a meeting of shareholders may authorize another person to act for him by a proxy duly executed by the shareholder or his duly authorized attorney-in-fact. The presence of, or vote or other action at a meeting of shareholders, by a proxy of a shareholder shall constitute the presence of, or vote or other action by, the shareholder for all purposes. No proxy shall be valid after three years from the date of execution unless a longer time is expressly provided therein.
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2.10 Shareholder Proposals.
(a) At an annual meeting of shareholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting by, or at the direction of, (a) the Board of Directors or (b) any shareholder of the Corporation who complies with all the requirements set forth in this Section 2.10.
(b) Proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 2.10. For shareholder proposals to be included in the Corporation’s proxy materials, the shareholder must comply with all the timing and informational requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) (or any successor regulation), whether or not the Corporation’s common stock is registered under the Exchange Act. With respect to shareholder proposals to be considered at the annual meeting of shareholders but not included in the Corporation’s proxy materials, the shareholder notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than (x) 120 days prior to the anniversary date of the initial mailing of proxy materials or of a notice of the meeting by the Corporation in connection with the immediately preceding annual meeting of shareholders of the Corporation or (y), with respect to the first annual meeting of shareholders of the Corporation, which is expected to be held in February 2014, notice must be provided by October 31, 2013. Such shareholder’s notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (1) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business and, to the extent known, any other shareholders known by such shareholder to be supporting such proposal, (3) the class and number of shares of the Corporation’s stock which are Beneficially Owned (as defined in Section 3.12 (d) hereof) by the shareholder submitting the notice, by any Person who is Acting in Concert with or who is an Affiliate or Associate of such shareholder (as such capitalized terms are defined in Section 3.12 (d) hereof), by any Person who is a member of any group with such shareholder with respect to the Corporation stock or who is known by such shareholder to be supporting such proposal on the date the notice is given to the Corporation, and by each Person who is in control of, is controlled by or is under common control with any of the foregoing Persons (if any of the foregoing Persons is a partnership, corporation, limited liability company, association or trust, information shall be provided regarding the name and address of, and the class and number of shares of Corporation stock which are Beneficially Owned (as defined in Section 3.12(d) hereof) by, each partner in such partnership, each director, executive officer and shareholder in such corporation, each member in such limited liability company or association, and each trustee and beneficiary of such trust, and in each case each Person controlling such entity and each partner, director, executive officer, shareholder, member or trustee of any entity which is ultimately in control of such partnership, corporation, limited liability company, association or trust), (4) the identification of any person retained or to be compensated by the shareholder submitting the proposal, or any person acting on his or her behalf, to make solicitations or recommendations to shareholders for the purpose of assisting in the passage of such proposal and a brief description of the terms of such employment, retainer or arrangement for compensation, and (5) any material interest of the shareholder in such business.
(c) The Board of Directors may reject any shareholder proposal not timely made in accordance with the terms of this Section 2.10. If the Board of Directors, or a designated committee thereof or other authorized individual, determines that the information provided in a shareholder’s notice does not satisfy the information requirements of this Section 2.10 in any material respect, the Secretary of the Corporation or a duly authorized representative of the Corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time not to exceed five days from the date such deficiency notice is given to the shareholder as the Board of Directors or such committee or other authorized individual shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee or other authorized individual determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Section 2.10 in any material respect, then the Board of Directors may reject such shareholder’s proposal. The Secretary of the Corporation or a duly authorized representative of the Corporation shall notify a shareholder in writing whether his proposal has been made in accordance with the time and informational requirements of this Section 2.10. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee or other authorized individual makes a determination as to the validity of any shareholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the shareholder proposal was made in accordance with the terms of this Section 2.10. If the presiding officer determines that a shareholder proposal was made in accordance with the terms of this Section 2.10, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to any such proposal. If the presiding officer determines that a shareholder proposal was not made in accordance with the terms of this Section 2.10, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting.
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(d) This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided.
2.11 Judges of Election.
(a) For each meeting of shareholders, the Board of Directors may appoint judges of election, who need not be shareholders, to act at the meeting or any adjournment thereof. If judges of election are not so appointed, the presiding officer of the meeting may, and on the request of any shareholder shall, appoint judges of election at the meeting. The number of judges shall be one or three. A person who is a candidate for office to be filled at the meeting shall not act as a judge.
(b) The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. The judges of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.
ARTICLE III
BOARD OF DIRECTORS
3.1 Number and Powers. The business affairs of the Corporation shall be managed under the direction of a Board of Directors of not less than four[1] nor more than 10, as set from time to time by resolution of the Board of Directors. Directors need not be shareholders or residents of the Commonwealth of Pennsylvania. In addition to the powers and authorities expressly conferred upon it by these Bylaws and the Articles of Incorporation, all such powers of the Corporation as are not by statute or by the Corporation’s Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders, may be exercised by or under the authority of the Board of Directors.
[1] Amended effective February 19, 2020 to change the minimum number to four.
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3.2 Classification and Terms. The classification and terms of the directors shall be as set forth in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
3.3 Vacancies. All vacancies on the Board of Directors shall be filled in the manner provided in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
3.4 Removal of Directors. Directors may be removed in the manner provided in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
3.5 Regular Meetings. Regular meetings of the Board of Directors or any committee may be held without notice at the principal place of business of the Corporation or at such other place or places, either within or outside the Commonwealth of Pennsylvania, as the Board of Directors or such committee, as the case may be, may from time to time appoint or as may be designated in the notice of the meeting. A regular meeting of the Board of Directors shall be held without notice immediately after the annual meeting of shareholders.
3.6 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or by a majority of the authorized number of directors, to be held at the principal place of business of the Corporation or at such other place or places as the Board of Directors or the person or persons calling such meeting may from time to time designate. Notice of all special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to such meeting if notice is given in person or by telephone, facsimile or other electronic transmission and at least five (5) days prior to such meeting if notice is given in writing and delivered by courier or by postage prepaid mail. Such notice need not specify the business to be transacted at, nor the purpose of, the meeting. Any director may waive notice of any meeting by submitting a signed waiver of notice with the Secretary, whether before or after the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.
(b) Special meetings of any committee may be called at any time by such person or persons and with such notice as shall be specified for such committee by the Board of Directors, or in the absence of such specification, in the manner and with the notice required for special meetings of the Board of Directors.
3.7 Action of Directors by Communications Equipment. One or more persons may participate in a meeting of directors, or of a committee thereof, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.
3.8 Quorum of and Action by Directors. A majority of the Board of Directors then in office shall be necessary at all meetings to constitute a quorum for the transaction of business and the acts of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors. Every director of the Corporation shall be entitled to one vote.
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3.9 Registering Dissent. A director who is present at a meeting of the Board of Directors or of a committee thereof, at which action on a corporate matter is taken on which the director is generally competent to act, shall be presumed to have assented to such action unless his dissent is entered in the minutes of the meeting, or unless he files his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or unless he delivers his dissent in writing to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
3.10 Action by Directors Without a Meeting. Any action which may be taken at a meeting of the directors, or of a committee thereof, may be taken without a meeting if, prior or subsequent to the action, a consent or consents in writing, setting forth the action so taken or to be taken, is signed by all of the directors in office, or by all of the members of the committee, as the case may be, and filed with the Secretary of the Corporation. Such consent shall have the same effect as a unanimous vote.
3.11 Compensation of Directors. The Board of Directors shall have the authority to fix the compensation of directors for their services as directors and a director may be a salaried officer of the Corporation.
3.12 Nominations of Directors.
(a) Nominations of candidates for election as directors at any annual meeting of shareholders may be made (1) by, or at the direction of, a majority of the Board of Directors or (2) by any shareholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Section 3.12 shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 3.12 shall be provided for use at the annual meeting.
(b) Nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 3.12. To be timely, a shareholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than (x) 120 days prior to the anniversary date of the initial mailing of proxy materials or a notice of the meeting by the Corporation in connection with the immediately preceding annual meeting of shareholders of the Corporation or (y), with respect to the first annual meeting of shareholders of the Corporation, which is expected to be held in February 2014, notice must be provided by October 31, 2013. Such shareholder’s notice shall set forth (1) the name, age, business address and residence address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (2) the principal occupation or employment of the shareholder submitting the notice and of each person being nominated; (3) the class and number of shares of the Corporation’s stock which are Beneficially Owned (as defined in Section 3.12(d) hereof) by the shareholder submitting the notice, by any Person who is Acting in Concert with or who is an Affiliate or Associate of such shareholder (as such capitalized terms are defined in Section 3.12(d) hereof), by any Person who is a member of any group with such shareholder with respect to the Corporation stock or who is known by such shareholder to be supporting such nominee(s) on the date the notice is given to the Corporation, by each person being nominated, and by each Person who is in control of, is controlled by or is under common control with any of the foregoing Persons (if any of the foregoing Persons is a partnership, corporation, limited liability company, association or trust, information shall be provided regarding the name and address of, and the class and number of shares of Corporation stock which are Beneficially Owned by, each partner in such partnership, each director, executive officer and shareholder in such corporation, each member in such limited liability company or association, and each trustee and beneficiary of such trust, and in each case each Person controlling such entity and each partner, director, executive officer, shareholder, member or trustee of any entity which is ultimately in control of such partnership, corporation, limited liability company, association or trust); (4) a representation that the shareholder is and will continue to be a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (5) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (6) such other information regarding the shareholder submitting the notice, each nominee proposed by such shareholder and any other Person covered by clause (3) of this paragraph as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, whether or not the Corporation’s common stock is registered under the Exchange Act; and (7) the consent of each nominee to serve as a director of the Corporation if so elected. At the request of the Board of Directors, any person nominated by, or at the direction of, the Board for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee.
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(c) The Board of Directors may reject any nomination by a shareholder not timely made in accordance with the requirements of this Section 3.12. If the Board of Directors, or a designated committee thereof or other authorized individual, determines that the information provided in a shareholder’s notice does not satisfy the informational requirements of this Section 3.12 in any material respect, the Secretary of the Corporation or a duly authorized representative of the Corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee or other authorized individual shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee or other authorized individual reasonably determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Section 3.12 in any material respect, then the Board of Directors may reject such shareholder’s nomination. The Secretary of the Corporation or a duly authorized representative of the Corporation shall notify a shareholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Section 3.12. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee or other authorized individual makes a determination as to the validity of any nominations by a shareholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Section 3.12. If the presiding officer determines that a nomination was made in accordance with the terms of this Section 3.12, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the presiding officer determines that a nomination was not made in accordance with the terms of this Section 3.12, he shall so declare at the annual meeting and the defective nomination shall be disregarded.
(d) For purposes of these Bylaws, the following capitalized terms shall have the meanings indicated:
(1) Acquire. The term “Acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.
(2) Acting in Concert. The term “Acting in Concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.
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(3) Affiliate. An “Affiliate” of, or a Person “affiliated with,” a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.
(4) Associate. The term “Associate” used to indicate a relationship with any Person means:
(i) Any corporation, partnership, limited liability company or other organization (other than the Corporation or a Subsidiary of the Corporation), or any subsidiary or parent thereof, of which such Person is a director, officer, partner or member or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities;
(ii) Any trust or other estate in which such Person has a 10% or greater beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, such term shall not include any employee stock benefit plan of the Corporation or a Subsidiary of the Corporation in which such Person has a 10% or greater beneficial interest or serves as a trustee or in a similar fiduciary capacity;
(iii) Any relative or spouse of such Person (or any relative of such spouse) who has the same home as such Person or who is a director or officer of the Corporation or a Subsidiary of the Corporation (or any subsidiary or parent thereof); or
(iv) Any investment company registered under the Investment Company Act of 1940 for which such Person or any Affiliate or Associate of such Person serves as investment advisor.
(5) Beneficial Owner (including Beneficially Owned). A Person shall be considered the “Beneficial Owner” of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate or Associate of such Person directly or indirectly has or shares (A) voting power, including the power to vote or to direct the voting of such shares of stock, and/or (B) investment power, including the power to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of such Person has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether such right is exercisable immediately or only after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of (i) or (ii) of this Section 3.12(d)(5) by any other Person with which such first-mentioned Person or any of its Affiliates or Associates either (A) has any agreement, arrangement or understanding, written or oral, with respect to acquiring, holding, voting or disposing of any shares of stock of the Corporation or any Subsidiary of the Corporation or acquiring, holding or disposing of all or substantially all, or any Substantial Part, of the assets or business of the Corporation or a Subsidiary of the Corporation, or (B) is Acting in Concert. For the purpose only of determining whether a Person is the Beneficial Owner of a percentage specified in these Bylaws of the outstanding Voting Shares, such shares shall be deemed to include any Voting Shares which may be issuable pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise and which are deemed to be Beneficially Owned by such Person pursuant to the foregoing provisions of this Section 3.12(d)(5) but shall not include any other Voting Shares which may be issuable in such manner.
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(6) Person. The term “Person” shall mean any individual, partnership, corporation, limited liability company, association, trust, group or other entity. When two or more Persons act as a partnership, limited partnership, limited liability company, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, associate or group shall be deemed a “Person.”
(7) Substantial Part. The term “Substantial Part” as used with reference to the assets of the Corporation or of any Subsidiary means assets having a value of more than 10% of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation’s most recent fiscal year ending prior to the time the determination is being made.
(8) Subsidiary. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Person in question.
(9) Voting Shares. “Voting Shares” shall mean shares of the Corporation entitled to vote generally in an election of directors.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
4.1 Executive Committee.
(a) The Board of Directors may appoint from the Board of Directors an Executive Committee of not less than three members, and may delegate to such committee, except as otherwise provided by law or the Articles of Incorporation, the powers of the Board of Directors in the management of the business and affairs of the Corporation in the intervals between meetings of the Board of Directors in all cases in which specific directions shall not have been given by the Board, as well as the power to authorize the seal of the Corporation to be affixed to all papers which may require it, provided, however, that the Executive Committee shall not have the power or authority of the Board of Directors with respect to the following: the submission to shareholders of any action requiring approval of shareholders by law; the creation or filling of vacancies on the Board of Directors; the adoption, amendment or repeal of the Articles of Incorporation or these Bylaws; the amendment or repeal of any resolution of the Board of Directors that by its terms is amendable or repealable only by the Board of Directors; action on matters committed by these Bylaws or resolution of the Board of Directors to another committee of the Board of Directors; the declaration of dividends; and approval of a transaction in which any member of the Executive Committee, directly or indirectly, has any material beneficial interest.
(b) Meetings of the Executive Committee shall be held at such times and places as the Chairman of the Executive Committee may determine. The Executive Committee, by a vote of a majority of its members, may appoint a Chairman and fix its rules of procedure, determine its manner of acting and specify what notice, if any, of meetings shall be given, except as otherwise set forth in these Bylaws or as the Board of Directors shall by resolution otherwise provide.
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(c) The Executive Committee shall keep minutes of all business transacted by it. All completed action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action or at its meeting held in the month following the taking of such action, and shall be subject to revision or alteration by the Board of Directors.
4.2 Audit Committee. The Board of Directors shall designate not less than three members of the Board of Directors who are not employed by the Corporation and who otherwise comply with the requirements of applicable law, regulation and listing requirements to constitute an Audit Committee, which shall receive and evaluate internal and independent auditor’s reports, monitor the Corporation’s adherence in accounting and financial reporting to generally accepted accounting principles and perform such other duties as may be delegated to it by the Board of Directors. Meetings of the Audit Committee shall be held at such times and places as the Chairman of the Audit Committee may determine. The Audit Committee, by a vote of a majority of its members, may fix its rules of procedure, determine its manner of acting and specify what notice, if any, of meetings shall be given, except as otherwise set forth in these Bylaws or as the Board of Directors shall by resolution otherwise provide.
4.3 Other Committees. The Board may, by resolutions passed by a majority of the Board of Directors, designate members of the Board to constitute other committees, which shall in each case consist of one or more directors and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them. A majority of all the members of any such committee may fix its rules of procedure, determine its manner of acting and fix the time and place of its meetings and specify what notice thereof, if any, shall be given, except as otherwise set forth in these Bylaws or as the Board of Directors shall by resolution otherwise provide.
4.4 Term. A majority of the Board of Directors shall have the power to change the membership of any committee of the Board of Directors at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time.
ARTICLE V
OFFICERS
5.1 Designations. The Board of Directors shall annually appoint a Chairman of the Board, a President, a Secretary, a Treasurer and such other officers as the Board of Directors may from time to time deem appropriate. The Board of Directors shall designate one officer as the Corporation’s Chief Executive Officer and may designate another officer as the Chief Operating Officer. One individual may hold the position of Chairman and Chief Executive Officer.
5.2 Powers and Duties. The officers of the Corporation shall have such authority and perform such duties as are specified in these Bylaws and as the Board of Directors may from time to time authorize or determine. In the absence of action by the Board of Directors, the officers shall have such powers and duties as generally pertain to their respective offices.
5.3 Chairman of the Board. The Chairman of the Board, who shall be chosen from among the directors, shall preside at all meetings of the Board of Directors. He shall supervise the carrying out of the policies adopted or approved by the Board of Directors.
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5.4 Chief Executive Officer and President. The Chief Executive Officer shall have general executive powers and shall have and may exercise any and all other powers and duties pertaining by law, regulations or practice to the office of the Chief Executive Officer, imposed by these Bylaws or as established by the Board of Directors. The President shall have general executive powers and shall have and may exercise any and all other powers and duties pertaining by law, regulations or practice to the office of President, imposed by these Bylaws or as established by the Board of Directors. One individual may hold the positions of Chief Executive Officer, President and Chairman of the Board.
5.5 Secretary. The Secretary shall keep the minutes of the meetings of the shareholders and the Board of Directors and shall give notice of all such meetings as required in these Bylaws, the Corporation’s Articles of Incorporation or by law. The Secretary shall have custody of such minutes, the seal of the Corporation and the stock certificate records of the Corporation, except to the extent some other person is authorized to have custody and possession thereof by a resolution of the Board of Directors.
5.6 Treasurer. The Treasurer shall keep, or cause to be kept, the fiscal accounts of the Corporation, including an account of all monies received or disbursed.
5.7 Term; Removal. Each officer of the Corporation shall hold office for a term of one year and until his successor has been selected and qualified or until his earlier death, resignation or removal. Any officer or agent of the Corporation may be removed at any time, with or without cause, by the Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.
5.8 Compensation. The officers of the Corporation shall receive such salary or compensation as may be determined by or under authority of the Board of Directors.
5.9 Delegation. In the case of absence or inability to act of any officer of the Corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any director or other person whom it may select.
5.10 Vacancies. Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting of the Board.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification in Third Party Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or representative of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by the person in connection with such threatened, pending or completed action, suit or proceeding.
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6.2 Indemnification in Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer or representative of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by the person in connection with such threatened, pending or completed action or suit.
6.3 Procedure for Effecting Indemnification. Indemnification under Sections 6.1 or 6.2 shall be automatic and shall not require any determination that indemnification is proper, except that no indemnification shall be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by the court in which the action was brought or by any other appropriate court to have constituted willful misconduct or recklessness.
6.4 Advancing Expenses. Expenses incurred by a person who may be indemnified under Section 6.1 or 6.2 shall be paid by the Corporation in advance of the final disposition of any action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Corporation.
6.5 Indemnification of Employees, Agents and Other Representatives. The Corporation may, at the discretion and the extent determined by the Board of Directors of the Corporation, (i) indemnify any person who neither is nor was a director or officer of the Corporation but who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (and whether brought by or in the right of the Corporation), by reason of the fact that the person is or was an employee, agent or other representative of the Corporation, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by the person in connection with such threatened, pending or completed action, suit or proceeding and (ii) pay such expenses in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking of the kind described in Section 6.4.
6.6 Other Rights. The indemnification and advancement of expenses provided by or pursuant to this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any insurance or other agreement, vote of shareholders or directors, or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
6.7 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VI.
6.8 Security Fund; Indemnity Agreements. By action of the Board of Directors (notwithstanding their interest in the transaction), the Corporation may create and fund a trust fund or fund of any nature, and may enter into agreements with its officers, directors, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article VI.
6.9 Modification. The duties of the Corporation to indemnify and to advance expenses to any person as provided in this Article VI shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article VI, and no amendment or termination of any trust fund or other fund created pursuant to Section 6.8 hereof, shall alter to the detriment of such person the right of such person to the advancement of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal, or termination.
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6.10 Proceedings Initiated by Indemnified Persons. Notwithstanding any other provision in this Article VI, the Corporation shall not indemnify a director, officer, employee, or agent for any liability incurred in an action, suit or proceeding initiated by (which shall not be deemed to include counter-claims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the action, suit, or proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors then in office.
6.11 Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee and agent of the Corporation as to costs, charges, and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.
If the laws of the Commonwealth of Pennsylvania are amended to permit further indemnification of the directors, officers, employees and agents of the Corporation, then the Corporation shall indemnify such persons to the fullest extent permitted by law. Any repeal or modification of this Article VI by the Board of Directors or the shareholders of the Corporation shall not adversely affect any right or protection of a director, officer, employee or agent existing at the time of such repeal or modification.
ARTICLE VII
CAPITAL STOCK
7.1 Certificates. Shares of the Corporation’s capital stock may be represented by certificates or may be uncertificated. To the extent they are issued, certificates of stock shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, and the Secretary or the Treasurer, or in such other manner as the Corporation may determine, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of such officers may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If an officer who has signed or whose facsimile signature has been placed upon such certificate ceases to be an officer before the certificate is issued, it may be issued by the Corporation with the same effect as if the person were an officer on the date of issue. Each certificate of stock shall state:
(a) that the Corporation is incorporated under the laws of the Commonwealth of Pennsylvania;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if any, which such certificate represents; and
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(d) the par value of each share represented by such certificate, or a statement that such shares are without par value.
7.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer books of the Corporation, kept at the registered office of the Corporation or at its principal place of business, or at the office of its transfer agent or registrar. The Board of Directors may, by resolution, open a share register in any state of the United States, and may employ an agent or agents to keep such register, and to record transfers of shares therein.
(b) Article IX of the Corporation’s Articles of Incorporation imposes certain restrictions on offers and acquisitions of the Corporation’s equity securities.
7.3 Registered Owner. Registered shareholders shall be treated by the Corporation as the holders in fact of the stock standing in their respective names and the Corporation shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided below or by the laws of the Commonwealth of Pennsylvania. The Board of Directors may adopt by resolution a procedure whereby a shareholder of the Corporation may certify in writing to the Corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained therein;
(d) If the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and
(e) Such other provisions with respect to the procedure as are deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the above requirements, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.
7.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation, loss or destruction of any certificate of stock, another may be issued in its place upon receipt of proof of such mutilation, loss or destruction. The Board of Directors may impose conditions on such issuance and may require the giving of a satisfactory bond or indemnity to the Corporation in such sum as they might determine, or establish such other procedures as they deem necessary.
7.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions of a share which shall entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the Corporation in the event of liquidation; (b) arrange for the disposition of fractional interests by those entitled thereto; (c) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such shares are determined; or (d) issue scrip in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip aggregating a full share.
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ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of September of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the Board of Directors or the Audit Committee of the Board of Directors.
ARTICLE IX
DIVIDENDS AND FINANCE
9.1 Dividends. Dividends may be declared by the Board of Directors and paid by the Corporation in accordance with the conditions and subject to the limitations imposed by the laws of the Commonwealth of Pennsylvania. The Board of Directors may declare dividends payable only to shareholders of record at the close of business on any business day not more than 90 days prior to the date on which the dividend is paid.
9.2 Depositories. The monies of the Corporation shall be deposited in the name of the Corporation in such bank or banks or trust company or trust companies as the Board of Directors shall designate, and shall be drawn out only by check or other order for payment of money signed by such persons and in such manner as may be determined by resolution of the Board of Directors.
ARTICLE X
NOTICES
10.1 Notice. Whenever written notice is required to be given to any person pursuant to these Bylaws, it may be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by electronic mail or courier service, charges prepaid, or by facsimile transmission, to his address (or to his facsimile number), in the case of shareholders, appearing on the books of the Corporation or, in the case of directors, supplied by them to the Corporation for the purpose of notice or, in the case of the Corporation, at the address of its principal executive offices. If the notice is sent by mail or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a courier service for delivery to that person or, in the case of, electronic mail, when dispatched.
10.2 Written Waiver of Notice. Whenever any written notice is required to be given under these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice of the meeting.
10.3 Waiver of Notice by Attendance. Attendance of a person at any meeting shall constitute a waiver of notice of the meeting except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened.
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ARTICLE XI
SEAL
The corporate seal of the Corporation shall be in such form and bear such inscription as may be adopted by resolution of the Board of Directors, or by usage of the officers on behalf of the Corporation.
ARTICLE XII
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of account and shall keep minutes and proceedings of meetings of its shareholders and Board of Directors; and it shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Any books, records and minutes may be in written form or any other form capable of being converted into written form within a reasonable time.
ARTICLE XIII
AMENDMENTS
The Bylaws may be altered, amended or repealed only as set forth in the Corporation’s Articles of Incorporation, which are incorporated herein with the same effect as if they were set forth herein.
ARTICLE XIV
MISCELLANEOUS
In these Bylaws, unless otherwise indicated, defined terms in singular shall include the plural as well as vice versa, and the masculine, feminine or neuter gender shall include all genders.
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EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Dennis Pollack, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Prudential Bancorp, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting as defined by Exchange Act Rules 13a-15(f) and 15d – 15(f) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: May 11, 2020 | /s/ Dennis Pollack |
Dennis Pollack | |
President and Chief Executive Officer |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Jack E. Rothkopf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Prudential Bancorp, Inc. (the "Registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting as defined by Exchange Act Rules 13a-15(f) and 15d – 15 (f) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: May 11, 2020 | /s/Jack E. Rothkopf |
Jack E. Rothkopf | |
Senior Vice President, Chief Financial Officer and Treasurer |
EXHIBIT 32.0
SECTION 1350 CERTIFICATIONS
Each of the undersigned Chief Executive Officer and Chief Financial Officer of Prudential Bancorp, Inc. (the "Registrant") hereby certifies that the Registrant's Form 10-Q for the quarter ended March 31, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: May 11, 2020 | /s/ Dennis Pollack | |
Name: | Dennis Pollack | |
Title: | President and Chief Executive Officer | |
Date: May 11, 2020 | /s/ Jack E. Rothkopf | |
Name: | Jack E. Rothkopf | |
Title: | Senior Vice President, Chief Financial Officer and Treasurer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Prudential Bancorp, Inc. and will be retained by and furnished to the Securities and Exchange Commission or its staff upon request.
LEASES |
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LEASES | 15. LEASES Operating leases in which the Company is the lessee are recorded as operating lease Right of Use ("ROU") assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated statement of financial condition. The Company does not currently have any finance leases. Operating lease ROU assets represent the right to use an underlying asset during the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized as of the date of adoption based on the present value of the remaining lease payments using a discount rate that represents the Company's incremental borrowing rate at the date of initial application. Operating lease expense, which is comprised of amortization of the ROU assets and the implicit interest accreted on the operating lease liability, is recognized on a straight line basis over the lease term of the operating basis, and is recorded in office occupancy expense in the consolidated statements of operations. The leases relate to Bank branches with remaining lease terms of generally 5 to 9 years. As of March 31, 2020, operating lease ROU assets were $1.4 million and operating lease liabilities were $1.5 million. Operating lease costs of $60,000 and $117,000 were recognized for the three and six month periods ended March 31, 2020. The following table summarizes other information related to our operating leases:
The following table presents aggregate lease maturities and obligations as of March 31, 2020:
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables) |
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Schedule of changes in accumulated other comprehensive (loss) income |
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INCOME TAXES - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Sep. 30, 2019 |
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INCOME TAXES | |||||
Period of capital gains recognized | 5 years | ||||
Valuation allowance | $ (121) | $ (121) | $ (121) | ||
Income tax expense | $ 572 | $ 380 | $ 1,138 | $ 809 |
DEPOSITS (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
Amount | ||
Money market deposit accounts | $ 114,215 | $ 75,766 |
Interest-bearing checking accounts | 66,827 | 58,647 |
Non interest-bearing checking accounts | 19,524 | 16,949 |
Passbook, club and statement savings | 77,497 | 80,899 |
Certificates maturing in six months or less | 233,006 | 294,343 |
Certificates maturing in more than six months | 220,415 | 218,840 |
Total | $ 731,484 | $ 745,444 |
Percent | ||
Non interest-bearing checking accounts | 2.70% | 2.30% |
Interest-bearing checking accounts | 9.10% | 7.90% |
Money market deposit accounts | 15.60% | 10.20% |
Passbook, club and statement savings | 10.60% | 10.80% |
Certificates maturing in six months or less | 31.90% | 39.40% |
Certificates maturing in more than six months | 30.10% | 29.40% |
Total | 100.00% | 100.00% |
LEASES - Aggregate lease maturities and obligations (Details) $ in Thousands |
Mar. 31, 2020
USD ($)
|
---|---|
Aggregate lease maturities and obligations | |
2020 | $ 104 |
2021 | 210 |
2022 | 213 |
2023 | 216 |
2024 | 220 |
2025 and thereafter | 647 |
Total lease payments | 1,610 |
Less: interest | 116 |
Present value of lease liabilities | $ 1,494 |
FAIR VALUE MEASUREMENT - Additional Information (Details) $ in Millions |
Mar. 31, 2020
USD ($)
|
---|---|
Level 2 | |
FAIR VALUE MEASUREMENT | |
Collateral dependent impaired loans, fair value | $ 13.9 |
STOCK COMPENSATION PLANS - Summary of non-vested stock award activity (Details) |
6 Months Ended |
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Mar. 31, 2020
$ / shares
shares
| |
Number of Shares | |
Non-vested stock awards at beginning of period | shares | 68,980 |
Granted | shares | 0 |
Forfeited | shares | 0 |
Vested | shares | (42,024) |
Non-vested stock awards at the end of the period | shares | 26,956 |
Weighted Average Grant Date Fair Value | |
Nonvested stock awards at beginning of period | $ / shares | $ 15.05 |
Granted | $ / shares | 0 |
Forfeited | $ / shares | 0 |
Vested | $ / shares | 13.44 |
Non-vested stock awards at the end of the period | $ / shares | $ 17.56 |
STOCK COMPENSATION PLANS |
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STOCK COMPENSATION PLANS | 11. STOCK COMPENSATION PLANS The Company maintains the 2008 Recognition and Retention Plan (“RRP”) which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the 2008 RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the 2008 RRP to fund these purchases. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015. In August 2016, the Company granted 7,473 awards covering shares under the 2008 RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted awards covering 17,128 shares under the 2014 SIP. In March 2018, the Company granted awards covering 924 shares under the 2008 RRP and 25,576 shares under the 2014 SIP. Shares subject to awards under either plan generally vest at the rate of 20% per year over five years. No further grants may be made pursuant to the RRP in accordance with its terms. Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and six months ended March 31, 2020, an aggregate of $120,000 and $256,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. During the three and six months ended March 31, 2019, $150,000 and $307,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. At March 31, 2020, approximately $443,000 in additional compensation expense for unvested shares awarded related to the 2008 RRP and 2014 SIP remained unrecognized. A summary of the Company’s non-vested stock award activity for the six months ended March 31, 2020 is presented in the following tables:
The Company maintains the 2008 Stock Option Plan (the “Option Plan”) which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares (on a converted basis) of common stock were approved for future issuance pursuant to the Option Plan. As of September 30, 2018, all of the options had been awarded under the Option Plan. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options to purchase 605,000 shares were awarded during February 2015 pursuant to the 2014 SIP. During August 2016, the Company granted options covering 18,866 shares under the Option Plan and 8,634 shares under the 2014 SIP. In March 2017, the Company granted options covering 22,828 shares under the 2014 SIP. In May 2017, the Company granted options covering 25,000 shares under the 2014 SIP and 283 shares under the Option Plan. In March 2018, the Company granted options covering 159,265 shares under the 2014 SIP and 18,235 shares under the Option Plan. In July 2019, the Company granted options covering 39,702 shares under the 2014 SIP. No further grants can be made under the Option Plan in accordance with its terms and no further shares are available for grant under the 2014 SIP unless options are forfeited. A summary of the status of the Company’s stock options under the 2008 Option Plan and the 2014 SIP as of March 31, 2020 is presented below:
The weighted average remaining contractual term was approximately 6.0 years for options outstanding as of March 31, 2020. The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options granted during fiscal 2016, $3.18 for options granted during fiscal 2017, $3.63 for options granted during fiscal 2018 and $3.38 for options granted in 2019. The fair value for grants made in fiscal 2017 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $17.43, term of seven years, volatility rate of 14.37%, interest rate of 2.22% and a yield rate of 0.69%. The fair value for grants made in fiscal 2018 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.46, term of seven years, volatility rate of 15.90%, interest rate of 2.82% and a yield rate of 1.08%. The fair value for grants made in fiscal 2019 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value of $18.16, term of seven years, volatility rate of 17.76%, interest rate of 1.87% and a yield rate of 1.10%. During the three and six months ended March 31, 2020, $117,000 and $270,000, respectively, was recognized in compensation expense for options granted pursuant to the Option Plan and the 2014 SIP. At March 31, 2020, there was approximately $566,000 in additional compensation expense to be recognized for awarded options which remained outstanding and unvested at such date. The weighted average period over which this expense will be recognized is approximately 3.1 years. |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following tables present the changes in accumulated other comprehensive (loss) income by component, net of tax, for the periods presented:
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ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM |
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ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM | |||||||||||||||||||||||||||||||||||||||||
ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM | 7. ADVANCES FROM FEDERAL HOME LOAN BANK – SHORT TERM As of March 31, 2020 and September 30, 2019 outstanding balances and related information of short-term borrowings from the FHLB are summarized as follows:
As of March 31, 2020, the $80.0 million of borrowings consisted of four 30-day and one 90-day FHLB advances associated with interest rate swap contracts. As of September 30, 2019, the $90.0 million of borrowings consisted of seven 30-day FHLB advances associated with interest rate swap contracts. The Bank maintains borrowing facilities with the FHLB of Pittsburgh, Atlantic Community Bankers Bank (“ACBB”) and the Federal Reserve Bank of Philadelphia, the terms and interest rates of which are subject to change on the date of execution of borrowings. Available borrowings are based on collateral with the facility. The Bank maintains unsecured borrowing facilities with ACBB and PNC for $12.5 million and $10.0 million, respectively. |
FAIR VALUE MEASUREMENT (Tables) |
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FAIR VALUE MEASUREMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets measured at fair value on recurring basis | Those assets and liabilities as of March 31, 2020 which are measured at fair value on a recurring basis are as follows:
Those assets as of September 30, 2019 which are measured at fair value on a recurring basis are as follows:
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Schedule of summary of non-recurring fair value measurements |
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Schedule of nonrecurring fair value measurements categorized within level 3 of the fair value hierarchy |
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Schedule of the estimated fair value amounts |
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ADVANCES FROM FEDERAL HOME LOAN BANK - LONG TERM (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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ADVANCES FROM FEDERAL HOME LOAN BANK - LONG TERM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of collateral agreement with the FHLB |
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COMMITMENTS AND CONTINGENT LIABILITIES (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2020 |
Sep. 30, 2019 |
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COMMITMENTS AND CONTINGENT LIABILITIES | ||
Outstanding commitments | $ 1,300 | |
Aggregate undisbursed portion of loans-in-process | 88,645 | $ 114,528 |
Loan Origination Commitments | ||
COMMITMENTS AND CONTINGENT LIABILITIES | ||
Outstanding commitments | 29,700 | 32,400 |
Aggregate undisbursed portion of loans-in-process | $ 88,700 | $ 114,500 |
Loan Origination Commitments | Minimum | ||
COMMITMENTS AND CONTINGENT LIABILITIES | ||
Market interest rate on fixed and variable rate loans | 2.38% | 1.99% |
Loan Origination Commitments | Maximum | ||
COMMITMENTS AND CONTINGENT LIABILITIES | ||
Market interest rate on fixed and variable rate loans | 5.00% | 6.50% |
Unused lines of Credit | ||
COMMITMENTS AND CONTINGENT LIABILITIES | ||
Outstanding commitments | $ 35,300 | $ 37,500 |
Letters of Credit | ||
COMMITMENTS AND CONTINGENT LIABILITIES | ||
Outstanding commitments | $ 1,100 | $ 1,500 |
Subsequent Events (Details) |
May 01, 2020
USD ($)
loan
|
Mar. 27, 2020
USD ($)
|
---|---|---|
Paycheck Protection Program | ||
Subsequent Event [Line Items] | ||
Economic relif fund under CARES ACT | $ 2,000,000,000,000 | |
Maximum eligible PPL loan multiple of average monthly payroll costs | 2.5 | |
Maximum eligible PPL loan on average monthly payroll costs | $ 10,000,000 | |
Interest Rate | 1.00% | |
Debt term | 2 years | |
Principal and interest debt deferred payment.term | 6 months | |
Percentage of SBA guarantee on PPP loan | $ 100 | |
Percentage of PPP loan used for payroll expenses | 75 | |
Percentage of PPP loan used for other qualifying expense | $ 25 | |
Paycheck Protection Program | Subsequent Events | ||
Subsequent Event [Line Items] | ||
Number of application received under PPP loan | loan | 55 | |
Amount of PPP loan application received | $ 5,000,000 | |
Loan Modification/Troubled Debt Restructurings | Subsequent Events | ||
Subsequent Event [Line Items] | ||
Number of loan modified | loan | 90 | |
Loan modified principal amount | $ 146,600,000 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Related to acquisition of Polonia Bancorp (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
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Goodwill | ||||
Balance, Goodwill | $ 6,102 | |||
Balance, Goodwill | $ 6,102 | 6,102 | ||
Core deposit intangible | ||||
Balance | 448 | |||
Balance | 392 | 392 | ||
GOODWILL AND OTHER INTANGIBLE ASSETS, Total | ||||
Amortization | (26) | $ (29) | (56) | $ (63) |
Polonia Bancorp | ||||
Goodwill | ||||
Balance, Goodwill | 6,102 | |||
Additions/Adjustments | 0 | |||
Balance, Goodwill | 6,102 | 6,102 | ||
GOODWILL AND OTHER INTANGIBLE ASSETS, Total | ||||
Balance, Total | 6,550 | |||
Additions/Adjustments | 0 | |||
Amortization | (56) | |||
Balance, Total | 6,494 | 6,494 | ||
Polonia Bancorp | Core deposit intangible | ||||
Core deposit intangible | ||||
Balance | 448 | |||
Additions/Adjustments | 0 | |||
Amortization | (56) | |||
Balance | $ 392 | $ 392 | ||
Amortization Period | 10 years |
STOCK COMPENSATION PLANS - Summary of status of stock options under Stock Option Plan (Details 1) - 2008 Option Plan and 2014 SIP - Stock Options |
6 Months Ended |
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Mar. 31, 2020
$ / shares
shares
| |
Number of Shares | |
Options outstanding at beginning of period | 793,034 |
Granted | 0 |
Exercised | (13,345) |
Forfeited | 0 |
Outstanding at the end of the period | 779,689 |
Exercisable at March 31 | 598,356 |
Weighted Average Exercise Price | |
Options outstanding at beginning of period | $ / shares | $ 13.86 |
Granted | $ / shares | 0 |
Forfeited | $ / shares | 0 |
Outstanding at the end of the period | $ / shares | 13.93 |
Exercisable at March 31 | $ / shares | $ 12.67 |
EARNINGS PER SHARE |
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EARNINGS PER SHARE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | 2. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock issued, net of any treasury shares and unearned restricted share awards, during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period. The calculated basic and diluted earnings per share are as follows:
As of March 31, 2020 and 2019, there were 528,004 and 584,832 shares of common stock, respectively, subject to options with exercise prices less than the then current market and which were included in the computation of diluted earnings per share. At March 31, 2020 and 2019, there were 265,030 and 202,500 shares, respectively, that had exercise prices greater than the then current market value and were considered anti-dilutive at such dates. |
DEPOSITS |
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DEPOSITS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEPOSITS | 6. DEPOSITS Deposits consist of the following major classifications:
Certificates in the amount of $250,000 and over totaled $159.1 million as of March 31, 2020 and $182.8 million as of September 30, 2019. |
INCOME TAXES |
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INCOME TAXES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | 10. INCOME TAXES Items that gave rise to significant portions of deferred income taxes are as follows:
The Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be fully realized through future reversals of existing taxable temporary differences and/or, to a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the Bank and the subsequent impairment charge on the assets acquired through the redemption in kind are considered capital losses and can only be utilized to the extent of capital gains recognized over a five year period, resulting in the establishment of a valuation allowance for the carryforward period. The valuation allowance totaled $121,000 at March 31, 2020 and September 30, 2019, respectively. For the six-month period ended March 31, 2020, the Company recorded income tax expense of $1.1 million compared to income tax expense of $809,000, for the period ended March 31, 2019. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Operations as a component of income tax expense. During fiscal 2017, the Internal Revenue Service conducted an audit of the Company’s tax return for the year ended September 30, 2014, and no adverse findings were reported. The Company’s federal and state income tax returns for taxable years through September 30, 2015 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue. |
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
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GOODWILL AND OTHER INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill and intangible assets are related to the acquisition of Polonia Bancorp |
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Schedule of future fiscal periods amortization expense for core deposit intangible |
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DERIVATIVES (Tables) |
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DERIVATIVES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of interest rate swap agreements and the terms | Below is a summary of the interest rate swap agreements and their terms as of March 31, 2020.
Below is a summary of the interest rate swap agreements and their terms as of September 30, 2019.
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GOODWILL AND OTHER INTANGIBLE ASSETS |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | 14. GOODWILL AND OTHER INTANGIBLE ASSETS The Company’s goodwill and intangible assets are related to the acquisition of Polonia Bancorp on January 1, 2017.
As of March 31, 2020, the current fiscal year and the future fiscal periods amortization expense for the core deposit intangible is:
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EARNINGS PER SHARE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of basic and diluted earnings per share | The calculated basic and diluted earnings per share are as follows:
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UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION | ||
Investment and mortgage-backed securities held to maturity, fair value (in dollars) | $ 30,045 | $ 69,507 |
Allowance for loan losses on loans receivable (in dollars) | $ 5,961 | $ 5,393 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 40,000,000 | 40,000,000 |
Common stock, shares issued | 10,819,006 | 10,819,006 |
Common stock, shares outstanding | 8,782,025 | 8,889,447 |
Number of treasury share purchased | 2,036,981 | 1,929,559 |
INVESTMENT AND MORTGAGE-BACKED SECURITIES - Gross unrealized losses and related fair values of investment securities, aggregated by investment category and length of time (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
INVESTMENT AND MORTGAGE-BACKED SECURITIES | ||
Less than 12 months - Gross Unrealized Losses | $ (767) | $ (298) |
Fair Value, Less than 12 Months | 30,908 | 75,538 |
More than 12 months - Gross Unrealized Losses | (2,569) | (1,183) |
Fair Value, 12 Months or More | 30,159 | 67,720 |
Gross Unrealized Losses -Total | (3,336) | (1,481) |
Fair Value - Total | $ 61,067 | $ 143,258 |
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parentheticals) - $ / shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
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UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | ||||
Dividends paid (in dollars per share) | $ 0.50 | $ 0.05 | $ 0.57 | $ 0.10 |
Purchase of treasury stock | 152,009 | 10,200 | 152,009 | 106,365 |
Treasury stock used for employee benefit plan | 44,587 | 48,636 | 44,587 | 50,409 |
ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM - Additional Information (Details) $ in Thousands |
Mar. 31, 2020
USD ($)
loan
|
Sep. 30, 2019
USD ($)
loan
|
---|---|---|
Short-term Debt [Line Items] | ||
Advances from Federal Home Loan Bank (short-term) | $ 80,000 | $ 90,000 |
Unsecured borrowing facilities with ACBB and PNC | $ 12,500 | $ 10,000 |
Coupon | 2.58% | |
Interest rate swap contract one | ||
Short-term Debt [Line Items] | ||
Number of 30 day FHLB advances | loan | 4 | 7 |
Number of 90 day FHLB advances | loan | 1 | |
Advances from Federal Home Loan Bank (short-term) | $ 80,000 | |
Coupon | 90.00% |
INCOME TAXES (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
Deferred tax assets: | ||
Allowance for loan losses | $ 1,571 | $ 1,488 |
Nonaccrual interest | 531 | 487 |
Accrued vacation | 7 | 7 |
Capital loss carryforward | 121 | 121 |
Split dollar life insurance | 9 | 9 |
Post-retirement benefits | 73 | 76 |
Unrealized losses on interest rate swaps | 3,647 | 1,836 |
Deferred compensation | 784 | 809 |
Goodwill | 63 | 69 |
Other | 88 | 64 |
Employee benefit plans | 293 | 216 |
Total deferred tax assets | 7,187 | 5,182 |
Valuation allowance | (121) | (121) |
Total deferred tax assets, net of valuation allowance | 7,066 | 5,061 |
Deferred tax liabilities: | ||
Property | 134 | 141 |
Unrealized gain on equity securities | 16 | 19 |
Unrealized gains on available for sale securities | 2,356 | 2,153 |
Purchase accounting adjustments | 273 | 215 |
Deferred loan fees | 170 | 175 |
Total deferred tax liabilities | 2,949 | 2,703 |
Net deferred tax assets | $ 4,117 | $ 2,358 |
FAIR VALUE MEASUREMENT - Changes in level 3 assets measured at fair value (Details) - Fair value measurements on a nonrecurring basis - USD ($) $ in Thousands |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
FAIR VALUE MEASUREMENT | ||
Impaired loans | $ 13,914 | $ 15,542 |
Other Real estate owned | 406 | 348 |
Total | 14,320 | 15,890 |
Level 1 | ||
FAIR VALUE MEASUREMENT | ||
Impaired loans | 0 | 0 |
Other Real estate owned | 0 | 0 |
Total | 0 | 0 |
Level 2 | ||
FAIR VALUE MEASUREMENT | ||
Impaired loans | 0 | 0 |
Other Real estate owned | 0 | 0 |
Total | 0 | 0 |
Level 3 | ||
FAIR VALUE MEASUREMENT | ||
Impaired loans | 13,914 | 15,542 |
Other Real estate owned | 406 | 348 |
Total | $ 14,320 | $ 15,890 |
LEASES (Details) |
3 Months Ended | 6 Months Ended |
---|---|---|
Mar. 31, 2020
USD ($)
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Mar. 31, 2020
USD ($)
|
|
Lessee, Lease, Description [Line Items] | ||
Operating lease ROU assets | $ 1,400,000 | $ 1,400,000 |
Operating lease liabilities | 1,494,000 | 1,494,000 |
Operating lease cost | $ 60,000 | $ 117,000 |
Weighted-average remaining lease term - operating leases in years | 6 years 9 months | 6 years 9 months |
Weighted-average discount rate - operating leases | 2.00% | 2.00% |
Minimum | ||
Lessee, Lease, Description [Line Items] | ||
Remaining lease term (in years) | 5 years | |
Maximum | ||
Lessee, Lease, Description [Line Items] | ||
Remaining lease term (in years) | 9 years |
STOCK COMPENSATION PLANS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFITS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of summary of the non-vested stock award activity |
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Schedule of summary of the status of the company' stock options under the stock option plan |
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ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
ADVANCES FROM FEDERAL HOME LOAN BANK - SHORT TERM | |||||||||||||||||||||||||||||||||||||||||
Schedule of short-term borrowings from the FHLB of Pittsburgh |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) |
6 Months Ended | |
---|---|---|
Mar. 31, 2020
USD ($)
item
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Sep. 30, 2019
USD ($)
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Significant Accounting Policies [Line Items] | ||
Number of full service branch offices | item | 9 | |
Number of banking offices | item | 10 | |
Operating right-of-use assets | $ 1,400,000 | |
Operating lease liabilities | 1,494,000 | |
Retained earnings | 49,862,000 | $ 49,625,000 |
ASU 2016-02, Leases (Topic 842) | ||
Significant Accounting Policies [Line Items] | ||
Operating right-of-use assets | 1,500,000 | |
Operating lease liabilities | 1,600,000 | |
Retained earnings | $ 75,000 | |
Philadelphia (Philadelphia County) | ||
Significant Accounting Policies [Line Items] | ||
Number of full service branch offices | item | 8 | |
PENNSYLVANIA | ||
Significant Accounting Policies [Line Items] | ||
Number of full service branch offices | item | 1 | |
Huntingdon Valley, Montgomery County | ||
Significant Accounting Policies [Line Items] | ||
Number of full service branch offices | item | 1 |
INVESTMENT AND MORTGAGE-BACKED SECURITIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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INVESTMENT AND MORTGAGE-BACKED SECURITIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENT AND MORTGAGE-BACKED SECURITIES | 4. INVESTMENT AND MORTGAGE-BACKED SECURITIES The amortized cost and fair value of investment and mortgage-backed securities, with gross unrealized gains and losses, are as follows:
The Company recognized net realized losses on equity securities of $58,000 and $39,000 for the six and three months ended March 31, 2020, respectively. Net gains on equity securities were $34,000 and $0 during the three and six months ended March 31, 2019.
The amortized cost and fair value of equity securities:
As of March 31, 2020, the Bank maintained $270.4 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral and convenience. As of March 31, 2020, The Bank was only required to hold $144.1 million as specific collateral for its borrowings; therefore the $126.3 million excess securities are not restricted and could be sold or transferred if needed. The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of March 31, 2020:
The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2019:
Management evaluates securities for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term prospects of the issuer. The Company assesses whether a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where impairment in value is deemed to be other than temporary between the component representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a charge to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected, discounted at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security. The Company uses the cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity of defaults, estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a discount rate equal to the effective yield of the security. The difference between the present value of the expected cash flows and the amortized book value is considered a credit loss. The fair value of the security is determined using the same expected cash flows; the discount rate is a rate the Company determines from open market and other sources as appropriate for the particular security. The difference between the fair value and the security’s remaining amortized cost is recognized in other comprehensive income (loss). For both the three and six months ended March 31, 2020 and 2019, the Company did not record any credit losses on investment securities through earnings. U.S. Government and Agency Obligations - At March 31, 2020, there was one security in a gross unrealized loss position for less than 12 months and there was one security in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020. Mortgage-Backed Securities – At March 31, 2020, there were five mortgage-backed securities in a gross unrealized loss position for less than 12 months, while there were seven securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and all of them are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020. Corporate Debt Securities – At March 31, 2020, there were six securities in a gross unrealized loss for less than 12 months, while there were no securities in a gross unrealized loss position for more than 12 months at such date. These securities were issued by publicly reporting companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020. State and political subdivisions – At March 31, 2020, there was one security in a gross unrealized loss for less than 12 months, while there were seven securities in a gross unrealized loss position for more than 12 months at such date. The unrealized losses on these debt securities relate principally to the changes in market interest rates in the financial markets and are not as a result of projected short fall of cash flows. These securities were issued by local municipalities/school districts with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020. The amortized cost and fair value of debt securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The maturity table below excludes mortgage-backed securities because the contractual maturities of such securities are not indicative of actual maturities due to significant prepayments.
During the three month period ended March 31, 2020, the Company sold securities with an aggregate amortized cost of $44.6 million for a recognized aggregate gain of $2.4 million. For the six month period ended March 31, 2020, the Company sold securities with an aggregate amortized value of $62.1 million and a recognized gain of $2.7 million.During both the three and six month periods ended March 31, 2019, the Company sold three mortgage-back securities with an aggregate amortized cost of $12.8 million for a recognized aggregate gain of $117,000 (pre-tax). |
ADVANCES FROM FEDERAL HOME LOAN BANK - LONG TERM |
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ADVANCES FROM FEDERAL HOME LOAN BANK - LONG TERM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ADVANCES FROM FEDERAL HOME LOAN BANK - LONG TERM | 8. ADVANCES FROM FEDERAL HOME LOAN BANK – LONG TERM Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Company and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of March 31, 2020 and September 30, 2019 are as follows:
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INVESTMENT AND MORTGAGE-BACKED SECURITIES (Tables) |
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Schedule of amortized cost and fair value of securities, with gross unrealized gains and losses |
The Company recognized net realized losses on equity securities of $58,000 and $39,000 for the six and three months ended March 31, 2020, respectively. Net gains on equity securities were $34,000 and $0 during the three and six months ended March 31, 2019.
The amortized cost and fair value of equity securities:
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Schedule of gross unrealized losses and related fair values of investment securities | The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of March 31, 2020:
The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2019:
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Schedule of amortized cost and fair value of debt securities by contractual maturity |
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COMMITMENTS AND CONTINGENT LIABILITIES |
6 Months Ended |
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Mar. 31, 2020 | |
COMMITMENTS AND CONTINGENT LIABILITIES | |
COMMITMENTS AND CONTINGENT LIABILITIES | 12. COMMITMENTS AND CONTINGENT LIABILITIES At March 31, 2020, the Company had $29.7 million in outstanding commitments to originate loans with market interest rates ranging from 2.38% to 5.00%. At September 30, 2019, the Company had $32.4 million in outstanding commitments to originate fixed-rate loans with market interest rates ranging from 1.99% to 6.50%. The aggregate undisbursed portion of loans-in-process amounted to $88.7 million at March 31, 2020 and $114.5 million at September 30, 2019. The Company also had commitments under unused lines of credit of $35.3 million as of March 31, 2020 and $37.5 million as of September 30, 2019 and letters of credit outstanding of $1.1 million as of March 31, 2020 and $1.5 million as of September 30, 2019. Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation interests. At March 31, 2020, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $1.3 million. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred. The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company’s interests and not have a material adverse effect on the financial condition and operations of the Company. |
Subsequent Events |
6 Months Ended |
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Mar. 31, 2020 | |
Subsequent Events | |
Subsequent Events | 16. Subsequent Events Paycheck Protection Program The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly “payroll costs;” or (2) $10 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses. As of May 1, 2020, we had received approximately 55 applications for up to $5.0 million of loans under the PPP. Loan Modification/Troubled Debt Restructurings As of May 1, 2020 we have modified 90 loans aggregating $146.6 million in loan principal, primarily consisting of deferral of principal and interest payments and extension of maturity date corresponding to the period of deferral. All of the loans provided modifications were performing in accordance with their terms.
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DEPOSITS - Additional Information (Details) - USD ($) $ in Millions |
Mar. 31, 2020 |
Sep. 30, 2019 |
---|---|---|
DEPOSITS | ||
Certificates of $250,000 and over | $ 159.1 | $ 182.8 |
DERIVATIVES (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2020 |
Sep. 30, 2019 |
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Derivative [Line Items] | ||
Unrealized Gain (Loss) | $ (21,243) | $ (11,241) |
Interest rate swap contract maturing on 10 Apr 2025 | ||
Derivative [Line Items] | ||
Hedge Item | FHLB advances | FHLB advances |
Notional Amount | $ 10,000 | $ 10,000 |
Pay rate | 2.70% | 2.70% |
Receive Rate | 1 Mth Libor | 1 Mth Libor |
Maturity date | Apr. 10, 2025 | Apr. 10, 2025 |
Unrealized Gain (Loss) | $ (1,151) | $ (719) |
Interest rate swap contract maturing on 1 May 2028 | ||
Derivative [Line Items] | ||
Hedge Item | State and political subdivisions | State and political subdivisions |
Notional Amount | $ 21,570 | $ 21,570 |
Pay rate | 3.07% | 3.07% |
Receive Rate | 3 Mth Libor | 3 Mth Libor |
Maturity date | May 01, 2028 | May 01, 2028 |
Unrealized Gain (Loss) | $ (3,878) | $ (2,502) |
Interest rate swap contract maturing on 1 Aug 2026 | ||
Derivative [Line Items] | ||
Hedge Item | Commercial loans | Commercial loans |
Notional Amount | $ 17,339 | $ 17,339 |
Pay rate | 5.74% | 5.74% |
Receive Rate | 1 Mth Libor +225 to 276 bp | 1 Mth Libor +225 to 276 bp |
Maturity date | Aug. 01, 2026 | Aug. 01, 2026 |
Unrealized Gain (Loss) | $ 0 | $ 0 |
Interest rate swap contract maturing on 12 Jun 2026 | ||
Derivative [Line Items] | ||
Hedge Item | 30 day wholesale funding | 30 day wholesale funding |
Notional Amount | $ 65,000 | $ 65,000 |
Pay rate | 2.51% | 2.51% |
Receive Rate | 1 Mth Libor | 1 Mth Libor |
Maturity date | Jun. 12, 2026 | Jun. 12, 2026 |
Unrealized Gain (Loss) | $ (4,836) | $ (1,415) |
Interest rate swap contract maturing on 27 Mar 24 | ||
Derivative [Line Items] | ||
Hedge Item | 90 day wholesale funding | 90 day wholesale funding |
Notional Amount | $ 135,000 | $ 135,000 |
Pay rate | 2.78% | 2.78% |
Receive Rate | 3 Mth Libor | 3 Mth Libor |
Maturity date | Jan. 11, 2024 | Mar. 27, 2024 |
Unrealized Gain (Loss) | $ (11,378) | $ (6,605) |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Apr. 30, 2020 |
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Document and Entity Information | ||
Entity Registrant Name | PRUDENTIAL BANCORP, INC. | |
Entity Central Index Key | 0001578776 | |
Trading Symbol | pbip | |
Current Fiscal Year End Date | --09-30 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock Shares Outstanding | 8,202,479 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q2 | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false |
EARNINGS PER SHARE - Additional Information (Details) - shares |
Mar. 31, 2020 |
Mar. 31, 2019 |
---|---|---|
EARNINGS PER SHARE | ||
Adjusted weighted average shares of common stock used in diluted earnings per share computation | 528,004 | 584,832 |
Adjusted weighted average shares of common stock having exercise prices less than the current market value and are considered anti-dilutive | 265,030 | 202,500 |
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Mar. 31, 2020 |
Mar. 31, 2019 |
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UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||
Net income | $ 2,924 | $ 2,340 | $ 5,387 | $ 4,314 |
Unrealized holding gains on available-for-sale securities | 4,825 | 4,522 | 3,652 | 7,945 |
Tax effect | (1,013) | (949) | (767) | (1,668) |
Unrealized holding losses on interest rate swaps | (10,914) | (2,466) | (8,622) | (3,204) |
Tax effect | 2,292 | 518 | 1,811 | 673 |
Reclassification adjustment for net gains recorded in net income | (2,364) | (117) | (2,682) | (117) |
Tax effect | 496 | 25 | 563 | 25 |
Total other comprehensive income (loss) | (6,678) | 1,533 | (6,045) | 3,654 |
Comprehensive income (loss) | $ (3,754) | $ 3,873 | $ (658) | $ 7,968 |
INVESTMENT AND MORTGAGE-BACKED SECURITIES - Amortized cost and fair value of debt securities, by contractual maturity (Details) $ in Thousands |
Mar. 31, 2020
USD ($)
|
---|---|
Held to Maturity - Amortized Cost | |
Due after five through ten years | $ 17,098 |
Due after ten years | 7,532 |
Total | 24,630 |
Held to Maturity - Fair Value | |
Due after five through ten years | 17,693 |
Due after ten years | 7,756 |
Total | $ 25,449 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
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Mar. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SIGNIFICANT ACCOUNTING POLICIES Prudential Bancorp, Inc. (the “Company”) is a Pennsylvania corporation and the parent holding company for Prudential Bank (the “Bank”). The Company is a registered bank holding company. The Bank is a community-oriented, Pennsylvania-chartered savings bank headquartered in South Philadelphia. The banking office network currently consists of the headquarters and main office (which includes a branch office), administrative office, and nine additional full-service branch offices. Eight of the branch offices are located in Philadelphia (Philadelphia County), one is in Drexel Hill, Delaware County, and one is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 10 of the banking offices. The Bank also provides on-line and mobile banking services. The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities (the “Department”), as its chartering authority and primary regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up to applicable limits. As a bank holding company, the Company is subject to the regulation of the Board of Governors of the Federal Reserve System. Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and six months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10‑K for the fiscal year ended September 30, 2019. The significant accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 81 through 85 of the Annual Report on Form 10‑K for the year ended September 30, 2019. Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions in the Company’s consolidated financial statements are recorded in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, and the fair value measurement for financial instruments. Actual results could differ from those estimates. Recently Adopted Accounting Pronouncements Effective October 1, 2019, the Company adopted ASU 2016-02 – Leases. This Update and all subsequent ASU’s that modified Topic 842 set forth a new lease accounting model for lessors and lessees. For lessees, virtually all leases will have to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting provided by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The Update and its related amendments resulted in the recognition of operating right-of-use assets totaling $1.5 million and operating lease liabilities totaling $1.6 million. A $75,000 prior period adjustment to retained earnings was recognized as of October 1, 2019. The Company has presented the necessary disclosures in Note 15. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10-3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In November 2019, the FASB issued ASU 2019-08, Compensation ‒ Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which requires entities to measure and classify share based payments to a customer, in accordance with the guidance in ASC 718, Compensation ‒ Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and, in doing so, superseded guidance in Subtopic 505-50, Equity ‒ Equity-Based Payments to Non-Employees. The amount that would be recorded as a reduction in revenue would be measured based on the grant date fair value of the share based payment, in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments in Update 2018-07, the amendments in this Update are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in Update 2018-07, the amendments in this Update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this Update, but not before it adopts the amendments in Update 2018-07. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intra period allocation if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. |
FAIR VALUE MEASUREMENT |
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FAIR VALUE MEASUREMENT | 13. FAIR VALUE MEASUREMENT The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2020 and September 30, 2019, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. Generally accepted accounting principles used in the United States establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. The three broad levels of hierarchy are as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Those assets and liabilities as of March 31, 2020 which are measured at fair value on a recurring basis are as follows:
Those assets as of September 30, 2019 which are measured at fair value on a recurring basis are as follows:
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and real estate owned at fair value on a non-recurring basis. Impaired Loans The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest) in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value of approximately $13.9 million as of March 31, 2020. Other Real Estate Owned Once an asset is determined to be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals, less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. Summary of Non-Recurring Fair Value Measurements
The following table provides information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:
The fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of presentation | Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and six months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2020, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10‑K for the fiscal year ended September 30, 2019. The significant accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 81 through 85 of the Annual Report on Form 10‑K for the year ended September 30, 2019. |
Use of Estimates in the Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions in the Company’s consolidated financial statements are recorded in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, and the fair value measurement for financial instruments. Actual results could differ from those estimates. |
Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements Effective October 1, 2019, the Company adopted ASU 2016-02 – Leases. This Update and all subsequent ASU’s that modified Topic 842 set forth a new lease accounting model for lessors and lessees. For lessees, virtually all leases will have to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is an operating lease or a finance lease. The accounting provided by a lessor is largely unchanged from that applied under the existing guidance. The ASU requires additional qualitative and quantitative disclosures with objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The Update and its related amendments resulted in the recognition of operating right-of-use assets totaling $1.5 million and operating lease liabilities totaling $1.6 million. A $75,000 prior period adjustment to retained earnings was recognized as of October 1, 2019. The Company has presented the necessary disclosures in Note 15. Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10-3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In November 2019, the FASB issued ASU 2019-08, Compensation ‒ Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which requires entities to measure and classify share based payments to a customer, in accordance with the guidance in ASC 718, Compensation ‒ Stock Compensation. The amendments in that Update expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and, in doing so, superseded guidance in Subtopic 505-50, Equity ‒ Equity-Based Payments to Non-Employees. The amount that would be recorded as a reduction in revenue would be measured based on the grant date fair value of the share based payment, in accordance with Topic 718. The grant date is the date at which a supplier and customer reach a mutual understanding of the award’s key terms and conditions. The award’s classification and subsequent measurement would be subject to ASC 718 unless the award is modified or the grantee is no longer a customer. For entities that have not yet adopted the amendments in Update 2018-07, the amendments in this Update are effective for (1) public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and (2) other than public business entities in fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. For entities that have adopted the amendments in Update 2018-07, the amendments in this Update are effective in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity may early adopt the amendments in this Update, but not before it adopts the amendments in Update 2018-07. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The Update defers the effective dates of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This Update also amends the mandatory effective date for the elimination of Step 2 from the goodwill impairment test under ASU No. 2017-04, Intangibles ‒ Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (Goodwill), to align with those used for credit losses. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging and leases for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The Update also changes current guidance for making an intra period allocation if there is a loss in continuing operations and gains outside of continuing operations; determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. |
LOANS RECEIVABLE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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LOANS RECEIVABLE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of loans receivable |
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Schedule of loans individually and collectively evaluated for impairment by loan segment | The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at March 31, 2020:
The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at September 30, 2019:
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Schedule of impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary | The following table presents impaired loans by class as of March 31, 2020, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.
The following table presents impaired loans by class as of September 30, 2019, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.
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Schedule of average investment in impaired loans and related interest income recognized |
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Schedule of classes of the loan portfolio in which a formal risk weighting system is utilized |
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Schedule of loans in which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency status |
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Schedule of loan categories of the loan portfolio summarized by the aging categories of performing and delinquent loans and nonaccrual loans |
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Schedule of primary segments of the allowance for loan losses, segmented into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment. | The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for the both three and six month periods ended March 31, 2020 and 2019:
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