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| MSBF > SEC Filings for MSBF > Form 10-Q on 14-May-2012 | All Recent SEC Filings |
14-May-2012
Quarterly Report
This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward - looking statements include:
· Statements of our goals, intentions and expectations;
· Statements regarding our business plans, prospects, growth and operating strategies;
· Statements regarding the quality of our loan and investment portfolios; and
· Estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
· General economic conditions, either nationally or in our market area, that are worse than expected;
· The volatility of the financial and securities markets, including changes with respect to the market value of our financial assets;
· Changes in government regulation affecting financial institutions and the potential expenses associated therewith;
· Changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;
· Our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth opportunities;
· Increased competitive pressures among financial services companies;
· Changes in consumer spending, borrowing and savings habits;
· Legislative or regulatory changes that adversely affect our business;
· Adverse changes in the securities markets;
· Our ability to successfully manage our growth; and
· Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.
No forward-looking statement can be guaranteed and we specifically disclaim any obligation to update any forward-looking statement.
Critical Accounting Policies
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial position and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.
The allowance for loan losses represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the allowance for loan losses, we consider the losses inherent in our loan portfolio and changes in the nature
and volume of our loan activities, along with general economic and real estate market conditions. We utilize a two tier approach: (1) identification of impaired loans for which specific reserves may be established; and (2) establishment of general valuation allowances on the remainder of the loan portfolio. We maintain a loan review system which provides for a systematic review of the loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loan, type of collateral and the financial condition of the borrower. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Savings Bank's allowance for loan losses. Such agencies may require the Savings Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.
Although specific and general loan loss allowances are established in accordance with management's best estimate, actual losses are dependent upon future events and, as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of our borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses, which would be a charge to income during the period the provision is made, resulting in a reduction to our earnings. A change in economic conditions could also adversely affect the value of the properties collateralizing our real estate loans, resulting in increased charge-offs against the allowance and reduced recoveries, and thus a need to make increased provisions to the allowance for loan losses. Furthermore, a change in the composition of our loan portfolio or growth of our loan portfolio could result in the need for additional provisions.
Comparison of Financial Condition at March 31, 2012 and June 30, 2011
General. Total assets were $347.8 million at March 31, 2012, compared to $349.5 million at June 30, 2011, a decrease of $1.7 million. During the nine month period ended March 31, 2012, securities held to maturity increased by $19.5 million, while cash and cash equivalents decreased by $10.4 million and loans receivable, net of allowance for loan losses decreased by $9.6 million. The decrease in loans receivable, net, was primarily due to loan payments exceeding new loan originations. Deposits decreased by $1.7 million or 0.6%, while advances from the Federal Home Loan Bank of NY remained the same at March 31, 2012 and June 30, 2011.
Total assets decreased by $1.7 million between periods as did total liabilities by $1.9 million, and the ratio of average interest-earning assets to average-interest bearing liabilities increased to 109.19% for the nine months ended March 31, 2012 as compared to 107.25% for year ended June 30, 2011. Stockholders' equity increased by $293,000 to $41.0 million at March 31, 2012 compared to $40.7 million at June 30, 2011.
Loans. Loans receivable, net, declined $9.6 million, or 3.8%, from $253.3 million at June 30, 2011 to $243.7 million at March 31, 2012. As a percentage of assets, loans decreased to 70.1% from 72.5%. The Savings Bank's commercial and industrial loan portfolio grew by $1.4 million, or 15.2%, as did the home equity loan portfolio by $261,000 or 0.5%, and the deposit account loan portfolio by $238,000 or 48.5% between June 30, 2011 and March 31, 2012. One-to-four family loans decreased $5.9 million, or 3.9%, construction loans decreased by $3.9 million or 23.5%, commercial real estate loans
decreased by $898,000, or 2.8%, and overdraft, automobile, and personal loans decreased by $14,000, or 7.2%, $7,000, or 3.0%, and $4,000, or 20.0%, respectively, between June 30, 2011 and March 31, 2012.
Securities. Our portfolio of securities held to maturity was at $61.2 million at March 31, 2012 as compared to $41.7 million at June 30, 2011. Maturities, calls and principal repayments during the nine months ended March 31, 2012 totaled $34.5 million. We purchased $54.0 million of new securities during the nine months ended March 31, 2012.
Deposits. Total deposits at March 31, 2012 were $284.5 million, a $1.7 million decrease as compared to $286.2 million at June 30, 2011. Demand accounts increased by $3.6 million, while certificate of deposit accounts decreased by $4.3 million, as did savings and club accounts by $1.0 million.
Borrowings. Total borrowings at March 31, 2012 and June 30, 2011 amounted to $20.0 million. The Savings Bank did not make any long term borrowings during the nine months ended March 31, 2012 and did not have short-term borrowings at March 31, 2012 or June 30, 2011.
Equity. Stockholders' equity was $41.0 million at March 31, 2012 compared to $40.7 at June 30, 2011. Treasury stock increased by $414,000 due to repurchases. Other changes in equity were due to $529,000 in net income, $10,000 in other comprehensive income, $72,000 in ESOP shares earned and $259,000 in stock based compensation, offset by the declaration of $163,000 in minority cash dividends declared on our common stock.
Comparison of Operating Results for the Three Months and Nine Months Ended March 31, 2012 and 2011
General. Our net income for the three months ended March 31, 2012 was $194,000, compared to net income of $207,000, for the three months ended March 31, 2011, a decrease of $13,000 or 6.3%. This was primarily the result of a decrease in net interest income after provision for loan losses and decreased non-interest income, offset by a decrease in non-interest expense. Net interest income for the three months ended March 31, 2012 decreased $186,000 compared to the three months ended March 31, 2011. The provision for loan losses reflected an increase of $71,000 to $471,000 for the three month period ended March 31, 2012, compared to $400,000 for the three month period ended March 31, 2011. Non-interest income reflected a decrease of $8,000, or 4.8%, to $160,000 for the three months ended March 31, 2012 compared to $168,000 for the three months ended March 31, 2011. Non-interest expense decreased by $241,000, or 10.9% to $2.0 million for the three months ended March 31, 2012 compared to $2.2 million for the three months ended March 31, 2011.
Our net income for the nine months ended March 31, 2012 was $529,000, compared to net income of $542,000 for the nine months ended March 31, 2011, a decrease of $13,000 or 2.4%. This decrease was the result of a decrease in net interest income after provision for loan losses and decreased non-interest income, offset by a decrease in non-interest expense for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. Net interest income for the nine months ended March 31, 2012 was $7.9 million compared to $8.2 million for the nine months ended March 31, 2011, a decrease of $285,000 or 3.5%. The provision for loan losses increased $234,000 or 19.1% to $1.5 million for the nine months ended March 31, 2012, compared to $1.2 million for the nine months ended March 31, 2011. Non-interest income decreased by $137,000 or 22.3% from $614,000 for the nine months ended March 31, 2011 to $477,000 for the nine months ended March 31, 2012. Non-interest expense decrease $642,000, or 9.6%, to $6.1 million for the nine months ended March 31, 2012, compared to $6.7 million for the nine month period ended March 31, 2011.
Net Interest Income. Net interest income decreased $186,000, or 6.7% for the three month period ended March 31, 2012, compared to the three months ended March 31, 2011. Interest income decreased by $406,000, or 10.8%, and interest expense decreased by $220,000 or 21.9%, for the same three month comparative period.
The decrease of $406,000, or 10.8% in total interest income for the three months ended March 31, 2012, resulted from a 46 basis point decrease in yield and a 1.2% decrease in average balance of interest-earning assets. Average interest earning assets decreased $4.0 million, to $314.6 million for the three months ended March 31, 2012, compared to $318.6 million for the three months ended March 31, 2011. Interest income on loans decreased by $438,000, or 13.2% for the three months ended March 31, 2012, compared to the same period in 2011 primarily due to a 35 basis point reduction in average yield and a $17.5 million or 6.6% decrease in average loan balances. Interest on securities held to maturity increased by $34,000, or 7.8% for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, as a result of a $12.9 million or 26.9% increase in average balance, offset by a 54 basis point reduction in average yield. Other interest income reflected a slight decrease of $2,000 or 8.0% in interest income primarily due to a 25 basis point decrease in average yield offset by an average balance increase of $628,000, or 9.9% for the three month period ended March 31, 2012 compared to the same period ended Marc h 31, 2011.
Total interest expense decreased by $220,000, or 21.9% for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Average interest-bearing liabilities decreased $7.4 million, or 2.5%, from $293.6 million for the three months ended March 31, 2011, to $286.2 million for the three months ended March 31, 2012, as did the average rate paid which decreased by 27 basis points from 1.37% to 1.10%, for the respective periods. Interest expense on deposits decreased by $221,000, or 26.4% for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, as a result of a $7.4 million or 2.7% decrease in average interest-bearing deposits from $273.6 million to $266.2 million and a 30 basis point reduction in average rate form 1.23% to 0.93%, for the respective periods. Time deposit average balances decreased $5.1 million, or 4.1%, as did average savings deposit balances by $4.4 million, or 3.8%, while NOW average balances increased by $2.1 million or 6.6% for the three months ended March 31, 2012 compared to the three months ended March 31, 2011. Savings deposit average rates decreased by 32 basis points, as did the average rates on time deposits and NOW accounts by 30 and 15 basis points, respectively, for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Federal Home Loan Bank advance average balances were $20.0 million for both three month periods ended March 31, 2012 and March 31, 2011. The average rate on Federal Home Loan Bank advances was 3.40% for the three months ended March 31, 2012 compared to 3.38% for the three months ended March 31, 2011.
Net interest income decreased $285,000 or 3.5% for the nine months ended March 31, 2012, from $8.2 million to $7.9 million for the nine months ended March 31, 2011. Interest income decreased by $975,000, or 8.5%, and interest expense decrease by $690,000, or 21.1% for the nine month period ended March 31, 2012, compared to the nine month period ended March 31, 2011.
The decrease of $975,000 or 8.5% in interest income for the nine months ended March 31, 2012 resulted from a $3.7 million decrease in average earning assets and a 35 basis point decrease in yield to 4.44%, compared to the nine months ended March 31, 2011. Interest income on loans decreased by $1.1 million or 11.3% for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. Average loan receivable balances decreased $17.3 million or 6.5% to $249.2 million for the nine months ended March 31, 2012, compared to $266.5 million for the nine months ended March 31, 2011, while the average yield declined to 4.81% from 5.07%. Interest income on securities held to maturity increased $184,000, or 14.3% for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011, due to a $14.1 million increase in average balances from $46.1 million for
the nine months ended March 31, 2011 to $60.2 million for the nine months ended March 31, 2012, while the average yield declined 47 basis points from 3.73% to 3.26% for the same nine month comparative periods. Interest income on other interest-earning assets decreased by $16,000, or 19.3% for the nine month period ended March 31, 2012, compared to the same nine month period in 2011 as the average yield declined by 20 basis points to 1.30% and average other interest earning-asset balances decreased $530,000 or 7.2%.
The $690,000 or 21.1% decrease in interest expense for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011, was primarily due to a decrease of $8.7 million in average interest-bearing liabilities balances and an average rate decrease of 27 basis points to 1.19%. Interest expense on deposits decreased by $691,000, or 25.1% for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011, as a result of a $8.7 million or 3.1% decrease in average interest-bearing deposits from $278.4 million to $269.7 million and a 30 basis point reduction in average rate from 1.32% to 1.02%, for the respective periods. NOW account average balances increased by $2.5 million or 8.1% for the nine month period ended March 31, 2012 compared to the nine months ended March 31, 2011, while time deposit and savings average balances decreased by $6.3 million and $4.8 million, or 4.9% and 4.1%, respectively, for the same comparative period. The average rates on savings, time deposits and NOW accounts decreased by 33 basis points, 27 basis points and 16 basis points, respectively, for the nine months ended March 31, 2012, compared to the same nine month period ended March 31, 2011. Federal Home Loan Bank advance average balances were $20.0 million for both nine month periods ended March 31, 2012 and March 31, 2011, as was the average rate of 3.43% for same nine month comparative periods.
Provision for Loan Losses. For the three month period ended March 31, 2012, a $471,000 provision for loan losses was recorded, whereas a $400,000 provision was recorded for the same period in 2011. There were charge-offs of $260,000 for the three months ended March 31, 2012, compared to $281,000 of charge-offs for the three months ended March 31, 2011. There were no recoveries of previously charged-off loans in either of the three month periods ended March 31, 2012 or March 31, 2011. For the nine month period ended March 31, 2012, a $1.5 million provision was made as compared to a $1.2 million provision for the same period in 2011. There were charge-offs of $755,000 for the nine month period ended March 31, 2012, compared to charge-offs of $548,000 for the nine month period ended March 31, 2011. There were no recoveries of previously charged-off loans in either of the nine month period ended March 31, 2012 and March 31, 2011. The allowance for loan losses totaled $2.9 million, $2.2 million and $3.3 million, respectively, at March 31, 2012, June 30, 2011 and March 31, 2011, representing 1.2%, 0.8% and 1.2%, respectively, of total loans. The ratio of non-performing loans to total loans was 6.7% at March 31, 2012, as compared to 6.3% at June 30, 2011 and 6.9% at March 31, 2011. The allowance for loan losses reflects our estimation of the losses inherent in our loan portfolio to the extent they are both probable and reasonable to estimate based on both qualitative and quantitative risk characteristics. The increase in the provision was primarily due to the increase in non-performing loans and the current economic environment.
Non-Interest Income. This category includes fees derived from checking accounts, ATM transactions and debit card use and mortgage related fees. It also includes increases in the cash-surrender value of the bank owned life insurance and any unrealized gain or loss on trading securities.
Non-interest income decreased by $8,000, or 4.8% to $160,000 for the three months ended March 31, 2012 from $168,000 for the three months ended March 31, 2011, primarily due to a $20,000 or 20.0% reduction in fees and service charges, offset by a $9,000 unrealized gain on trading securities in the Company's trading security portfolio during the three months ended March 31, 2012 compared to a $1,000 unrealized loss during the three month period ended March 31, 2011, and a $2,000 or 4.2% increase in income from bank owned life insurance for the three months ended March 31, 2012 compared
to the three months ended March 31, 2011. Total non-interest income decreased $137,000, or 22.3%, from $614,000 for the nine months ended March 31, 2011 to $477,000 for the nine months ended March 31, 2012, primarily due to a $133,000, or 35.2%, decrease in fees and service charges, due in part to a $78,000 investment security prepayment penalty fee that was realized in the prior year period, and a $2,000 unrealized loss on trading securities in the Company's trading security portfolio during the current period as compared to an $17,000 unrealized gain in the prior year period. In addition, other non-interest fee income increased by $10,000 or 13.7%, as did income from bank owned life insurance by $5,000 or 3.4% for the same comparative period.
Non-Interest Expenses. Total non-interest expenses decreased by $241,000 or 10.9% to $2.0 million for the three months ended March 31, 2012, compared to $2.2 million for the three months ended March 31, 2011. Occupancy and equipment expense decreased by $96,000 or 21.5%, as did FDIC insurance assessments by $59,000, or 44.4%, other non-interest expense by $57,000 or 21.4%, salaries and employee benefits expense by $39,000, or 4.0%, professional services expense by $29,000, or 21.5% and advertising expense by $2,000, or 4.4%, while service bureau fees increased by $23,000 or 24.5% and directors' compensation increased by $18,000, or 16.1%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The decrease in occupancy expense was primarily attributable to a reduction in property taxes, other building expense and depreciation expense during the current period. The decrease in FDIC insurance assessments was attributable to the revised regulatory methodology used in calculating quarterly assessments that went into effect beginning with the April 30, 2011 assessment period. The decrease in other non-interest expense was primarily attributable to a decrease in other real estate owned expense, stationary and supply and miscellaneous operating expenses. The decrease in salaries and employee benefits expense was primarily due to a decrease in the number of employees and related salary expense, which was offset by an increase in employee benefit expense. The decrease in professional services expense was primarily attributable to a reduction in outside consulting, legal and outside auditing expenses, while the decrease in advertising expense was due to a reduction in spending. The increase in directors' compensation expense was due to an increase in compensation which included the Savings Bank's former President/CEO who retired in December 2011 and, as a Director, is receiving director compensation. The increase in service bureau fees was primarily due to an increase in processing fee expense.
Our non-interest expense for the nine months ended March 31, 2012, decreased $642,000 or 9.6% to $6.1 million from $6.7 million for the nine months ended March 31, 2011. Other non-interest expense decreased by $349,000 or 35.1% for the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011. The decrease in other non-interest expense was primarily attributable to a decrease in other real estate owned expenses and other non-operating expenses. FDIC assessment expense decreased by $164,000 or 42.5%, as did occupancy and equipment expense by $114,000 or 9.1%, salaries and employee benefits expense by $50,000 or 1.7%, advertising expense by $24,000 or 14.7%, and professional services expense by $3,000 or 0.8% for the nine months ended March 31, 2012, compared to the nine months ended March 31, 2011. Service bureau fees and directors' compensation expenses increased by $33,000 and $29,000 or 11.0% and 8.7%, respectively, for the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011. The reduction in FDIC insurance was attributable to the revised regulatory methodology used in calculating quarterly assessments that went into effect beginning with the April 30, 2011 assessment period. The decrease in occupancy and equipment expense was related to a reduction in property taxes, other building expense and depreciation expense, while the decrease in advertising expense was due to a reduction in spending and the decrease in salary and employee expense was primarily due to a reduction in the number of employees and related salary expense, which was offset by an increase in employee benefit expense, for the nine months ended March 31, 2012 compared to the nine months ended March 31, 2011.
Income Taxes. Income taxes for the three months ended March 31, 2012 were $116,000 or 37.4% of income before income taxes as compared to $127,000 or 38.0% of income before income taxes for the three months ended March 31, 2011. Income taxes for the nine months ended March 31, 2012 were $356,000 or 40.2% of income before income taxes as compared to $357,000 or 39.7% of income before income taxes for the nine months ended March 31, 2011.
Liquidity, Commitments and Capital Resources
The Savings Bank must be capable of meeting its customer obligations at all times. Potential liquidity demands include funding loan commitments, cash withdrawals from deposit accounts and other funding needs as they present themselves. Accordingly, liquidity is measured by our ability to have sufficient cash reserves on hand, at a reasonable cost and/or with minimum losses.
Senior management is responsible for managing our overall liquidity position and risk and is responsible for ensuring that our liquidity needs are being met on both a daily and long term basis. The Financial Review Committee, comprised of senior management and chaired by President and Chief Executive Officer Michael Shriner, is responsible for establishing and reviewing our liquidity procedures, guidelines, and strategy on a periodic basis.
Our approach to managing day-to-day liquidity is measured through our daily calculation of investable funds and/or borrowing needs to ensure adequate liquidity. In addition, senior management constantly evaluates our short-term and long-term liquidity risk and strategy based on current market conditions, outside investment and/or borrowing opportunities, short and long-term economic trends, and anticipated short and long-term liquidity requirements. The Savings Bank's loan and deposit rates may be adjusted as another means of managing short and long-term liquidity needs. We do not at present participate in derivatives or other types of hedging instruments to meet liquidity demands, as we take a conservative approach in managing liquidity.
At March 31, 2012, the Savings Bank had outstanding commitments to originate loans of $1.3 million, construction loans in process of $2.2 million, unused lines of credit of $22.1 million (including $17.6 million for home equity lines of credit), and standby letters of credit of $371,000. Certificates of deposit scheduled to mature in one year or less at March 31, 2012, totaled $59.4 million.
As of March 31, 2012, the Savings Bank had contractual obligations related to the long-term operating leases for the three branch locations that it leases (Dewy Meadow, RiverWalk and Martinsville).
The Savings Bank generates cash through deposits and/or borrowings from the Federal Home Loan Bank to meet its day-to-day funding obligations when required. At March 31, 2012, the total loans to deposits ratio was 85.7%. At March 31, 2012, the Savings Bank's collateralized borrowing limit with the Federal Home Loan Bank was $77.5 million, of which $20.0 million was outstanding. As of March 31, 2012, the Savings Bank also had a $20.0 million line of credit with a financial institution for reverse repurchase agreements (which is a form of borrowing) that it could access if necessary.
Consistent with its goals to operate a sound and profitable financial organization, the Savings Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of March 31, 2012, the Savings Bank exceeded all applicable regulatory capital requirements.
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