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PBSK > SEC Filings for PBSK > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for POAGE BANKSHARES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for POAGE BANKSHARES, INC.


14-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements, which can be identified by the use of such words as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may," and similar expressions. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

statements regarding our business plans and prospects and growth and operating strategies;

statements regarding the asset quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause the actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to manage our operations under the current adverse economic conditions nationally and in our market area;

significant increases in our delinquencies and loan losses, including as a result of our inability to resolve classified assets, changes in the underlying cash flows of our borrowers, and management's assumptions in determining the adequacy of the allowance for loan losses;

our ability to attract and maintain deposits;

changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

further declines in the yield on our assets resulting from the current low interest rate environment;

risks related to high concentration of loans secured by real estate located in our market area;

our ability to increase multi-family, commercial real estate and commercial loan portfolio while maintaining asset quality;

risks relating to acquisitions and an ability to integrate and operate profitably any financial institution that we may acquire and to manage the risks related to growth in these types of lending;

our ability to pay dividends;

adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

changes in consumer spending, borrowing and savings habits, including a lack of consumer confidence in financial institutions;

significantly increased competition among depository and other financial institutions;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the SEC and the authoritative accounting and auditing bodies;

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and changes in the level of government support of housing finance;

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

significantly increased competition with financial institutions;

risks and costs related to being a publicly traded company;

changes in our organization, compensation and benefit plans; and

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.


Table of Contents

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in Poage Bankshares, Inc.'s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on December 19, 2012.

Comparison of Financial Condition at March 31, 2013 and September 30, 2012

Our total assets decreased $8.5 million, or 2.7% to $308.7 million at March 31, 2013 from $317.2 million at September 30, 2012. The decrease was primarily due to a decrease of cash and due from financial institutions of $1.8 million, or 7.7%, to $21.6 million at March 31, 2013 from $23.4 million at September 30, 2012 and a decrease in loans receivable of $6.5 million, or 3.6%, to $173.5 million at March 31, 2013 from $180.0 million at September 30, 2012.

Loans held for sale increased $45,000, or 6.3% to $764,000 at March 31, 2013 from $719,000 at September 30, 2012.

Loans receivable, net, decreased $6.5 million, or 3.6% to $173.5 million at March 31, 2013 from $180.0 million at September 30, 2012. This decrease was largely due to reduced one-to-four family loan in house originations, caused by increases in loans sold in the secondary market and the reduced level of refinancing. Non-performing loans were relatively constant at $1.3 million at March 31, 2013 and September 30, 2012.

Securities available for sale increased to $94.9 million at March 31, 2013 from $94.5 million at September 30, 2012.

Deposits decreased $4.8 million, or 2.0%, to $231.6 million at March 31, 2013 from $236.5 million at September 30, 2012. The decrease was primarily attributable to a decrease of $4.6 million, or 3.3%, in certificates of deposit, offset by an increase in savings and NOW accounts of $0.3 million, or 0.3%. The decrease in certificates of deposit is primarily related to depositors seeking better yields on their funds through other sources given the low interest rate environment.

Federal Home Loan Bank advances decreased $2.1 million, or 11.9%, to $15.6 million at March 31, 2013 from $17.7 million at September 30, 2012. This decrease in borrowings was primarily the result of regular principal payments and maturities.

Total shareholders' equity decreased to $59.7 million at March 31, 2013, compared to $60.6 million at September 30, 2012. The decrease resulted primarily from net income of $0.9 million for the six months ended March 31, 2013, offset by a decrease in other comprehensive income of $0.4 million, cash dividends of $0.3 million and repurchases of common stock in the amount of $1.3 million.


Table of Contents

Average Balance and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

                                                                For the Three Months Ended March 31,
                                                          2013                                        2012
                                                        Interest                                    Interest
                                          Average          and          Yield/        Average          and          Yield/
                                          Balance       Dividends        Cost         Balance       Dividends        Cost
                                                                                                    (revised)
Assets:
Interest-earning assets:
Loans                                    $ 175,715     $     2,446         5.57 %    $ 181,926     $     2,646         5.82 %
Investment securities                       96,998             467         1.93 %      100,738             625         2.48 %
FHLB stock                                   1,953              21         4.30 %        1,927              22         4.57 %
Other interest-earning assets               19,441               9         0.19 %       18,421               8         0.17 %

Total interest-earning assets              294,107           2,943         4.00 %      303,012           3,301         4.36 %

Noninterest-earning assets                  17,056                                      19,684

Total assets                               311,163                                     322,696

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       86,197              49         0.23 %       92,507              83         0.36 %
Certificates of deposit                    139,597             429         1.23 %      144,855             583         1.61 %

Total interest bearing deposits            225,794             478         0.85 %      237,362             666         1.12 %

FHLB advances                               15,836             117         2.96 %       21,120             153         2.90 %

Total interest bearing liabilities         241,630             595         0.98 %      258,482             819         1.27 %

Non-interest bearing liabilities:
Non-interest bearing deposits                7,377                                         864
Accrued interest payable                       163                                         240
Other liabilities                            3,041                                       2,753

Total non-interest bearing liabilities      10,581                                       3,857

Total liabilities                          252,211                                     262,339

Total equity                                58,952                                      60,357

Total liabilities and equity             $ 311,163                                   $ 322,696

Net interest income                                          2,348                                       2,482
Interest rate spread                                                       3.02 %                                      3.09 %
Net interest margin                                                        3.19 %                                      3.28 %
Average interest-earning assets to
average interest-bearing liabilities                        121.72 %                                    117.23 %


Table of Contents
                                                                 For the Six Months Ended March 31,
                                                          2013                                        2012
                                                        Interest                                    Interest
                                          Average          and          Yield/        Average          and          Yield/
                                          Balance       Dividends        Cost         Balance       Dividends        Cost
                                                                                                    (revised)
Assets:
Interest-earning assets:
Loans                                    $ 177,494     $     5,000         5.63 %    $ 181,558     $     5,374         5.92 %
Investment securities                       96,828             923         1.91 %       95,235           1,188         2.49 %
FHLB stock                                   1,953              44         4.51 %        1,906              41         4.30 %
Other interest-earning assets               19,635              19         0.19 %       24,203              24         0.20 %

Total interest-earning assets              295,910           5,986         4.05 %      302,902           6,627         4.38 %

Noninterest-earning assets                  18,576                                      21,127

Total assets                               314,486                                     324,029

Liabilities and equity:
Interest bearing liabilities:
Interest bearing deposits:
NOW, savings, money market, and other       87,812             156         0.36 %       93,108             210         0.45 %
Certificates of deposit                    140,030             904         1.29 %      145,572           1,231         1.69 %

Total interest bearing deposits            227,842           1,060         0.93 %      238,680           1,441         1.21 %

FHLB advances                               16,505             243         2.94 %       21,703             329         3.03 %

Total interest bearing liabilities         244,347           1,303         1.07 %      260,383           1,770         1.36 %

Non-interest bearing liabilities:
Non-interest bearing deposits                5,793                                         971
Accrued interest payable                       339                                         395
Other liabilities                            3,889                                       2,738

Total non-interest bearing liabilities      10,021                                       4,104

Total liabilities                          254,368                                     264,487

Total equity                                60,118                                      59,542

Total liabilities and equity             $ 314,486                                   $ 324,029

Net interest income                                          4,683                                       4,857
Interest rate spread                                                       2.98 %                                      3.02 %
Net interest margin                                                        3.17 %                                      3.21 %
Average interest-earning assets to
average interest-bearing liabilities                        121.10 %                                    116.33 %


Table of Contents

Liquidity and Capital Resources

Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. We also utilize Federal Home Loan Bank advances. While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to maintain core deposit relationships.

Liquidity management is both a daily and long-term responsibility of management. We adjust our investments in liquid assets based upon management's assessment of
(i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold and short and intermediate-term investment securities. If we require funds beyond our ability to generate them internally we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati. At March 31, 2013, we had $15.6 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $58.1 million.

The Association is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency ("OCC"). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the Association and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines involving quantitative measures of the Association's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Association's capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), Tier I capital to adjusted total assets (as defined), and tangible capital to adjusted total assets (as defined).

As of March 31, 2013, based on the most recent notification from the OCC, the Association was categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed or are likely to change the Association's prompt corrective action category.


Table of Contents

Actual and required capital amounts (in thousands) and ratios for the Association are presented below at March 31, 2013 and year-end:

                                                                                                              To Be Well
                                                                                                          Capitalized Under
                                                                      For Capital Adequacy                Prompt Corrective
                                               Actual                       Purposes                      Action Regulations
                                         Amount       Ratio         Amount               Ratio        Amount               Ratio
As of March 31, 2013:
Total Risk-Based Capital
(to Risk-weighted Assets)               $ 46,622       30.98 %    $   12,039              8.00 %    $ 15,049              10.00 %
Tier I Capital
(to Risk-weighted Assets)                 44,730       29.72 %         6,020              4.00 %       9,024               6.00 %
Tier I Capital
(to Adjusted Total Assets)                44,730       14.49 %        12,347              4.00 %      15,434               5.00 %




                                                                                                              To Be Well
                                                                                                          Capitalized Under
                                                                      For Capital Adequacy                Prompt Corrective
                                               Actual                       Purposes                      Action Regulations
                                         Amount       Ratio         Amount               Ratio        Amount               Ratio
As of September 30, 2012:
Total Risk-Based Capital
(to Risk-weighted Assets)               $ 45,499       29.29 %    $   12,429              8.00 %    $ 15,388              10.00 %
Tier I Capital
(to Risk-weighted Assets)                 43,547       28.03 %         6,214              4.00 %       9,203               6.00 %
Tier I Capital
(to Adjusted Total Assets)                43,547       13.78 %        12,644              4.00 %      16,346               5.00 %

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit.

Comparison of Operating Results for the Three and Six Months Ended March 31, 2013 and March 31, 2012

General. Net income decreased to $446,000 for the three months ended March 31, 2013 from $449,000 for the three months ended March 31, 2012. The decrease reflected a decrease in net interest income of $134,000 to $2.3 million for the three months ended March 31, 2013 from $2.5 million for the three months ended March 31, 2012, offset by a decrease in non-interest expense of $112,000 to $2.0 million for the three months ended March 31, 2013 from $2.1 million for the three months ended March 31, 2012.

Net income decreased to $880,000 for the six months ended March 31, 2013 from $1.1 million for the six months ended March 31, 2012. The decrease reflected a decrease in net interest income of $174,000 to $4.7 million for the six months ended March 31, 2013 from $4.9 million for the six months ended March 31, 2012, and an increase in non-interest expense of $135,000 to $4.2 million for the six months ended March 31, 2013 from $4.0 million for the six months ended March 31, 2012.

Interest Income. Interest income decreased to $2.9 million for the three months ended March 31, 2013 from $3.3 million for the three months ended March 31, 2012.

Interest income on loans decreased $200,000, or 7.6%, to $2.4 million for the three months ended March 31, 2013 from $2.6 million for the three months ended March 31, 2012. The average balance of loans decreased $6.2 million, or 3.4%, to $175.7 million for the three months ended March 31, 2013 from $181.9 million for the three months ended March 31, 2012. Likewise, the average yields on loans decreased to 5.57% for the three months ended March 31, 2013, compared to 5.82% for the three months ended March 31, 2012. Interest income on investment securities decreased $158,000, or 25.3%, to $467,000 for the three months ended March 31, 2013 from $625,000 for the three months ended March 31, 2012, reflecting a decrease in the average balance of such securities to $97.0 million at March 31, 2013 from $100.7 million at March 31, 2012. The average yield on investment securities decreased to 1.93% for the three months ended March 31, 2013, compared to 2.48% for the three months ended March 31, 2012.


Table of Contents

Interest income decreased $641,000, or 9.7%, to $6.0 million for the six months ended March 31, 2013 from $6.6 million for the six months ended March 31, 2012.

Interest income on loans decreased $374,000, or 7.0%, to $5.0 million for the six months ended March 31, 2013, from $5.4 million for the six months ended March 31, 2012. The average balance of loans decreased $4.1 million, or 2.2%, to $177.5 million for the six months ended March 31, 2013 from $181.6 million for the six months ended March 31, 2012. The average yields on loans decreased to 5.63% for the six months ended March 31, 2013, compared to 5.92% for the six months ended March 31, 2012. Interest income on investment securities decreased $265,000, or 22.3%, to $923,000 for the six months ended March 31, 2013 from $1.2 million for the six months ended March 31, 2012, reflecting an increase in the average balance of such securities to $96.8 million at March 31, 2013 from $95.2 million at March 31, 2012. The average yield on investment securities decreased to 1.91% for the six months ended March 31, 2013, compared to 2.49% for the six months ended March 31, 2012.

Interest Expense. Interest expense decreased $224,000, or 27.4%, to $595,000 for the three months ended March 31, 2013 from $819,000 for the three months ended March 31, 2012. The decrease reflected a decrease in the average rate paid on deposits to 0.85% for the three months ended March 31, 2013 from 1.12% for the three months ended March 31, 2012, and decreases in the average balance of such deposits to $225.6 million from $237.4 million for the same periods. Interest expense on Federal Home Loan Bank Advances decreased $36,000 or 23.5% to $117,000 for the three months ended March 31, 2013 from $153,000 for the three months ended March 31, 2012. This decrease was due to a decrease of $5.3 million in the average balance of these borrowings, offset by a 6 basis point increase in the average rate paid on these borrowings.

Interest expense decreased $467,000, or 26.4%, to $1.3 million for the six months ended March 31, 2013 from $1.8 million for the six months ended March 31, 2012. The decrease reflected a decrease in the average rate paid on deposits to 0.93% for the six months ended March 31, 2013 from 1.21% for the six months ended March 31, 2012, and decreases in the average balance of such deposits to $227.8 million from $238.7 million for the same periods. Interest expense on Federal Home Loan Bank Advances decreased $86,000 or 26.1% to $243,000 for the six months ended March 31, 2013 from $329,000 for the six months ended March 31, 2012. This decrease was due to a decrease of $5.2 million in the average balance of these borrowings, and a 9 basis point decrease in the average rate paid on these borrowings.

Interest expense on certificates of deposit decreased $154,000, or 26.4 %, to $429,000 for the three months ended March 31, 2013 from $583,000 for the three months ended March 31, 2012. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.23% for the three months ended March 31, 2013 from 1.61% for the three months ended March 31, 2012, as well as a decrease in the average balance of such certificates to $139.6 million from $144.9 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $34,000, or 41.0%, to $49,000 for the three months ended March 31, 2013 from $83,000 for the three months ended March 31, 2012. The decrease was due to a decrease in cost on these deposits to 0.23% for the three months ended March 31, 2013 from 0.36% for the three months ended March 31, 2012.

Interest expense on certificates of deposit decreased $327,000, or 26.6%, to $904,000 for the six months ended March 31, 2013 from $1.2 million for the six months ended March 31, 2012. This decrease reflected a decrease in the average rate paid on certificates of deposits to 1.29% for the six months ended March 31, 2013 from 1.69% for the six months ended March 31, 2012, as well as a decrease in the average balance of such certificates to $140.0 million from $145.6 million. Interest expense on money market deposits, savings, and NOW and demand deposits decreased $54,000, or 25.7%, to $156,000 for the six months ended March 31, 2013 from $210,000 for the six months ended March 31, 2012. The decrease was due to a decrease in cost on these accounts to 0.36% for the six months ended March 31, 2013 from 0.45% for the six months ended March 31, 2012.

Net Interest Income. Net interest income decreased $134,000, or 5.4%, to $2.3 million for the three months ended March 31, 2013 from $2.5 million for the . . .

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