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

Show all filings for ROEBLING FINANCIAL CORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ROEBLING FINANCIAL CORP, INC.


14-May-2013

Quarterly Report


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

General

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes", "anticipates", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, the ability to control costs and expenses, the impact of our new branches, new legislation and regulations, and general economic conditions. The Company does not undertake and specifically disclaims any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

The Company's business is conducted primarily through its wholly-owned subsidiary, Roebling Bank (the "Bank"). References to the Company or Registrant refer to the consolidated entity which includes the main operating company, the Bank, unless the context indicates otherwise.

Proposed Merger

On December 28, 2012, the Company jointly announced with TF Financial Corporation ("TF"), the parent company of 3rd Fed Bank, the execution of a definitive merger agreement under which TF is to acquire the Company for approximately $14.5 million in TF stock and cash, or approximately $8.60 per share.

The strategic merger will combine the two holding companies and their subsidiary banks with strong histories of supporting their respective communities, expands 3rd Fed Bank's New Jersey footprint, and improves product and service offerings to Roebling Bank customers. The resulting combined company will have over $850 million in total assets, $640 million in total loans, and $660 million in total deposits and 19 locations to serve customers in a five county contiguous market area.

Under the terms of the merger agreement, the Company will be merged into TF and Roebling Bank will be merged into 3rd Fed Bank. Roebling Bank branches will become 3rd Fed Bank branches. 50% of the Company's shares will be converted into TF common stock and the remaining 50% will be converted into cash. The Company's shareholders will have the option to elect to receive either 0.3640 shares of TF common stock or $8.60 in cash for each Company common share, subject to proration to ensure that in the aggregate 50% of the Company shares will be converted into stock. The transaction is intended to qualify as a tax-free reorganization for federal income tax purposes. The merger is expected to close during the second or third quarter of 2013.

The merger agreement is subject to customary closing conditions, including approval by the Company's shareholders and applicable banking regulatory authorities.

Overview

At March 31, 2013, the Company had total assets, deposits, borrowings and stockholders' equity of $155.6 million, $132.8 million, $3.8 million and $16.8 million, respectively. For the three months ended March 31, 2013, the Company reported net income of $77,000, or $.05 per diluted share, compared to net income of $5,000, or $.00 per diluted share, for the same period in 2012. For the six months ended March 31, 2013, the Company reported net income of $131,000, or $.08 per diluted share, compared to net income of $112,000, or $.07 per diluted share, for the same period in 2012. The improvement in earnings is primarily attributable to a reduction in real estate owned expenses.


Changes in Financial Condition

Total assets decreased by $6.2 million or 3.8%, to $155.6 million at March 31, 2013, from $161.8 million at September 30, 2012 due primarily to decreases in cash and cash equivalents, loans receivable, net and securities available for sale. Cash and cash equivalents decreased by $2.2 million, investment securities decreased by $1.4 million and loans receivable, net, decreased by $1.7 million. Cash and cash equivalents decreased as excess funds were used to pay down borrowings. Investment securities decreased as payments from maturities and calls exceeded purchases and loans receivable decreased as loan payments exceeded disbursements for new loans. Real estate owned ("REO") decreased by $444,000 to $0, as our remaining REO property was sold in December. Deposits increased by $3.9 million or 3.0% with an increase in core deposit accounts of $9.2 million, partially offset by a decrease in certificates of deposit of $5.3 million. The increase in core deposits is primarily due to an increase of $5.4 million in municipal account balances, which fluctuate based on tax payment cycles, and an increase in non-interest bearing deposits of $3.8 million. The ratio of core deposits (non-certificates) to total deposits continues to improve, increasing to 62.7% at March 31, 2013 from 57.5% at September 30, 2012. Borrowed funds decreased by $9.9 million, to $3.8 million at March 31, 2013 from $13.7 million at September 30, 2012, as excess cash was utilized to repay borrowings. Stockholders' equity decreased by $102,000 for the six months ended March 31, 2013, primarily attributable to an unrealized loss on available for sale securities, net of tax, of $270,000, partially offset by net income of $131,000.

Results of Operations

Net Interest Income. For the three-months ended March 31, 2013, the Company reported net interest income before provision for loan losses of $1,226,000, compared to $1,247,000 for the same period in 2012. The decrease in net interest income was the result of a decrease in interest income of $107,000, partially offset by a decrease in interest expense of $86,000. The interest rate spread was 2.98% for the three months ended March 31, 2013 compared to 2.99% for the three months ended March 31, 2012, while the net interest margin was 3.21% for the 2013 period compared to 3.25% for the 2012 period. For the six-month period ended March 31, 2013, the Company reported net interest income before provision for loan losses of $2,447,000, compared to $2,498,000 for the six months ended March 31, 2012. The interest rate spread was 2.92% for the six months ended March 31, 2013 compared to 2.96% for the six months ended March 31, 2012, while the net interest margin was 3.17% for the 2013 period compared to 3.22% for the 2012 period. The ratio of average interest-earning assets to average interest-bearing liabilities increased to 134.0% and 133.7% for the three and six months ended March 31, 2013, respectively, from 127.9% and 126.8% for the same 2012 periods. The Company's spread and margin decreased slightly for the three and six months ended March 31, 2013 compared to the same 2012 periods, as the average yield on total interest-earning assets decreased by more than the average cost of funds.

The average balance of total interest-earning assets for the three months ended March 31, 2013 decreased by $600,000 compared to the three months ended March 31, 2012, while the average yield decreased to 3.92% from 4.16%. The decrease in total interest income of $107,000 for the three months ended March 31, 2013 is comprised of a decrease in interest income of $91,000 on loans receivable and a decrease of $16,000 in interest income on investment securities and other interest-earning assets. Average loan receivable balances decreased by $4.6 million for the three months ended March 31, 2013 compared to the same 2012 period, while the average yield decreased to 4.68% from 4.79%. The average balance of loans decreased as repayment levels on loans exceeded origination volume. The decrease in loan yields is attributable to both a shift in the portfolio composition as well as residential mortgage and home equity loan refinances to lower rates. The makeup of the loan portfolio continues to shift, with a greater percentage of loans in residential mortgage and home equity loans and a lesser percentage in commercial purpose loans. For the three months ended March 31, 2013, compared to the same 2012 period, the average balance of securities and other interest-earning assets increased by $4.1 million, while the average yield decreased to 2.22% from 2.58%.

The average balance of total interest-earning assets for the six months ended March 31, 2013 decreased by $500,000 compared to the six months ended March 31, 2012 while the average yield decreased to 3.89% from 4.17%. The decrease in total interest income of $234,000 for the six months ended March 31, 2013 is comprised of a decrease in interest income of $190,000 on loans receivable and a decrease of $44,000 in interest income from securities and other interest-earning assets. Average loan receivable balances decreased by $4.1 million for the six months ended March 31, 2013 compared to the same 2012 period, while the average yield decreased to 4.66% from


4.83%. For the six months ended March 31, 2013, the average balance of securities and other interest-earning assets increased by $3.5 million compared to the same 2012 period, while the average yield decreased to 2.21% from 2.58%.

The average balance of interest-bearing liabilities decreased by $5.9 million for the three months ended March 31, 2013 compared to same 2012 period, while the average cost decreased to .94% from 1.17%. The decrease in total interest expense of $86,000 for the three months ended March 31, 2013 is comprised of a $75,000 decrease in interest expense on deposits and an $11,000 decrease in interest expense on borrowings. Average interest-bearing deposit balances decreased by $3.0 million with a decrease in the average cost to .86% for the three months ended March 31, 2013, compared to 1.10% for the same 2012 period, while average borrowings decreased by $2.9 million, with an increase in the average cost to 2.26% from 2.02%.

The average balance of interest-bearing liabilities decreased by $6.7 million for the six months ended March 31, 2013 compared to same 2012 period, while the average cost decreased to .97% from 1.21%. The decrease in total interest expense of $183,000 for the six months ended March 31, 2013 is comprised of a $166,000 decrease in interest expense on deposits and a $17,000 decrease in interest expense on borrowings. Average interest-bearing deposit balances decreased by $5.0 million with a decrease in the average cost to .88% for the six months ended March 31, 2013, compared to 1.13% for the same 2012 period, while average borrowings decreased by $1.7 million, with an increase in the average cost to 2.56% from 2.43%.

Provision for Loan Losses. There were no provisions for loan losses for the three or six months ended March 31, 2013 or 2012 and there have been no charge-offs in fiscal 2013. Charge-offs of $94,000 were recorded during the six months ended March 31, 2012. At March 31, 2013, the allowance for loan losses was $1,335,000 (1.26% of the loan portfolio and 52.3% of non-performing loans) compared to $1,330,000 (1.24% of the loan portfolio and 76.9% of non-performing loans) at September 30, 2012. Non-performing loans, consisting of non-accrual loans and accruing loans more than 90 days delinquent, were $2.6 million and $1.7 million at March 31, 2013 and September 30, 2012, respectively, representing 2.42% and 1.61% of total loans, respectively. The increase in non-performing loans is primarily due to one loan that has gone over 90 days delinquent at March 31, 2013. We are working closely with the borrower and believe that the delinquency will be cured. Management continually monitors and adjusts the allowance for loan losses based upon its analysis of the loan portfolio. This analysis includes an evaluation of known and inherent risks in the loan portfolio, past loss experience, current economic conditions, industry loss reserve levels, adverse situations which may affect the borrower, the estimated value of any underlying collateral and other relevant factors. However, there can be no assurance that additions to the allowance for loan losses will not be required in future periods or that actual losses will not exceed estimated amounts. See also Note 5 - Loans Receivable, Net.

Activity in the allowance for loan losses is summarized as follows:

                                Three Months Ended               Six Months Ended
                                     March 31,                       March 31,
                               2013            2012            2013            2012

Balance - beginning         $ 1,333,008     $ 1,306,910     $ 1,330,204     $ 1,304,500
Provision for loan losses             -               -               -               -
Charge-offs                           -         (94,255 )             -         (94,255 )
Recoveries                        2,454           4,886           5,258           7,296

Balance - ending            $ 1,335,462     $ 1,217,541     $ 1,335,462     $ 1,217,541

Non-interest Income. Non-interest income increased $3,000, or 2.3%, to $134,000 for the three months ended March 31, 2013 and $23,000, or 9.1%, to $277,000 for the six months ended March 31, 2013, compared to the same 2012 periods. The majority of the increase in non-interest income for both periods is attributable to an increase in loan fees, which increased by $6,000 and $10,000 for the three and six months ended March 31, 2013 compared to the same 2012 periods. Late charges increased as we collected more late fees on loans and loan servicing fees increased as we serviced a larger portfolio of loans in the 2013 periods. Gain on sale of loans increased by $8,000 for the six months ended March 31, 2013 compared to the six months ended March 31, 2012 due to higher premiums on loan sales.


Non-interest Expense. Non-interest expense decreased $202,000, or 14.6%, to $1,179,000 for the three months ended March 31, 2013, from $1,381,000 for the same period in 2012, and $208,000, or 8.0%, to $2,381,000 for the six months ended March 31, 2013, from $2,589,000 for the same 2012 period. Real estate owned expense, net, was $0 and ($143,000) for the three and six months ended March 31, 2013 compared to $220,000 and $329,000 for the same 2012 periods, primarily due to a $149,000 gain on the sale of our last REO property and the absence of provisions for losses on REO in the six months ended March 31, 2013, compared to REO loss provisions of $202,000 and $297,000 for the three and six months ended March 31, 2012. Other expense increased by $44,000 and $260,000 for the three and six months ended March 31, 2013 compared to the same 2012 periods, primarily due to legal and professional fees for merger-related work in 2013.

Income Taxes. The Company recorded income tax expense of $104,000 and a tax benefit of $8,000 for the three months ended March 31, 2013 and 2012, respectively. For the six months ended March 31, 2013 and 2012, the Company recorded tax expense of $212,000 and of $51,000, respectively, reflecting an effective tax rate of 61.8% and 31.2%, respectively. A significant portion of the merger-related expenses are non-deductible for tax purposes, causing the high effective rate in 2013.

Liquidity and Regulatory Capital Compliance

The Bank's capital amounts and ratios for regulatory capital adequacy purposes
as of March 31, 2013, are presented in the following table:

(Dollars in thousands)            Amount       Ratio

Tangible capital                 $ 14,045        9.11 %
Tangible capital requirement        2,312        1.50 %
Excess over requirement          $ 11,733        7.61 %

Core capital                     $ 14,045        9.11 %
Core capital requirement            6,165        4.00 %
Excess over requirement          $  7,880        5.11 %

Risk-based capital               $ 15,175       16.82 %
Risk-based capital requirement      7,217        8.00 %
Excess over requirement          $  7,958        8.82 %

The Office of the Comptroller of the Currency ("OCC"), the Bank's primary federal regulator, has also established higher Individual Minimum Capital Ratios ("IMCR's") for the Bank than required by regulation. The IMCR's are (i) Tier 1 Capital at least equal to 8% of adjusted total assets; (ii) Tier 1 Capital at least equal to 14% of risk-weighted assets; and (iii) Total Capital at least equal to 15% of risk-weighted assets. As of March 31, 2013, the Bank is in compliance with all of its capital requirements.

The Company anticipates that it will have sufficient funds available to meet its current commitments. As of March 31, 2013, the Bank had outstanding commitments to fund loans of $2.0 million and commitments on unused lines of credit of $12.9 million. Certificates of deposit scheduled to mature in one year or less as of March 31, 2013 totaled $31.2 million. Based on historical deposit withdrawals and outflows, and on internal monthly deposit reports monitored by management, management believes that a majority of such deposits will remain with the Company.


Additional Key Operating Ratios

                                                 At or for the Three Months
                                                       Ended March 31,
                                               2013 (1)              2012 (1)
Earnings per common share (2):
Basic                                        $        0.05         $           -
Diluted                                      $        0.05         $           -
Return on average assets (1)                          0.20 %                0.01 %
Return on average equity (1)                          1.85 %                0.11 %
Interest rate spread (1)                              2.98 %                2.99 %
Net interest margin (1)                               3.21 %                3.25 %
Non-interest expense to average assets (1)            2.96 %                3.40 %
Non-performing assets to total assets                 1.64 %                1.19 %
Non-performing loans to total loans                   2.42 %                1.36 %
Book value per share (3)                     $        9.96         $        9.94


_______________


(1) The ratios for the three month periods presented are annualized.
(2) The average number of shares outstanding during the three months ended March 31, 2013 was 1,671,658 basic and diluted. The average number of shares outstanding during the three months ended March 31, 2012 was 1,662,507 basic and diluted.
(3) There were 1,686,527 shares outstanding at March 31, 2013 and March 31, 2012.

                                                 For the Six Months
                                                  Ended March 31,
                                             2013 (1)         2012 (1)
Earnings per common share (2):
Basic                                        $    0.08       $     0.07
Diluted                                      $    0.08       $     0.07
Return on average assets (1)                      0.16 %           0.14 %
Return on average equity (1)                      1.56 %           1.33 %
Interest rate spread (1)                          2.92 %           2.96 %
Net interest margin (1)                           3.17 %           3.22 %
Non-interest expense to average assets (1)        2.98 %           3.17 %


_______________


(1) The ratios for the six month periods presented are annualized.
(2) The average number of shares outstanding during the six months ended March 31, 2013 was 1,670,514 basic and diluted. The average number of shares outstanding during the six months ended March 31, 2012 was 1,661,364 basic and diluted.

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