UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-24040
PENNFED FINANCIAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3297339
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
622 Eagle Rock Avenue, West Orange, New Jersey 07052-2989
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 669-7366
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO[ ]
As of November 1, 1996, there were 4,853,020 shares of the Registrant's
Common Stock, par value $.01, outstanding.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Financial Condition
September 30, June 30,
1996 1996
---------- ----------
(dollars in 000's)
<S> <C> <C>
Assets
Cash and cash equivalents....................................................... $ 12,443 $ 11,629
Investment securities held to maturity, at amortized cost, market
value of $16,475 and $21,502 at September 30, 1996 and
June 30, 1996................................................................ 16,289 21,288
Mortgage-backed securities held to maturity, at amortized cost,
market value of $331,751 and $344,331 at
September 30, 1996 and June 30, 1996......................................... 331,238 346,068
Loans held for sale............................................................. --- 88
Loans receivable, net of allowance for loan losses of $2,778 and
$2,630 at September 30, 1996 and June 30, 1996................................ 730,127 652,483
Premises and equipment, net..................................................... 15,825 16,035
Real estate owned, net.......................................................... 968 1,083
Federal Home Loan Bank of New York stock, at cost............................... 8,331 8,052
Accrued interest receivable, net................................................ 6,568 6,742
Goodwill and other intangibles.................................................. 17,794 18,430
Other assets.................................................................... 2,890 4,626
---------- ----------
$1,142,473 $1,086,524
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits...................................................................... $ 853,989 $ 836,416
Federal Home Loan Bank of New York advances................................... 115,465 105,000
Other borrowings.............................................................. 65,820 41,700
Mortgage escrow funds......................................................... 7,013 5,930
Due to banks.................................................................. 6,429 5,989
Accounts payable and other liabilities........................................ 3,609 925
----------- -----------
Total liabilities............................................................. 1,052,325 995,960
----------- -----------
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Financial Condition
(continued)
September 30, June 30,
1996 1996
---------- ----------
(dollars in 000's)
<S> <C> <C>
Stockholders' Equity:
Serial preferred stock, $.01 par value, 7,000,000 shares
authorized, no shares issued................................................ --- ---
Common stock, $.01 par value, 15,000,000 shares authorized,
5,950,000 shares issued and 4,853,020 and 4,823,665 shares outstanding at
September 30, 1996 and June 30, 1996 (excluding shares held in treasury of
1,096,980 and 1,126,335 at September 30, 1996 and June 30,1996)............. 60 60
Additional paid-in capital.................................................... 57,163 57,057
Restricted stock - Management Recognition Plan................................ (1,593) (1,316)
Employee Stock Ownership Plan Trust debt...................................... (3,963) (4,061)
Retained earnings, substantially restricted................................... 54,402 55,172
Treasury stock, at cost, 1,096,980 and 1,126,335 shares at
September 30, 1996 and June 30, 1996........................................ (15,921) (16,348)
----------- ----------
Total stockholders' equity.................................................... 90,148 90,564
----------- ----------
$1,142,473 $1,086,524
========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
Three months ended September 30,
1996 1995
----------- -----------
(dollars in 000's, except
per share amounts)
<S> <C> <C>
Interest and Dividend Income:
Interest and fees on loans ........................ $ 13,344 $ 9,582
Interest and dividends on investment securities ... 501 561
Interest on mortgage-backed securities ............ 5,871 5,226
----------- -----------
19,716 15,369
----------- -----------
Interest Expense:
Deposits .......................................... 9,475 7,920
Borrowed funds .................................... 2,355 848
----------- -----------
11,830 8,768
----------- -----------
Net Interest and Dividend Income Before Provision
for Loan Losses ................................... 7,886 6,601
Provision for Loan Losses ........................... 175 110
----------- -----------
Net Interest and Dividend Income After
Provision for Loan Losses ......................... 7,711 6,491
----------- -----------
Non-Interest Income:
Service charges ................................... 440 423
Net (loss) gain from real estate operations ....... (115) 80
Other ............................................. 84 61
----------- -----------
409 564
----------- -----------
Non-Interest Expenses:
Compensation and employee benefits ................ 1,919 1,902
Net occupancy expense ............................. 273 277
Equipment ......................................... 385 394
Advertising ....................................... 113 50
Amortization of intangibles ....................... 636 668
Federal deposit insurance premium ................. 458 421
SAIF recapitalization assessment .................. 4,813 --
Other ............................................. 638 625
----------- -----------
9,235 4,337
----------- -----------
(Loss) Income Before Income Taxes ................... (1,115) 2,718
Income Tax (Benefit) Expense ........................ (346) 1,070
----------- -----------
Net (Loss) Income ................................... $ (769) $ 1,648
=========== ===========
<PAGE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Income
(continued)
Three months ended September 30,
1996 1995
----------- -----------
(dollars in 000's, except
per share amounts)
<S> <C> <C>
Weighted average number of common shares outstanding:
Primary ........................................... 4,636,176 5,326,050
=========== ===========
Fully diluted ..................................... 4,658,203 5,333,190
=========== ===========
Net (loss) income per common share:
Primary ........................................... $ (0.17) $ 0.31
=========== ===========
Fully diluted ..................................... $ (0.17) $ 0.31
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Three months ended
September 30,
--------------------
1996 1995
--------- --------
(dollars in 000's)
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income ........................................... ($ 769) $ 1,648
Adjustments to reconcile net income to net cash
provided by operating activities:
Proceeds from sales of loans available for sale ............. 348 --
Originations of loans available for sale .................... (260) --
Loss (gain) on sales of real estate owned ................... 8 (73)
Amortization of investment and mortgage-backed
securities premiums, net .................................. 70 189
Depreciation and amortization ............................... 315 333
Provision for losses on loans and real estate owned ......... 260 75
Amortization of cost of stock plans ......................... 352 238
Amortization of intangibles ................................. 636 668
Amortization of premiums on loans and loan fees ............. 59 88
Decrease in accrued interest receivable, net of
accrued interest payable .................................. 1,091 750
Decrease in other assets .................................... 1,735 642
Increase (decrease) in accounts payable and other liabilities 2,684 (858)
Increase in mortgage escrow funds ........................... 1,083 175
Increase in due to banks .................................... 440 408
Other, net .................................................. 2 5
-------- --------
Net cash provided by operating activities ................... 8,054 4,288
-------- --------
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities ........... 5,000 200
Purchases of investment securities .......................... -- (10,000)
Net outflow from loan originations net of principal
repayments of loans ....................................... (28,935) (5,290)
Purchases of loans .......................................... (49,034) (25,008)
Proceeds from principal repayments of
mortgage-backed securities ................................ 14,759 14,232
Purchases of mortgage-backed securities ..................... -- (20,915)
Purchases of premises and equipment ......................... (104) (109)
Proceeds from sales of real estate owned .................... 112 817
Purchases of Federal Home Loan Bank of New York stock ....... (278) --
-------- --------
Net cash used in investing activities ....................... (58,480) (46,073)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PennFed Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(continued)
Three months ended
September 30,
--------------------
1996 1995
--------- --------
(dollars in 000's)
<S> <C> <C>
Cash Flows From Financing Activities:
Net increase in deposits .................................... 16,655 8,806
Advances from the Federal Home Loan Bank of
New York and other borrowings ............................. 34,585 35,270
-------- --------
Net cash provided by financing activities ................... 51,240 44,076
-------- --------
Net Increase in Cash and Cash Equivalents ..................... 814 2,291
Cash and Cash Equivalents, Beginning of Period ................ 11,629 9,736
-------- --------
Cash and Cash Equivalents, End of Period ...................... $ 12,443 $ 12,027
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest .................................................... $ 10,913 $ 7,946
======== ========
Income taxes ................................................ $ -- $ 383
======== ========
Supplemental Schedule of Non-Cash Activities:
Transfer of loans receivable to real estate owned, net....... $ 90 $ 110
======== ========
Unrealized gain on investment securities available
for sale .................................................. $ -- $ 10
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim consolidated financial statements of PennFed Financial Services,
Inc. ("PennFed") and subsidiary (with its subsidiary, the "Company") include the
accounts of PennFed and Penn Federal Savings Bank (the "Bank"), its wholly-owned
subsidiary. These interim consolidated financial statements included herein
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended June 30, 1996. The interim consolidated financial statements
reflect all normal and recurring adjustments which are, in the opinion of
management, considered necessary for a fair presentation of the financial
condition and results of operations for the periods presented. There were no
adjustments of a non-recurring nature recorded during the three months ended
September 30, 1996 and 1995. The interim results of operations presented are not
necessarily indicative of the results for the full year.
When necessary, reclassifications have been made to conform to current period
presentation.
2. Adoption of Recently Issued Accounting Standards
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). SFAS
122 amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others, regardless of how those servicing rights are acquired. The adoption of
SFAS 122 did not have an effect on the financial condition or results of
operations of the Company.
Also effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires companies to measure employee stock compensation plans
based on the fair value method of accounting or continue to apply Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees," ("APB25")
and provide pro forma footnote disclosures under the fair value method in SFAS
123. The Company will continue to account for employee stock compensation under
APB 25, and, therefore, the adoption of SFAS 123 did not have an effect on the
Company's financial condition or results of operations.
<PAGE>
3. Stockholders' Equity and Regulatory Capital
The following is a reconciliation of the Bank's capital under generally accepted
accounting principles ("GAAP") and its tangible, core and risk-based capital at
September 30, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Percentage Capital Percentage Capital Percentage
------- ---------- ------- ---------- ------- ----------
(dollars in 000's)
<S> <C> <C> <C> <C> <C> <C>
GAAP capital................................ $ 81,649 7.10% $ 81,649 7.10% $ 81,649 7.10%
Goodwill.................................... (1,785) (1,785) (1,785)
Deposit premium intangible.................. (16,009) (16,009) (16,009)
Excess qualifying purchased mortgage
loan servicing rights..................... (20) (20) (20)
Qualifying intangible assets................ --- 589 589
Allowances for loan and lease
losses.................................... --- --- 2,290
Equity investments and investments in
real estate required to be deducted....... --- --- (50)
--------- ------------- ----------
Regulatory capital.......................... 63,835 5.64 64,424 5.69 66,664 12.75
Minimum capital requirement................. 16,984 1.50 45,315 4.00 41,837 8.00
-------- ---- -------- ---- -------- -----
Regulatory capital-excess................... $46,851 4.14% $ 19,109 1.69% $ 24,827 4.75%
======= ==== ========= ==== ========= ====
</TABLE>
4. Subsequent Event
On October 25, 1996, the Company announced that a quarterly cash dividend of
$0.07 per share will be paid on November 29, 1996 to stockholders of record on
November 14, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan,
securities and investment portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. Results of operations are also
affected by the Company's provision for loan losses and the net gain (loss) from
real estate operations. General economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities also significantly affect the Company's results of
operations. Future changes in applicable law, regulations or government policies
may also have a material impact on the Company.
The deposits of savings associations, such as the Bank, are presently insured by
the Savings Association Insurance Fund (the "SAIF"), which, along with the Bank
Insurance Fund (the "BIF"),are the two insurance funds administered by the
Federal Deposit Insurance Corporation ("FDIC"). Financial institutions which are
members of the BIF have been experiencing substantially lower deposit insurance
premiums because the BIF has achieved its required level of reserves while the
SAIF has not yet achieved its required reserves. As a result of legislation
signed into law on September 30, 1996, the SAIF recapitalization plan provides
for a one-time assessment of 0.657% of deposits to be imposed on all SAIF
insured institutions to enable the SAIF to achieve its required level of
reserves. The assessment was based on deposits as of March 31, 1995, and the
Bank's special assessment amounts to approximately $4.8 million, or $3.1
million, net of taxes. Accordingly, this special one-time SAIF recapitalization
assessment significantly increased non-interest expenses and adversely effected
the Company's results of operations for the three months ended September 30,
1996. Following the recapitalization assessment, future deposit insurance
premiums will be decreased significantly, to as low as 0.0654% from the 0.23% of
deposits currently paid by the Bank, and will have the effect of reducing
non-interest expenses for future periods.
Financial Condition
Total assets increased $55.9 million, or 5.1%, to $1.142 billion at September
30, 1996 from total assets of $1.087 billion at June 30, 1996. The increase was
primarily attributable to a $77.6 million increase in net loans receivable,
particularly in the Company's one- to four-family first mortgage loan portfolio.
At September 30, 1996, net loans receivable were $730.1 million compared to
$652.5 million at June 30, 1996. The increase in loans receivable was funded by
retail deposit growth, additional medium-term Federal Home Loan Bank of New York
("FHLB of New York") advances and increased other borrowings as well as
maturities on investment securities and principal payments on mortgage-backed
securities.
Non-performing assets at September 30, 1996 totaled $7.5 million, representing
0.66% of total assets, compared to $7.3 million, or 0.67% of total assets, at
June 30, 1996. Non-performing loans increased to $6.5 million, however, the
ratio of non-performing loans to total loans decreased to 0.89% of total loans,
at September 30, 1996 as compared to $6.2 million, or 0.94% of total loans, at
June 30, 1996. Real estate owned decreased to $968,000 at September 30, 1996
from $1.1 million at June 30, 1996.
<PAGE>
Deposits increased $17.6 million to $854.0 million at September 30, 1996 from
$836.4 million at June 30, 1996. FHLB of New York advances were $115.5 million
at September 30, 1996, a $10.5 million increase from $105.0 million at June 30,
1996. In addition, at September 30, 1996 the Company had $65.8 million of other
borrowings, consisting of short-term and overnight borrowings, compared to $41.7
million of other borrowings at June 30, 1996.
Stockholders' equity at September 30, 1996 totaled $90.1 million compared to
$90.6 million at June 30, 1996. The decrease reflects the net loss, attributable
to the one-time SAIF recapitalization assessment, recorded for the three months
ended September 30, 1996.
Results of Operations
General. For the three months ended September 30, 1996 the Company recorded a
net loss of $0.8 million, or a net loss of $0.17 per share, including the
effects of the one-time SAIF recapitalization assessment. The SAIF
recapitalization assessment for the Company totaled $4.8 million, or an
after-tax cost of $3.1 million, or $0.66 per share. The results, excluding the
effects of the SAIF assessment, would have compared favorably to net income of
$1.6 million, or $0.31 per share, for the three months ended September 30, 1995.
Interest and Dividend Income. Interest and dividend income for the three months
ended September 30, 1996 increased to $19.7 million from $15.4 million for the
three months ended September 30, 1995. The increase in the current year period
was due to an increase in average interest-earning assets, primarily residential
loans, and to a lesser extent, an increase in the average yield earned on
interest-earning assets. Average interest-earning assets were $1.1 billion for
the three months ended September 30, 1996, versus $824.9 million for the
comparable prior year period. The average yield earned on interest-earning
assets increased to 7.50% for the three months ended September 30, 1996 from
7.45% for the prior year period.
Interest income on residential one- to four-family mortgage loans for the three
months ended September 30, 1996 increased $3.8 million, or 49.9%, when compared
to the prior year period. The increase in interest income on residential one- to
four-family mortgage loans was due to an increase of $205.3 million in the
average balance outstanding for the three months ended September 30, 1996 over
the prior year period. The increase in the average balance on residential one-
to four-family mortgage loans was partially offset by a decrease of 0.11% in the
average yield earned on this loan portfolio for the three months ended September
30, 1996 from the comparable prior year period.
Interest income on the mortgage-backed securities portfolio increased $0.6
million, or 12.3%, for the three months ended September 30, 1996 as compared to
the prior year period. The increase in interest income on mortgage-backed
securities primarily reflects increases in the average balance outstanding of
$18.1 million for the three months ended September 30, 1996 over the comparable
prior year period. In addition, the average yield earned on these securities
increased 0.41% for the current year period when compared to the three months
ended September 30, 1995.
Interest on investment securities and other interest-earning assets decreased
$59,000 for the three months ended September 30, 1996 from the comparable prior
year period due to a decrease in the average balance outstanding for the current
year period and a decrease in the average yield earned on these securities.
<PAGE>
Interest Expense. Interest expense increased to $11.8 million for the three
months ended September 30, 1996 from $8.8 million for the comparable 1995
period. The increase was attributable to an increase in total average
interest-bearing liabilities coupled with an increase in the Company's cost of
funds. Average interest-bearing liabilities increased $225.4 million for the
three months ended September 30, 1996 compared to the 1995 period. The average
rate paid on interest-bearing liabilities increased to 4.70% for the three
months ended September 30, 1996 from 4.50% for the comparable prior year period.
Net Interest and Dividend Income. Net interest and dividend income for the three
months ended September 30, 1996 was $7.9 million, reflecting an increase from
$6.6 million recorded in the comparable prior year period. The increase reflects
the Company's growth in assets, primarily in residential one- to four-family
mortgage loans. The net interest rate spread was 2.80% for the three months
ended September 30, 1996 and 2.95% for the three months ended September 30,
1995. Net interest margin for the three months ended September 30, 1996 was
3.00%, a decline from 3.20% during the comparable prior year period. While the
interest rate environment of recent years has proven beneficial to most
financial institutions, including the Company, increases in market rates of
interest generally adversely affect the net interest income of most financial
institutions. Since the Company's liabilities generally reprice more quickly
than its assets, interest margins will likely decrease if interest rates rise.
Provision for Loan Losses. The provision for loan losses for the three months
ended September 30, 1996 was $175,000 compared to $110,000 for the prior year
period. The allowance for loan losses at September 30, 1996 of $2.8 million
reflects a $148,000 increase from the June 30, 1996 level. The allowance for
loan losses as a percentage of non-performing loans was 42.47% at September 30,
1996, compared to 42.52% at June 30, 1996.
Non-Interest Income. For the three months ended September 30, 1996 non-interest
income was $409,000 compared to $564,000 for the prior year period. The decrease
was primarily due to a net loss from real estate operations of $115,000 for the
three months ended September 30, 1996 compared to a net gain from real estate
operations of $80,000 for the prior year period. The decrease in real estate
operations reflects additional reserves established in accordance with internal
policies and guidelines on real estate properties currently owned by the
Company.
Non-Interest Expenses. The Company's non-interest expenses were $9.2 million for
the three months ended September 30, 1996 and include $4.8 million for the
one-time SAIF recapitalization assessment. Excluding this SAIF assessment,
non-interest expenses for the three months ended September 30, 1996 would have
been relatively unchanged from the $4.3 million reported for the three months
ended September 30, 1995. The Company's non-interest expenses, excluding the
SAIF assessment, as a percent of average assets declined to 1.60% for the three
months ended September 30, 1996 from 1.97% for the comparable prior year period.
As noted above, future deposit insurance premiums are expected to decrease
significantly, to as low as 0.0654% from the 0.23% of deposits currently paid by
the Bank, and will have the effect of reducing non-interest expenses for future
periods.
<PAGE>
Income Tax Expense. For the three months ended September 30, 1996, the Company
recorded an income tax benefit of $346,000. Excluding the effects of the
one-time SAIF recapitalization assessment, income tax expense of $1.4 million
was recorded for the 1996 period, compared to income tax expense of $1.1 million
for the prior year period. Excluding the effect of the one-time SAIF
recapitalization assessment, the effective tax rate was 38.2% for the three
month period ended September 30, 1996 and 39.4% for the three months ended
September 30, 1995.
Analysis of Net Interest Income
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and the consolidated statements
of income for the three months ended September 30, 1996 and 1995, and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived from average daily balances. The
average balance of loans receivable includes non-accruing loans. The yields and
costs include fees which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995
---------------------------------- -----------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1)
(dollars in 000's)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
One- to four-family mortgage loans................. $ 598,942 $11,317 7.56% $393,600 $ 7,548 7.67%
Commercial and multi-family real
estate loans..................................... 52,305 1,212 9.27 48,949 1,208 9.88
Consumer loans..................................... 34,200 815 9.45 32,781 826 10.00
---------- ------- -------- -------
Total loans receivable........................... 685,447 13,344 7.79 475,330 9,582 8.06
Mortgage-backed securities......................... 338,772 5,871 6.93 320,656 5,226 6.52
Investment securities and other.................... 27,997 501 7.17 28,865 561 7.77
---------- ------- -------- -------
Total interest-earning assets.................... 1,052,216 $19,716 7.50 824,851 $15,369 7.45
======= =======
Non-interest earning assets........................ 53,952 53,992
---------- --------
Total assets..................................... $1,106,168 $878,843
========== ========
Deposits and borrowings:
Money market and demand deposits.................... 78,935 $ 236 1.19% $ 80,477 $ 365 1.80%
Savings deposits.................................... 176,793 998 2.24 186,901 1,072 2.28
Certificate of deposit accounts..................... 583,823 8,241 5.60 448,740 6,483 5.73
---------- ------- --------- -------
Total deposits.................................... 839,551 9,475 4.48 716,118 7,920 4.39
FHLB of New York advances........................... 106,394 1,629 6.07 37,556 557 5.88
Other borrowings.................................... 52,497 726 5.41 19,388 291 5.88
---------- -------- -------- -------
Total deposits and borrowings..................... 998,441 $11,830 4.70 773,062 $ 8,768 4.50
======= =======
Other liabilities................................... 15,687 10,715
---------- --------
Total liabilities................................. 1,014,129 783,777
Stockholders' equity................................ 92,039 95,066
---------- --------
Total liabilities and stockholders' equity........ $1,106,168 $878,843
========== ========
Net interest income and net interest rate
spread........................................... $ 7,886 2.80% $ 6,601 2.95%
======= ==== ======= ====
Net interest-earning assets and interest
margin........................................... $ 53,774 3.00% $51,789 3.20%
========= ==== ======= ====
Ratio of interest-earning assets to
deposits and borrowings.......................... 105.39% 106.70%
========== ========
(1) Annualized.
</TABLE>
<PAGE>
Non-Performing Assets
The table below sets forth the Company's amounts and categories of
non-performing assets and troubled debt restructured loans. Loans are placed on
non-accrual status when the collection of principal and/or interest become
delinquent more than 90 days. Foreclosed assets include assets acquired in
settlement of loans and are shown net of valuation allowances. All of the
Company's troubled debt restructured loans are performing according to their
modified terms.
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---- ----
(dollars in 000's)
<S> <C> <C>
Non-performing loans:
One- to four-family ............................................. $4,310 $4,009
Commercial and multi-family real estate ......................... 1,027 913
Consumer ........................................................ 1,204 1,264
------ ------
Total non-performing loans .................................... 6,541 6,186
------ ------
Real estate owned, net ............................................ 968 1,083
------ ------
Total non-performing assets ................................... 7,509 7,269
Troubled debt restructured loans .................................. 2,332 2,340
------ ------
Total risk elements ........................................... $9,841 $9,609
====== ======
Non-performing loans as a percentage of total loans .............. 0.89% 0.94%
====== ======
Non-performing assets as a percentage of total assets ............ 0.66% 0.67%
====== ======
Total risk elements as a percentage of total assets .............. 0.86% 0.88%
====== ======
</TABLE>
Allowance for Loan Losses. The allowance for loan losses is established through
a provision for loan losses based upon management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters,
loan classifications, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such properties. If fair
value at the date of foreclosure is lower than the balance of the related loan,
the difference will be charged-off to the allowance for loan losses at the time
of transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.
<PAGE>
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowances will be the result
of periodic loan, property and collateral reviews and thus cannot be predicted
in advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to record additions to the
allowance level based upon their judgement of the information available to them
at the time of their examination. At September 30, 1996, the Company had a total
allowance for loan losses of $2.8 million representing 42.47% of total
non-performing loans.
Interest Rate Sensitivity Analysis
Interest Rate Gap. The interest rate risk inherent in assets and liabilities may
be determined by analyzing the extent to which such assets and liabilities are
"interest rate sensitive" and by measuring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate sensitive
within a defined time period if it matures or reprices within that period. The
difference or mismatch between the amount of interest-earning assets maturing or
repricing within a defined period and the amount of interest-bearing liabilities
maturing or repricing within the same period is defined as the interest rate
sensitivity gap. In an attempt to manage its exposure to changes in interest
rates, management closely monitors the Company's exposure to interest rate risk.
At September 30, 1996, the Company's total interest-bearing liabilities maturing
or repricing within one year exceeded its total interest-earning assets maturing
or repricing within one year by $132.0 million, representing a one year negative
gap of 11.55% of total assets. At June 30, 1996, the one year negative gap was
13.97% of total assets. As a result of having a negative gap, the yield on the
Company's interest-earning assets may adjust to changes in interest rates at a
slower rate than the cost of its interest-bearing liabilities. During a period
of rising interest rates, a negative gap would tend to result in a decrease in
net interest income. The opposite tendency would be expected during a period of
declining interest rates.
In evaluating the Company's exposure to interest rate risk, certain shortcomings
inherent in the method of analysis must be considered. 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 interest rates. Additionally,
certain assets, such as adjustable rate mortgages, have features which restrict
changes in interest rates in the short-term and over the life of the asset.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels may deviate significantly from those assumed in calculating
the gap position. Finally, the ability of many borrowers to service their debt
may decrease in the event of an interest rate increase. The Company considers
all of these factors in monitoring its exposure to interest rate risk.
<PAGE>
Net Portfolio Value. The Company's interest rate sensitivity is also monitored
by management through selected interest rate risk ("IRR") measures produced by
the Office of Thrift Supervision ("OTS"). Using data from the Bank's quarterly
Thrift Financial Reports, the OTS measures the Company's IRR by modeling the
change in net portfolio value ("NPV") over a variety of interest rate scenarios.
NPV is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. An NPV ratio, in any interest rate scenario, is
defined as the NPV in that rate scenario divided by the market value of assets
in the same scenario.
The IRR measures used by the OTS include an IRR "Exposure Measure" or
"Post-Shock" NPV ratio and a "Sensitivity Measure." A low "Post-Shock" NPV ratio
indicates greater exposure to IRR. Greater exposure can result from a low
initial NPV ratio or high sensitivity to changes in interest rates. 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.
As of June 30, 1996 (the latest date for which information is available), the
Company's initial NPV ratio, as measured by the OTS, was 6.95%. Following a 2%
increase in interest rates, the Company's "Post-Shock" NPV ratio was 3.20%. The
change in the NPV ratio or the Company's Sensitivity Measure was 3.75%. Had the
OTS final rule with respect to interest rate risk exposure been effective, the
increased capital requirement necessary to compensate for the greater than 2%
change in the NPV would have had no effect on the Bank's ability to comply with
its risk-based capital requirement.
Management reviews the quarterly OTS measurements and compares them to
evaluations produced on a quarterly basis through internally generated
simulation models. In addition to monitoring selected measures on NPV,
management also monitors effects on net interest income resulting from parallel
and non-parallel increases or decreases in rates. These measures are used in
conjunction with NPV measures to identify excessive IRR.
At September 30, 1996, based on its internally generated simulation models, the
Company's consolidated net interest income projected for one year forward
decreased $5.0 million or 14.0% from the base case, or current market, as a
result of an immediate and sustained 2% increase in interest rates.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, and borrowings from the FHLB
of New York. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions and competition. The
Company has competitively set rates on deposit products for selected terms and,
when necessary, has supplemented deposits with longer term or less expensive
alternative sources of funds.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 5% of net withdrawable deposits
and borrowings payable on demand or in one year or less during the preceding
calendar month. Liquid assets for purposes of this ratio include cash, accrued
interest receivable, certain time deposits, U.S. Treasury and Government
agencies and other securities and obligations generally having remaining
<PAGE>
maturities of less than five years. The Company's most liquid assets are cash
and cash equivalents, short term investments and mortgage-backed securities. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At September 30, 1996 and June
30, 1996, the Bank's liquidity ratios were 12.85% and 15.17%, respectively, both
in excess of the 5% minimum regulatory requirement.
The Company uses its liquid resources principally to meet ongoing commitments,
to fund maturing certificates of deposit and deposit withdrawals, to purchase
loans and securities, to fund existing and future loan commitments, and to meet
operating expenses. Management believes that loan repayments and other sources
of funds will be adequate to meet the Company's foreseeable liquidity needs.
In addition to cash provided by operating activities, the Company's cash needs
for the three months ended September 30, 1996 and 1995 were principally provided
by increased deposits and an increase in advances from the FHLB of New York and
other borrowings. For the three months ended September 30, 1996 and 1995, the
cash provided was principally used for investing activities, which included the
origination and purchase of loans.
Current regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percentage of risk adjusted assets; a
leverage ratio of core capital to total adjusted assets; and a tangible capital
ratio expressed as a percentage of total adjusted assets. As of September 30,
1996, the Bank substantially exceeded all regulatory capital standards (see Note
3. - Stockholders' Equity and Regulatory Capital, in the Notes to Consolidated
Financial Statements).
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNFED FINANCIAL SERVICES, INC.
Date: November 13, 1996 By:/s/ Joseph L. LaMonica
----------------------
Joseph L. LaMonica
President and Chief
Executive Officer
Date: November 13, 1996 By:/s/ Lucy T. Tinker
------------------
Lucy T. Tinker
Executive Vice President and
Chief Operating Officer
(Principal Financial Officer)
Date: November 13, 1996 By:/s/ Jeffrey J. Carfora
----------------------
Jeffrey J. Carfora
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
PennFed Financial Services, Inc. and Subsidiary
Index of Exhibits
Exhibit
11. Statement regarding computation of per share earnings
27. Financial Data Schedule
<TABLE>
<CAPTION>
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
Three Months Ended September 30, 1996 and 1995
(dollars in thousands, except per share amounts)
September 30,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net (Loss) Income ...................................... ($ 769) $ 1,648
=========== ===========
Number of shares outstanding
Weighted average shares issued ....................... 5,950,000 5,950,000
Less: Weighted average shares held in treasury ....... 1,109,190 325,155
Less: Average shares held by the ESOP ................ 476,000 476,000
Plus: ESOP shares released or committed to be released
during the fiscal year .................... 79,667 42,766
Plus: Average common stock equivalents - primary ..... 191,699 134,439
----------- -----------
Average primary shares ......................... 4,636,176 5,326,050
Plus: Average common stock equivalents - fully diluted 22,027 7,140
----------- -----------
Average fully diluted shares ................... 4,658,203 5,333,190
=========== ===========
Earnings per common share
Primary ........................................ ($ 0.17) $ 0.31
=========== ===========
Fully diluted .................................. ($ 0.17) $ 0.31
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 12,443
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 347,527
<INVESTMENTS-MARKET> 348,226
<LOANS> 732,905
<ALLOWANCE> 2,778
<TOTAL-ASSETS> 1,142,473
<DEPOSITS> 853,989
<SHORT-TERM> 65,820
<LIABILITIES-OTHER> 17,051
<LONG-TERM> 115,465
0
0
<COMMON> 60
<OTHER-SE> 90,088
<TOTAL-LIABILITIES-AND-EQUITY> 1,142,473
<INTEREST-LOAN> 13,344
<INTEREST-INVEST> 6,372
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 19,716
<INTEREST-DEPOSIT> 9,475
<INTEREST-EXPENSE> 11,830
<INTEREST-INCOME-NET> 7,886
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,235
<INCOME-PRETAX> (1,115)
<INCOME-PRE-EXTRAORDINARY> (769)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (769)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
<YIELD-ACTUAL> 3.00
<LOANS-NON> 6,541
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,332
<LOANS-PROBLEM> 6,857
<ALLOWANCE-OPEN> 2,630
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,778
<ALLOWANCE-DOMESTIC> 2,778
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
