PHILADELPHIA, PA — Prudential Bancorp, Inc. (Nasdaq: PBIP), the holding company for Prudential Bank, reported net income of $2.2 million, or $0.28 per basic and per diluted share, for the quarter ended June 30, 2021 as compared to $3.6 million, or $0.44 per basic and per diluted share, for the same quarter in fiscal 2020. For the nine months ended June 30, 2021, the Company reported net income of $5.8 million, or $0.73 per basic share and $0.72 per diluted share as compared to $9.0 million, or $1.04 per basic and $1.03 per diluted share, for the same period in fiscal 2020. The 2020 periods included significant gains on sales of investment securities available for sale.
Dennis Pollack, President and CEO, commented, “We are pleased to report continued positive operating results. We are also pleased to report improvement in both our net interest margin and interest rate spread, but recognize the need for additional improvement. We continue to evaluate and implement strategies to enhance shareholder value including stock repurchase programs and the maintenance of our regular quarterly dividend, but with a continued focus on protecting our capital in these uncertain times.”
Highlights for the Quarter Ended June 30, 2021
- Net loans receivable increased by $21.5 million to $609.8 million at June 30, 2021 compared to $588.3 million at September 30, 2020.
- The net interest margin improved to 2.13% for the three months ended June 30, 2021 compared to 1.83% for the three months ended June 30, 2020 and 2.08% for the three months ended March 31, 2021.
- The Company repurchased 309,311 shares of its common stock during the nine months ended June 30, 2021 at a weighted average per share cost of $13.95, well below the Company’s book value per share.
- The Company’s tangible book value per share (non-GAAP) was $15.94 per share at June 30, 2021 as compared to $15.07 at September 30, 2020.
- As of June 30, 2021, there were no loans on COVID-19 deferral and all the loans that had been on COVID-19 deferral had returned to paying status as of October 1, 2020.
Net Interest Income:
Net interest income for the third quarter of fiscal 2021 amounted to $5.8 million, increasing by $468,000 as compared to the same period in 2020. Primarily contributing to the favorable increase was a decrease of $920,000 in interest paid on deposits and borrowings during the quarter ended June 30, 2021. Partially offsetting the increase in net interest income was a $452,000 decrease in interest earned on interest-earning assets. The weighted average cost of borrowings and deposits decreased 24 basis points to 1.49% for the quarter ended June 30, 2021 from 1.73% for the same period in 2020 due to decreases in market rates of interest which affected both deposit and borrowing costs. The weighted average yield on their interest-earning assets increased by 3 basis points, to 3.45% for the quarter ended June 30, 2021, but the average balance of interest-earning assets declined by $62.5 million to $1.1 billion primarily due to paydowns in the investment portfolio.
On a linked quarter basis, for the three months ended June 30, 2021, net interest income increased by $48,000 to $5.8 million as compared to the three months ended March 31, 2021. The increase in net interest income reflected the effects of a decrease of $174,000 in interest paid on deposits and borrowings, partially offset by a decrease of $126,000 in interest earned on interest-earning assets. The weighted average rate paid on interest-bearing liabilities decreased from 1.52% to 1.49% while the yield earned on interest-earning assets remained level at 3.45%. The average balance of interest-earning assets decreased by $28.5 million during the third quarter of fiscal 2021.
Average interest-earning assets declined by $104.1 million for the nine months ended June 30, 2021 as compared to the same period in 2020. However, due to relative shifts in yields earned and rates paid which offset such decline in part, net interest income was $17.2 million, decreasing by $255,000 as compared to the same period in fiscal 2020. The decrease was due to a decrease of $4.1 million, or 12.7%, in interest income partially offset by a $3.9 million, or 25.5%, decrease in interest paid on deposits and borrowings. The decrease in interest income was due to the decrease in the weighted average balance of interest-earning assets and by the 14 basis point decline to 3.45% in the weighted average yield earned on their interest-earning assets. The decrease in the average balance of interest-earning assets was primarily due to paydowns in the investment portfolio. However, the weighted average cost of borrowings and deposits decreased to a greater degree, decreasing to 1.53% during the nine months ended June 30, 2021 from 1.88% during the comparable period in 2020 primarily due to decreases in market rates of interest.
For the three and nine months ended June 30, 2021, the net interest margin was 2.13% and 2.08%, respectively, compared to 1.83% and 1.92% for the same periods in fiscal 2020, respectively. The margin improvement experienced in the 2021 periods in large part reflected the more rapid decline in liability costs compared to the decline in asset yields in response to the declining interest rate environment.
Non-interest income amounted to $1.4 million and $2.5 million for the three and nine month periods ended June 30, 2021, respectively, compared to $3.8 million and $7.3 million, respectively, for the comparable periods in fiscal 2020. Both of the 2020 periods included significant gains on the sale of various investment securities. The gain on sale of investment securities aggregated $3.3 million and $6.0 million for the three and nine months ended June 30, 2020, respectively compared to $910,000 for both comparable periods in fiscal 2021.
For the three and nine month periods ended June 30, 2021, non-interest expense increased $547,000 and $514,000, respectively, compared to the same periods in the prior fiscal year. The increase was due primarily to increased employee expense due in part to the hiring of additional personnel in their lending operations to support their expanded lending activities.
For the three month and nine-month periods ended June 30, 2021, the Company recorded income tax expense of $387,000 and $908,000, respectively, compared to $701,000 and $1.8 million for the same periods in fiscal 2020. The reduction in tax expense for the three and nine month periods was commensurate with the decrease in pre-tax income.
Total assets decreased by $98.9 million to approximately $1.1 billion at June 30, 2021 from September 30, 2020. Net loans receivable increased $21.5 million to $609.8 million at June 30, 2021 from $588.3 million at September 30, 2020 due to their continuing efforts to expand their commercial real estate and business loan portfolio. Offsetting the increase in net loans were decreases in the investment portfolio of $86.3 million primarily as a result of paydowns of U.S. government agency mortgage-backed securities and a decrease in cash and cash equivalents of $37.8 million.
Total liabilities decreased by $101.2 million to $993.1 million at June 30, 2021 as compared to September 30, 2020 due primarily to a $51.0 million decrease in FHLB borrowings, and a $39.7 million decrease in deposit. The Company states they have consciously allowed higher costing FHLB borrowings and certificates of deposit to run off at maturity.
Total stockholders’ equity increased by $2.3 million to $131.4 million at June 30, 2021 from $129.1 million at September 30, 2020. The increase was primarily due to net income of $5.8 million recognized during the nine months ended June 30, 2021. Also contributing to the increase was an after tax $4.3 million increase in the fair value of interest rate swap arrangements. These increases were partially offset by the cost of net stock repurchases totaling $4.1 million, an after tax decrease in fair value of investment securities available for sale of $2.2 million and dividend payments totaling $1.7 million during the nine months ended June 30, 2021.
At June 30, 2021, the Company’s non-performing assets totaled $12.8 million or 1.1% of total assets as compared to $13.0 million or 1.1% of total assets at September 30, 2020. Non-performing assets at June 30, 2021 included three construction loans aggregating $4.2 million, 24 one-to-four family residential mortgage loans aggregating $3.4 million, three commercial real estate loans aggregating $1.3 million and two construction loans aggregating $3.8 million that were foreclosed during the third quarter of fiscal 2021 and are held as other real estate owned. At June 30, 2021, the Company had two loans totaling $1.1 million that were classified as troubled debt restructurings (“TDRs”). One TDR is on non-accrual and consists of a $395,000 loan secured by a single-family residential property which is performing in accordance with the restructured terms. The remaining TDR is a $705,000 commercial real estate loan classified as non-accrual and is part of a lending relationship totaling $6.1 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter ending March 31, 2017 related to this borrowing relationship and the two construction loans noted above that became other real estate owned during the quarter ended June 30, 2021). The primary project of the borrower (the development of a 169-unit townhouse project in Bristol Borough, Pennsylvania) is the subject of litigation between the Bank and the borrower. As previously disclosed, subsequent to the commencement of the litigation, the borrower filed for bankruptcy under Chapter 11 (Reorganization) of the federal bankruptcy code in June 2017. The Bank moved the underlying litigation noted above with the borrower from state court to the federal bankruptcy court in which the bankruptcy proceeding is being heard. The state litigation is stayed pending the resolution of the bankruptcy proceedings. As of June 30, 2021, twenty-nine units have been sold in the project with a portion of the proceeds of each sale being applied against the outstanding debt.
The Company recorded no provisions for loan losses for the three and nine months ended June 30, 2021 compared to provisions for loan losses of $750,000 and $1.4 million, respectively, for the same periods in fiscal 2020, as the $3.0 million provision expense incurred in fiscal 2020, combined with minimal recent charge-offs, was deemed sufficient to maintain the allowance at a level sufficient to cover all inherent and known losses in the current portfolio. During the three and nine months ending June 30, 2021, the Company recorded no charge offs while during the same periods the Company recorded recoveries aggregating $3,000 and $54,000, respectively. During the three and nine months ending June 30, 2020, the Company recorded one charge off of $22,000 and four charge offs aggregating $95,000, respectively. During the three and nine months ended June 30, 2020, the Company recorded recoveries aggregating $1,000 and $17,000, respectively. Although their COVID-19 loan deferrals were as high as $149.7 million during portions of fiscal 2020, all existing deferrals had ended by September 30, 2020. All of the loans which had been on deferral were current as of June 30, 2021.
The allowance for loan losses totaled $8.4 million, or 1.3% of total loans, and 93.7% of total non-performing loans at June 30, 2021 (which included loans acquired at their fair value as a result of the acquisition of Polonia Bancorp, Inc. (“Polonia”) as of January 1, 2017) as compared to $8.3 million, or 1.4% of total loans and 49.3% of total non-performing loans at September 30, 2020. The Company believes that the allowance for loan losses at June 30, 2021 was sufficient to cover all inherent and known losses associated with the loan portfolio at such date.
COVID-19 Related Information
As noted above, in response to the current situation surrounding the COVID-19 pandemic, the Company is providing assistance to its customers in a variety of ways. The Company participated in the initial Paycheck Protection Program (“PPP”) offered under the CARES Act as a Small Business Administration (“SBA”) lender. During fiscal 2021, the Company states they have worked with a third party in order for their customers to be able to participate in the updated PPP loan program adopted as part of the COVID-19 stimulus bill enacted in December 2020 as part of the 2021 Consolidated Appropriations Act.
The primary method of relief provided to loan customers was to allow borrowers to defer their loan payments for three months (and extend the term of the loan accordingly). The CARES Act and regulatory guidelines have temporarily suspended the determination of certain loan modifications related to the COVID-19 pandemic from being treated as TDRs. See “Asset Quality” discussion above.
While the Company’s banking operations were not restricted by the government stay-at-home orders, the Company took and continues to take steps to protect its employees and customers by providing for remote working for many employees, enhancing cleaning procedures for the Company’s offices, in particular its branch offices, requiring face masks to be worn by employees and maintaining appropriate social distancing in their offices. The Company continues to assess and monitor the on-going COVID-19 pandemic and will take additional such steps as are necessary to protect its employees and assist its depositor and borrower customers during this difficult time.
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