**Roebling Financial Corp, Inc.**

 

 

**2008**

**ANNUAL**

**REPORT**

 

 

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**ROEBLINGFINANCIALCORP,INC.**

**2008**ANNUALREPORT

 

 

**TABLE OF CONTENTS**

 

 

| President’s Message                               | 1      |
|---------------------------------------------------------|--------|
|                                                    |   |
| Corporate Profile and Stock Market Information          | 2      |
|                                                    |   |
| Selected Consolidated Financial Information             | 3      |
|                                                    |   |
| Management’s Discussion and Analysis of           |   |
| Financial Condition and Results of Operations           | 4      |
|                                                    |   |
| Management's Report on Internal Control                 |        |
| Over Financial Reporting                                | 16     |
|                                                    |        |
| Report of Independent Registered Public Accounting Firm | 17     |
|                                                    |   |
| Consolidated Financial Statements                       | 18     |
|                                                    |   |
| Notes to Consolidated Financial Statements              | 24     |
|                                                    |   |
| Office Locations and Other Corporate Information        | 47     |
|                                                    |   |

 

 

 

 

 

 

 

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To our Shareholders and Customers:

 

On behalf of our directors, officers and staff, I am pleased to present the 2008 Annual Report to the Shareholders. Your Company experienced another year of strong growth. Total assets grew to $154.7 million, an increase of $7.7 million or 5.2%. Total net loans reached $109.5 million, an increase of 6.5% over the prior year and total deposits grew to $130.6 million, an increase of 9.5%. This would not            have been made possible without the support of our directors and staff, and the allegiance of our customers.

 

Our net income increased to $472,000 from $339,000, an increase of $133,000 or 39.2% over the prior year. The increase in earnings was driven by an increase in net interest income, resulting from the growth in our balance sheet as well as an improvement in our interest rate spread. We continue to increase market share at our two newest branches in Delran and Westampton.

 

We continue to believe that the best way to create long-term value for our shareholders is to build our franchise by attracting core deposits and serving the credit needs of our communities. As we watch the recent market events unfold, we are even more convinced that the right choice is to stick to our community banking roots. We have not invested in the collateralized debt obligations or sub prime            mortgages that so many banks have written down. We remain grateful to our customers for their business and the support of our shareholders.

 

Sincerely,

 

/s/ Frank J. Travea, III

 

Frank J. Travea, III

President and Chief Executive Officer

 

 

*Route 130 South & Delaware Avenue, P O Box 66, Roebling, NJ 08554 (609) 499-9400*

 

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**Roebling Financial Corp**,**Inc.**

 

**Corporate Profile**

 

Roebling Financial Corp, Inc. (the “Company”) is a New Jersey corporation which was organized in 2004 and became the successor to Roebling Financial Corp, Inc., a federal corporation, after the completion of the second step mutual-to-stock conversion of Roebling Financial Corp., MHC (the “MHC”) on September 30, 2004. The Company is the holding company parent            of Roebling Bank and its principal asset is its investment in Roebling Bank. In connection with the second step conversion, the Company sold 910,764 shares of common stock to the public, raising $7.8 million in net cash proceeds. Each share of the former Roebling Financial Corp, Inc. (other than shares held by the MHC) was converted into 3.9636 shares of the new Company.

 

We currently conduct our business through Roebling Bank (the “Bank”) with five full service offices located in Roebling, New Egypt, Westampton and Delran, New Jersey and an administrative center also located in Westampton, New Jersey. We offer a broad range of deposit and loan products to individuals, families and small businesses in our market area. At            September 30, 2008, we had consolidated assets of $154.7 million, deposits of $130.6 million, and stockholders’ equity of $17.3 million.

 

**Stock Market Information**

 

Our common stock is traded on the over-the-counter market with quotations available on the OTC Bulletin Board under the symbol “RBLG.” The following table reflects high and low bid quotations and dividends declared for each quarter for the past two fiscal years. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not            represent actual transactions.

 

| **Quarter Ended**  |   | **High** |   | **Low** |   | **Dividends** |   |
|--------------------|--------|----------|--------|---------|--------|---------------|--------|
|               |   |     |   |    |   |          |   |
| September 30, 2008 |   | $        | 10.00  |    | $      | 7.20          |   |   | — |   |
| June 30, 2008      |   |     | 9.57   |    |   | 8.12          |   |   | — |   |
| March 31, 2008     |   |     | 11.50  |    |   | 9.05          |   |   | — |   |
| December 31, 2007  |   |     | 12.55  |    |   | 9.50          |   | $ | .10 |   |
| September 30, 2007 |   |     | 12.55  |    |   | 10.20         |   |   | — |   |
| June 30, 2007      |   |     | 14.00  |    |   | 11.73         |   |   | — |   |
| March 31, 2007     |   |     | 12.91  |    |   | 12.25         |   |   | — |   |
| December 31, 2006  |   |     | 13.40  |    |   | 12.10         |   | $ | .10 |   |

 

As of September 30, 2008 there were 1,718,473 shares of our common stock outstanding and approximately 510 holders of record. This number does not reflect the number of persons or entities who held stock in nominee or “street” name through various brokerage firms. The Company declared its fourth dividend on November 3, 2008. A cash dividend of $.10 per share was            declared, payable to stockholders of record as of November 24, 2008, with payment on December 15, 2008. The payment of future dividends will be subject to the periodic review of the financial condition, results of operations and capital requirements of the Company and Bank.

 

2

 

 

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**Selected Consolidated Financial Information**

 

|                                                                   |   | **At or for the Year Ended September 30,**        |      |
|------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|
|                                                                   |   | **2008**                                          |      | **2007** |   | **2006** |   |
|                                                                   |   | **(Dollars in thousands, except per share data)** |      |
|                                                                   |   |                                              |      |   |   |   |   |   |   |   |
| **Selected Balance Sheet Data:**                                       |   |                                              |      |   |   |   |   |   |   |   |
| Assets                                                                 |   | $                                                 | 154,666   |   | $ | 147,008 |   | $ | 130,607 |   |
| Loans receivable, net                                                  |   |                                              | 109,474   |   |   | 102,772 |   |   | 94,014 |   |
| Securities                                                             |   |                                              | 33,034    |   |   | 34,899 |   |   | 27,602 |   |
| Deposits                                                               |   |                                              | 130,575   |   |   | 119,208 |   |   | 103,682 |   |
| Borrowed funds                                                         |   |                                              | 5,000     |   |   | 9,500 |   |   | 9,300 |   |
| Shareholders’ equity                                             |   |                                              | 17,308    |   |   | 16,859 |   |   | 16,410 |   |
| **Selected Results of Operations:**                                    |   |                                              |      |   |   |   |   |   |   |   |
| Interest income                                                        |   | $                                                 | 8,626     |   | $ | 7,975 |   | $ | 6,650 |   |
| Interest expense                                                       |   |                                              | 3,451     |   |   | 3,483 |   |   | 2,212 |   |
| Net interest income                                                    |   |                                              | 5,175     |   |   | 4,491 |   |   | 4,438 |   |
| Provision for loan losses                                              |   |                                              | 278       |   |   | 47 |   |   | 132 |   |
| Non-interest income                                                    |   |                                              | 512       |   |   | 563 |   |   | 463 |   |
| Non-interest expense                                                   |   |                                              | 4,667     |   |   | 4,417 |   |   | 3,988 |   |
| Net income                                                             |   |                                              | 472       |   |   | 339 |   |   | 430 |   |
| **Per Share Data:**                                                    |   |                                              |      |   |   |   |   |   |   |   |
| Earnings per share - basic                                             |   | $                                                 | 0.28      |   | $ | 0.21 |   | $ | 0.26 |   |
| Earnings per share - diluted                                           |   |                                              | 0.28      |   |   | 0.21 |   |   | 0.26 |   |
| Book value per share                                                   |   |                                              | 10.07     |   |   | 9.81 |   |   | 9.58 |   |
| Weighted average basic shares outstanding                              |   |                                              | 1,658,995 |   |   | 1,644,407 |   |   | 1,632,681 |   |
| Weighted average diluted shares outstanding                            |   |                                              | 1,662,376 |   |   | 1,653,182 |   |   | 1,641,774 |   |
| **Performance Ratios:**                                                |   |                                              |      |   |   |   |   |   |   |   |
| Return on average assets                                               |   |                                              | 0.32      | % |   | 0.25 | % |   | 0.36 | % |
| Return on average equity                                               |   |                                              | 2.74      |   |   | 2.06 |   |   | 2.67 |   |
| Net interest rate spread                                               |   |                                              | 2.99      |   |   | 2.76 |   |   | 3.36 |   |
| Net interest margin                                                    |   |                                              | 3.61      |   |   | 3.49 |   |   | 3.93 |   |
| Efficiency ratio                                                       |   |                                              | 82.06     |   |   | 87.40 |   |   | 81.37 |   |
| Dividend payout ratio                                                  |   |                                              | 0.36      |   |   | 0.48 |   |   | 0.39 |   |
| Average interest-earning assets to averageinterest-bearing liabilities |   |                                              | 1.26      | x |   | 1.27 | x |   | 1.29 | x |
| **Asset Quality Ratios:**                                              |   |                                              |      |   |   |   |   |   |   |   |
| Non-performing loans to total assets                                   |   |                                              | 0.60      | % |   | 0.33 | % |   | 0.37 | % |
| Non-performing loans to total loans, net                               |   |                                              | 0.83      |   |   | 0.47 |   |   | 0.51 |   |
| Net charge-offs to average loans                                       |   |                                              | 0.07      |   |   | 0.00 |   |   | 0.00 |   |
| Allowance for loan losses to total loans at period end                 |   |                                              | 0.87      |   |   | 0.72 |   |   | 0.74 |   |
| Allowance for loan losses to non-performing loans at period end        |   |                                              | 1.04      | x |   | 1.55 | x |   | 1.45 | x |
| **Capital Ratios:**                                                    |   |                                              |      |   |   |   |   |   |   |   |
| Average equity to average assets                                       |   |                                              | 11.50     | % |   | 12.12 | % |   | 13.59 | % |
| Equity to assets at period end                                         |   |                                              | 11.19     |   |   | 11.47 |   |   | 12.57 |   |

 

 

3

 

 

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**MANAGEMENT’S DISCUSSION AND ANALYSIS**

**OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-Looking Statements**

 

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words “intends”, “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 and general economic conditions. We undertake no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of            unanticipated events.

 

*Since we conduct no significant business other than owning all of the common stock of Roebling Bank, references in this discussion to “we,” “us,” and “our,” refer collectively to Roebling Financial Corp, Inc. and Roebling Bank.*

 

**General**

 

Roebling Financial Corp, Inc. is the successor to the former mid-tier holding company subsidiary of Roebling Financial Corp., MHC (the “MHC”), which completed its second step conversion to stock form on September 30, 2004. In connection with the second step conversion, the Company sold 910,764 shares to the public for $10 per share (including 72,861 shares purchased by            the Company’s employee stock ownership plan with funds borrowed from the Company). As a result of the second step conversion, each stockholder in the MHC’s former mid-tier holding company subsidiary (other than the MHC, whose shares were cancelled) received 3.9636 shares of the Company’s common stock in exchange for each share held and the Company became the sole shareholder in Roebling Bank.

 

Our results of operations depend primarily on our net interest income, which is the difference between the interest earned on interest-earning assets, primarily loans and investments, and the interest paid on interest-bearing liabilities, primarily deposits and borrowings. It is also a function of the composition of assets and liabilities and the relative amount of interest-earning            assets to interest-bearing liabilities. Our results of operations are also affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of service charges and fees. Non-interest expense consists primarily of compensation and benefits, occupancy and equipment, data processing fees and other operating expenses. Our results of operations may also be affected significantly by economic and competitive conditions, changes            in market interest rates, governmental policies and actions of regulatory authorities.

 

**Critical Accounting Policies, Judgments and Estimates**

 

The accounting and reporting policies of Roebling Financial Corp, Inc. conform with the accounting principles generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to            make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

 

4

 

 

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We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the allowance for loan losses to be a critical accounting policy.

 

**Allowance for Loan Losses**. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses,            which is charged against income. Management performs an evaluation of the adequacy of the allowance for loan losses on a quarterly basis, at a minimum. Consideration is given to a variety of factors including current economic conditions, the current real estate market, delinquency statistics, composition of the loan portfolio, loss experience, the adequacy of the underlying collateral, the financial strength of the borrowers, results of internal loan reviews, geographic and industry            concentrations, and other factors related to the collectibility of the loan portfolio. The valuation is inherently subjective as it requires material estimates, including the amounts and timing of expected future cash flows expected to be received on impaired loans, which may be susceptible to significant change.

 

Our methodology for analyzing the allowance for loan losses consists of several components. Specific allocations are made for loans that are determined to be impaired. A loan is considered to be impaired when, based on current information, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. For such loans, a            specific allowance is established when the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral, adjusted for market conditions and selling expenses, is less than the carrying value of the loan. The general allocation is determined by segregating the remaining loans into groups by type and purpose of loan and applying a reserve percentage to each group. The reserve percentage is based on inherent losses associated with each            type of lending, as well as historical loss factors. We also look at the level of our allowance in proportion to nonperforming loans and total loans. We have established an overall range that we have determined is prudent based on historical and industry data. An unallocated allowance represents the excess of the total allowance, determined to be in the established range, over the specific and general allocations.

 

While we believe that we use the best information available to perform our loan loss allowance analysis, adjustments to the allowance in the future may be necessary. Changes in underlying estimates could result in the requirement for additional provisions for loan losses. For example, a rise in delinquency rates may cause us to increase the reserve percentages we apply to loan            groups for purposes of calculating general allocations, or may require additional specific allocations for impaired loans. In addition, actual loan losses may be significantly more than the reserves we have established. Each of these scenarios would require additional provisions, which could have a material negative effect on our financial results. The ratio of the allowance for loan losses to total loans outstanding was .87% and .72% at September 30, 2008 and 2007, respectively. A            25% increase in this ratio would have increased the allowance by $239,000 and $187,000 at September 30, 2008 and 2007, respectively.

 

**Business Strategy**

 

Our business strategy has been to operate as a well-capitalized independent financial institution dedicated to providing convenient access and quality service at competitive prices. Historically, we have sought to implement this strategy by maintaining a substantial part of our assets in loans secured by one-to-four family residential real estate located in our market area and home            equity and consumer loans. In recent years, we have diversified our portfolio to include a higher percentage of commercial real estate, multifamily and construction loans, which are generally secured by properties in our market area. We intend to continue to emphasize a variety of deposit and loan products, with the latter consisting primarily of one-to-four family

 

5

 

 

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mortgages, home equity loans, commercial real estate and construction loans. We have grown our branch network, which has expanded our geographic reach, and may consider the acquisition of other financial institutions or branches.

 

**Management of Interest Rate Risk and Market Risk**

 

Because the majority of our assets and liabilities are sensitive to changes in interest rates, our most significant form of market risk is interest rate risk, or changes in interest rates. We may be more vulnerable to an increase or decrease in interest rates depending upon 1) the duration and repricing characteristics of our interest-earning assets and interest-bearing liabilities            at a given point in time, 2) the time horizon and 3) the level of interest rates.

 

We have established an asset/liability committee that consists of the Chairman of our Board of Directors and two outside Directors, our President and members of our management team. The committee meets on a semiannual basis to review loan and deposit pricing and production volumes, interest rate risk analyses, liquidity and borrowing needs, and a variety of other asset and            liability management topics. General asset/liability matters are discussed at the Board’s regular meetings.

 

To reduce the effect of interest rate changes on net interest income, we have adopted various strategies to enable us to improve the matching of interest-earning asset maturities to interest-bearing liability maturities. The principal elements of these strategies include seeking to:

 

|   | **•** | originate loans with adjustable rate features or shorter term fixed rates for portfolio and sell longer term fixed rate mortgages; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | maintain a high percentage of low-cost transaction and savings accounts which tend to be less interest rate sensitive when interest rates rise; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | lengthen the maturities of our liabilities when it would be cost effective through the pricing and promotion of longer term certificates of deposit; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | **•** | maintain an investment portfolio, with short to intermediate terms to maturity or adjustable interest rates, that provides a stable cash flow, thereby providing investable funds in varying interest rate cycles. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Exposure to interest rate risk is closely monitored by our management. Our objective is to maintain a consistent level of profitability within acceptable risk tolerances across a broad range of potential interest rate environments. In addition to various analyses, we use the Office of Thrift Supervision (“OTS”) Net Portfolio Value (“NPV”) Model, which            calculates changes in net portfolio value, to monitor our exposure to interest rate risk. NPV is equal to the estimated present value of assets minus the present value of liabilities plus the net present value of off-balance-sheet contracts. The Interest Rate Risk Exposure Report shows the degree to which balance sheet line items and net portfolio value are potentially affected by a 100 to 300 basis point (1/100th of a percentage point) upward and downward parallel shift            (shock) in the Treasury yield curve.

 

6

 

 

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The following table represents our Net Portfolio Value calculations at September 30, 2008. This data was calculated by the OTS, based upon information we provided to them.

 

|                  |   |                    |   | **NPV as % of Present** |
|-----------------------|--------|-------------------------|--------|-------------------------|
|                  |   | **Net Portfolio Value** |   | **Value of Assets**     |
| **Change****in Rate** |   | **Estimated****Amount** |   | **Change**              |   | **% Change** |   | **NPV****Ratio(1)** |   | **Change(2)** |
|                  |   | ($ in thousands)        |   |                    |   |   |   |   |   |   |   |
| +300                  | bp     |                    | $      | 13,454                  |   | $ | (4,494 | ) |   | (25 | %) |   | 8.70 | % |   | - 248 | bp |
| +200                  | bp     |                    |   | 15,304                  |   |   | (2,644 | ) |   | (15 | %) |   | 9.75 | % |   | -143 | bp |
| +100                  | bp     |                    |   | 16,832                  |   |   | (1,116 | ) |   | ( 6 | %) |   | 10.59 | % |   | -59 | bp |
| +50                   | bp     |                    |   | 17,385                  |   |   | (563 | ) |   | ( 3 | %) |   | 10.88 | % |   | -29 | bp |
| 0                     | bp     |                    |   | 17,948                  |   |   |   |   |   |   |   |   | 11.18 | % |   |   |   |
| -50                   | bp     |                    |   | 18,210                  |   |   | 262 |   |   | 1 | % |   | 11.30 | % |   | +13 | bp |
| -100                  | bp     |                    |   | 18,370                  |   |   | 422 |   |   | 2 | % |   | 11.37 | % |   | +19 | bp |

 

_______________

| (1) | Calculated as the estimated NPV divided by the present value of assets. |
|-----|-------------------------------------------------------------------------|

| (2) | Calculated as the increase (decrease) in the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The above table indicates that in the event of a sudden and sustained increase in prevailing market interest rates, the Bank’s net portfolio value would be expected to decrease. Conversely, a decrease in interest rates would benefit net portfolio value.

 

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in such computations. Although certain assets and liabilities may have similar maturities or            periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally have features which restrict changes in interest rates on a short term basis            and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making the calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.

 

**Comparison of Financial Condition at September 30, 2008 and 2007**

 

***Assets.***Total assets increased $7.7 million, or 5.2%, to $154.7 million at September 30, 2008, from $147.0 million at September 30, 2007. This increase is primarily attributable to a $6.7 million increase in net loans receivable and a $3.0 million increase in interest-bearing deposits, partially offset by a $1.9 million decrease in the securities            portfolio. The loans receivable, net, portfolio increased by 6.5% to $109.5 million at September 30, 2008 from $102.8 million at September 30, 2007, while the securities portfolio decreased by 5.3% to $33.0 million from $34.9 million during the same period. The majority of the change in loans receivable, net is attributable to increases of $4.5 million and $3.9 million in the commercial real estate and one-to-four family residential mortgage portfolios, respectively, offset by a            $1.7 million decrease in the construction and land loan portfolios. Loans secured by one-to-four family residences, including home equity loans, have historically comprised the majority of the loan portfolio. While we expect these loans to continue to be a significant part of the loan portfolio, we intend to continue to increase commercial

 

7

 

 

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lending, primarily mortgage-secured and, as a result, anticipate a continued shift in the ratio of one-to-four family mortgages and commercial related loans, including multifamily, commercial real estate and construction and land loans. The one-to-four family and home equity loan portfolios represented 69.0% of loans receivable, net at September 30, 2008 and 69.5% at September 30, 2007.

 

***Liabilities.***Total liabilities increased $7.2 million to $137.4 million at September 30, 2008 from $130.1 million at September 30, 2007. Deposits increased by $11.4 million or 9.5%, to $130.6 million at September 30, 2008 from $119.2 million at September 30, 2007, while borrowed funds decreased by $4.5 million during the same period, to $5.0            million at September 30, 2008, from $9.5 million at September 30, 2007. The increase in total deposits was attributable to a $6.3 million increase in certificate of deposit accounts and a $5.1 million increase in transaction accounts. Certificates of deposit increased primarily as a result of promotional specials, while the increase in transaction accounts is primarily a result of business development efforts. Our ratio of core deposit accounts (non-certificates of deposit) to total            deposits has remained stable at 46% at September 30, 2008 and 2007. We expect the deposit market to continue to be extremely competitive and it will be an ongoing challenge to increase core deposits and market share.

 

***Stockholders’ Equity.***Stockholder’s equity was $17.3 million at September 30, 2008, increasing slightly from $16.9 million at September 30, 2007. The largest components of the change in stockholders’ equity for the year ended September 30, 2008 include net income of $472,000 and an increase in the unrealized gain on            available-for-sale securities, adjusted for deferred income taxes, which added $191,000 to equity. During the same period, other significant changes to equity include a decrease of $165,000 for the payment of dividends and a decrease of $177,000 for the minimum pension liability adjustment required by Statement of Financial Accounting Standards No. 158. In addition, the amortization of ESOP shares, the allocation of restricted stock plan shares and the tax benefit associated with            stock benefit plans added $89,000, $36,000 and $5,000, respectively.

 

8

 

 

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**Average Balance Sheet, Interest Rates and Yields**

 

The following tables set forth certain information relating to our average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

 

|                                                                            |   | **For the Year Ended September 30,** |    |         | **For the Year Ended September 30,** |           |
|---------------------------------------------------------------------------------|--------|--------------------------------------|---------|--------------|--------------------------------------|----------------|
|                                                                            |   | **2008**                             |    |         | **2007**                             |           |
|                                                                            |   | **Average**                          |    |         |                                 | **Average**    |   |   | **Average** |   |   |   | **Average** |   |
|                                                                            |   | **Balance**                          |    | **Interest** |                                 | **Yield/Cost** |   |   | **Balance** |   | **Interest** |   | **Yield/Cost** |   |
|                                                                            |   |                                 |    | **(Actual)** |                                 |           |   |   |   |   | **(Actual)** |   |   |   |
|                                                                            |   | **(Dollars in thousands)**           |    |         | **(Dollars in thousands)**           |           |
| Interest-earning assets:                                                        |   |                                 |    |         |                                 |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable (1)                                                            |   | $                                    | 108,471 |         | $                                    | 6,923          |   | 6.38 | % |   | $ | 96,229 |   | $ | 6,545 |   | 6.80 | % |
| Investment securities                                                           |   |                                 | 33,113  |         |                                 | 1,629          |   | 4.92 |   |   |   | 30,695 |   |   | 1,326 |   | 4.32 |   |
| Other interest-earning assets (2)                                               |   |                                 | 1,769   |         |                                 | 74             |   | 4.18 |   |   |   | 1,848 |   |   | 104 |   | 5.63 |   |
| Total interest-earning assets                                                   |   |                                 | 143,353 |         |                                 | 8,626          |   | 6.02 |   |   |   | 128,772 |   |   | 7,975 |   | 6.19 |   |
| Non-interest-earning assets                                                     |   |                                 | 6,822   |         |                                 |           |   |   |   |   |   | 6,866 |   |   |   |   |   |   |
| Total assets                                                                    |   | $                                    | 150,175 |         |                                 |           |   |   |   |   | $ | 135,638 |   |   |   |   |   |   |
|                                                                            |   |                                 |    |         |                                 |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                   |   |                                 |    |         |                                 |           |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking                                                       |   | $                                    | 7,909   |         |                                 | 21             |   | 0.27 |   |   | $ | 8,993 |   |   | 24 |   | 0.27 |   |
| Savings accounts                                                                |   |                                 | 16,576  |         |                                 | 101            |   | 0.61 |   |   |   | 17,705 |   |   | 104 |   | 0.59 |   |
| Money market accounts                                                           |   |                                 | 17,052  |         |                                 | 407            |   | 2.39 |   |   |   | 11,830 |   |   | 421 |   | 3.56 |   |
| Certificates of deposit                                                         |   |                                 | 64,795  |         |                                 | 2,614          |   | 4.03 |   |   |   | 55,685 |   |   | 2,611 |   | 4.69 |   |
| Borrowings                                                                      |   |                                 | 7,447   |         |                                 | 308            |   | 4.14 |   |   |   | 7,448 |   |   | 324 |   | 4.35 |   |
| Total interest-bearing liabilities                                              |   |                                 | 113,779 |         |                                 | 3,451          |   | 3.03 |   |   |   | 101,661 |   |   | 3,484 |   | 3.43 |   |
| Non-interest-bearing liabilities (3)                                            |   |                                 | 19,125  |         |                                 |           |   |   |   |   |   | 17,543 |   |   |   |   |   |   |
| Total liabilities                                                               |   |                                 | 132,904 |         |                                 |           |   |   |   |   |   | 119,204 |   |   |   |   |   |   |
| Stockholders’ equity                                                      |   |                                 | 17,271  |         |                                 |           |   |   |   |   |   | 16,434 |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                                |   | $                                    | 150,175 |         |                                 |           |   |   |   |   | $ | 135,638 |   |   |   |   |   |   |
| Net interest income                                                             |   |                                 |    |         | $                                    | 5,175          |   |   |   |   |   |   |   | $ | 4,491 |   |   |   |
| Interest rate spread (4)                                                        |   |                                 |    |         |                                 |           |   | 2.99 | % |   |   |   |   |   |   |   | 2.76 | % |
| Net interest margin (5)                                                         |   |                                 |    |         |                                 |           |   | 3.61 | % |   |   |   |   |   |   |   | 3.49 | % |
| Ratio of average interest-earning assetsto average interest-bearing liabilities |   |                                 |    |         |                                 |           |   | 125.99 | % |   |   |   |   |   |   |   | 126.67 | % |

 

_________________________________

| (1) | Average balances include non-accrual loans. Interest income includes amortization of net deferred loan fees and (costs) of $9,000 and $48,000 for the fiscal years 2008 and 2007, respectively. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes interest-bearing deposits in other financial institutions and FHLB stock. Tax exempt interest is not presented on a taxable equivalent basis. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes average non-interest-bearing deposits of $17,795,000 and $16,217,000 for the years ended September 30, 2008 and 2007, respectively. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
|-----|--------------------------------------------------------------------------------------------------------|

 

9

 

 

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**Rate/Volume Analysis**

 

The table below sets forth certain information regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, the table distinguishes between: (i) changes attributable to volume (changes in average volume multiplied by prior period’s rate); and (ii) changes            attributable to rates (changes in rate multiplied by old average volume). For purposes of this table, the net change attributable to the combined impact of rate and volume has been allocated proportionally to the absolute dollar amounts of change in each.

 

|                              |   | **Year Ended September 30,** |   |     |   | **Year Ended September 30,** |   |
|-----------------------------------|--------|------------------------------|--------|----------|--------|------------------------------|--------|
|                              |   | **2008 vs. 2007**            |   |     |   | **2007 vs. 2006**            |   |
|                              |   | **Increase (Decrease)**      |   |     |   | **Increase (Decrease)**      |   |
|                              |   | **Due to**                   |   |     |   | **Due to**                   |   |
|                              |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |
|                              |   | **Volume**                   |   | **Rate** |   | **Net**                      |   |   |   | **Volume** |   | **Rate** |   | **Net** |   |
|                              |   | (In thousands)               |   |
| Interest-earning assets:          |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                  |   | $                            | 798    |     | $      | (420                         | )      | $ | 378 |   |   |   | $ | 751 |   | $ | 165 |   | $ | 916 |   |
| Investment securities             |   |                         | 109    |     |   | 194                          |   |   | 303 |   |   |   |   | 156 |   |   | 196 |   |   | 352 |   |
| Other interest-earning assets     |   |                         | (4     | )        |   | (26                          | )      |   | (30 | ) |   |   |   | 48 |   |   | 9 |   |   | 57 |   |
| Total interest-earning assets     |   | $                            | 903    |     | $      | (252                         | )      | $ | 651 |   |   |   | $ | 955 |   | $ | 370 |   | $ | 1,325 |   |
|                              |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:     |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing checking         |   | $                            | (3     | )        | $      | 0                            |   | $ | (3 | ) |   |   | $ | (3 | ) | $ | 5 |   | $ | 2 |   |
| Savings accounts                  |   |                         | (7     | )        |   | 4                            |   |   | (3 | ) |   |   |   | (19 | ) |   | 4 |   |   | (15 | ) |
| Money market accounts             |   |                         | 151    |     |   | (165                         | )      |   | (14 | ) |   |   |   | 128 |   |   | 100 |   |   | 228 |   |
| Certificates of deposit           |   |                         | 395    |     |   | (392                         | )      |   | 3 |   |   |   |   | 759 |   |   | 403 |   |   | 1,162 |   |
| Borrowings                        |   |                         | 0      |     |   | (16                          | )      |   | (16 | ) |   |   |   | (112 | ) |   | 7 |   |   | (105 | ) |
| Total interest-bearingLiabilities |   | $                            | 536    |     | $      | (569                         | )      | $ | (33 | ) |   |   | $ | 753 |   | $ | 519 |   | $ | 1,272 |   |
|                              |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                              |   |                         |   |     |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income               |   | $                            | 367    |     | $      | 317                          |   | $ | 684 |   |   |   | $ | 202 |   | $ | (149 | ) | $ | 53 |   |

 

**Comparison of Results of Operations for the Years Ended September 30, 2008 and 2007**

 

***Net Income***. Net income for the year ended September 30, 2008 was $472,000 ($0.28 per diluted share), an increase of $133,000 or 39.2%, from $339,000 ($0.21 per diluted share) for the year ended September 30, 2007. The increase in net income resulted from an increase in net interest income, which more than offset increases in the provision for            loan losses, non-interest expense and income taxes, and a decrease in non-interest income.

 

10

 

 

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***Interest Income.***The average balance of total interest-earning assets for the year ended September 30, 2008 increased by $14.6 million compared to the year ended September 30, 2008, while the average yield decreased to 6.02% from 6.19%. The increase in total interest income of $651,000 for the year ended September 30, 2008 is comprised of an            increase in interest income of $378,000 on loans receivable and $302,000 on investment securities, partially offset by a decrease of $30,000 in interest income on other interest-earning assets. Average loan receivable balances increased by $12.2 million for the year ended September 30, 2008 compared to the same 2007 period, while the average yield decreased to 6.38% from 6.80%. For the year ended September 30, 2008, the average balance of investment securities increased by $2.4            million compared to the same 2007 period, while the average yield increased to 4.92% from 4.32%. The improvement in yield on investment securities is primarily the result of the reinvestment of funds from maturing securities and the purchase of additional securities at market rates which were higher than the rates on the securities which matured.

 

***Interest Expense.***Interest expense decreased slightly, to $3,451,000 for the year ended September 30, 2008 compared to $3,483,000 for the same 2007 period. Although average interest-bearing liability balances increased by $12.1 million, the average cost of interest-bearing liabilities decreased to 3.03% from 3.43%, resulting in a decrease in            interest expense. Average interest-bearing deposit balances increased by $12.1 million with a decrease in the average cost to 2.96% for the year ended September 30, 2008 compared to 3.35% for the same 2007 period, while average borrowings were unchanged at $7.4 million, with a decrease in the average cost to 4.14% from 4.35%. The Federal Reserve began reducing the Federal Funds rate in September 2007, cutting the rate six times between September 30, 2007 and 2008, for a total            reduction of 275 basis points during our fiscal year. This had a significant effect on interest rates as market interest rates have been following the same downward trend and the decrease in our deposit and borrowing costs is a reflection of market movements throughout the year.

 

***Net Interest Income.***Net interest income increased by $684,000, or 15.2% to $5.2 million for the year ended September 30, 2008, compared to $4.5 million for the year ended September 30, 2007. Reflecting the rate environment and the normalization of the yield curve, the Company’s spread and margin improved during the year, as the average            yield on total interest-earning assets for the year ended September 30, 2008 decreased by 17 basis points compared to the year ended September 30, 2007, while the overall cost of funds decreased 40 basis points for the same period. As a result, the interest rate spread increased by 23 basis points, to 2.99% for the year ended September 30, 2008 compared to 2.76% for the year ended September 30, 2007, while the net interest margin increased by 12 basis points, to 3.61% from 3.49% in            the same time period.

 

***Provision for Losses on Loans.***The provision for loan losses is charged to operations to bring the total allowance for loan losses to a level that represents management’s best estimate of the losses inherent in the portfolio, based on a review by management of the following factors:

 

|   | **•** | historical experience; |
|--------|------------|------------------------|

|   | **•** | volume; |
|--------|------------|---------|

|   | **•** | type of lending conducted by the Bank; |
|--------|------------|----------------------------------------|

|   | **•** | industry standards; |
|--------|------------|---------------------|

|   | **•** | the level and status of past due and non-performing loans; |
|--------|------------|------------------------------------------------------------|

|   | **•** | the real estate market; |
|--------|------------|-------------------------|

|   | **•** | the general economic conditions in the Bank’s lending area; and |
|--------|------------|-----------------------------------------------------------------------|

|   | **•** | other factors affecting the collectibility of the loans in its portfolio. |
|--------|------------|---------------------------------------------------------------------------|

 

11

 

 

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Our methodology for analyzing the allowance for loan losses consists of two components: general and specific allowances. A general valuation allowance is determined by applying estimated loss factors to various aggregate loan categories. Specific valuation allowances are created when management believes that the collectibility of a specific loan has been impaired and a loss is            probable. The allowance level is reviewed on a quarterly basis, at a minimum.

 

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. The allowance for loan losses is maintained at a level that represents management’s best estimate of losses in the loan portfolio at the balance sheet date. However, there can be no assurance that the allowance for losses will be adequate to cover losses which may be            realized in the future, and that additional provisions for losses will not be required. In addition, regulatory agencies, as part of their examination process, periodically review the allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgment regarding the adequacy of the allowance for loan losses at the time of their examination.

 

The provision for loan losses was $278,000 for the year ended September 30, 2008, compared to $47,000 for the same 2007 period. The increase in the provision in fiscal 2008 is due primarily to an increase in nonperforming and delinquent loans and the deteriorating economy and real estate market. The allowance for loan losses was $956,000 or .87% of total loans outstanding at            September 30, 2008, compared to $750,000 or .72% of total loans outstanding at September 30, 2007. The ratio of the allowance for loan losses to non-performing loans decreased to 1.04 times at September 30, 2008 from 1.55 times at September 30, 2007. Non-performing loans, expressed as a percentage of total loans, increased to .83% at September 30, 2008 from .47% at September 30, 2007.

 

***Non-interest Income.***Non-interest income decreased $51,000, or 9.0%, to $512,000 for the year ended September 30, 2008, compared to $563,000 for same period in 2007. The decrease in non-interest income is primarily attributable to a $34,000 decrease in loan fees for the year ended September 30, 2008 compared to the same 2007 period and an $18,000            decrease in account servicing and other fees for the same period. The decrease in loan fees is primarily attributable to the receipt in fiscal 2007 of a non-refundable commitment fee received for a loan application that did not close, and a lower amount of prepayment fees and late charges received in 2008. The decrease in account servicing and other fees is due primarily to lower non-sufficient and uncollected fund fees.

 

**Non-interest Expense**. Non-interest expense increased $250,000, or 5.6%, to $4.7 million for the year ended September 30, 2008, from $4.4 million for the same period in 2007. The increase in non-interest expense resulted from increases in service bureau and data processing, federal insurance premiums, real estate and repossessed assets and other expense,            partially offset by decreases in compensation and benefits and occupancy expense. Service bureau and data processing expense increased by $63,000, or 14.4%, for the year ended September 30, 2008 compared to the same 2007 period, with the increase related to the maintenance and security of our internal computer equipment and networks, and higher data line costs. Federal insurance premiums increased by $81,000 to $94,000 for the year ended September 30, 2008, compared to $13,000 for            the same 2007 period. These premiums represent the cost of our FDIC deposit insurance assessments and increased primarily as a result of the increased assessment rates first effective during the 2007 fiscal year and the utilization of our remaining assessment credit during the 2008 fiscal year. We anticipate a further increase in the cost of federal deposit insurance from current levels of five to seven basis points. The FDIC has recently adopted a proposal to increase the            assessment rate for the most highly rated institutions to between 12 and 14 basis points for the first quarter of 2009 and has proposed to increase the assessment rate to between 10 and 14 basis points thereafter. Assessment rates could be further increased if an institution’s FHLB advances exceed 15% of deposits. The FDIC has also established a program under which it fully guarantees all non-interest bearing transaction accounts of banks. Institutions that did not opt out of            the program by

 

12

 

 

----

December 5, 2008 will be assessed ten basis points for non-interest bearing transaction account balances in excess of $250,000. The Bank did not opt out of the program. Real estate (“REO”) and repossessed assets expense totaled $50,000 for the year ended September 30, 2008, while there was no expense in 2007. In 2008, $26,000 of the expense was related to provisions and the loss upon the            sale of a repossessed asset, while $24,000 related to operating costs of that same asset as well as one REO property. Other expense increased by $104,000 for year ended September 30, 2008 compared to the same 2007 period, with the increase primarily related to compliance with the Sarbanes-Oxley Act (“SOX”). While we will have ongoing SOX compliance costs, we anticipate that the expense in future years will be lower than in 2008, our initial year of required            compliance.

 

***Income Taxes***. The provision for income taxes increased $20,000 to $270,000 for the year ended September 30, 2008 from $250,000 for the year ended September 30, 2007, resulting in an effective tax rate of 36.4% for the 2008 fiscal year compared to 42.5% for the 2007 fiscal year. The decrease in the effective tax rate is due to permanent book / tax            differences.

 

**Liquidity and Capital Resources**

 

Liquidity is the ability to fund assets and meet obligations as they come due. Liquidity risk is the risk of not being able to obtain funds at a reasonable price within a reasonable period of time to meet financial commitments when due. We are required under federal regulations to maintain a sufficient level of liquid assets (including specified short-term securities and certain            other investments), as determined by management and reviewed for adequacy by regulators during examinations. Roebling Bank is also subject to federal regulations that impose certain minimum capital requirements. See Note 12 to our consolidated financial statements.

 

Our liquidity, represented by cash and cash equivalents and investment securities, is a product of our operating, investing and financing activities. Our primary sources of liquidity are deposits, loan and investment security repayments and sales, and borrowed funds. While scheduled payments from the amortization and maturity of loans, investment securities and short-term            investments are relatively predictable sources of funds, deposit flows, loan and mortgage-backed security prepayments and investment security calls are greatly influenced by general interest rates, economic conditions and competition. We monitor projected liquidity needs to ensure that adequate liquidity is maintained on a daily and long-term basis. We have the ability to borrow from the FHLB of New York, or others, should the need arise. As of September 30, 2008, we had $5.0            million in outstanding borrowings from the FHLB of New York.

 

**Off-Balance Sheet Arrangements**

 

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers and to reduce our exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized            in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of our involvement in particular classes of financial instruments.

 

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amounts of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. We generally do not require collateral or other            security to support financial instruments with credit risk, with the exception of letters of credit.

 

13

 

 

----

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily            represent future cash requirements. We have approved lines of credit unused but accessible to borrowers totaling $14.8 million and $11.9 million at September 30, 2008 and 2007, respectively.

 

At September 30, 2008 and 2007, we had $9.8 million and $9.2 million in outstanding commitments to fund loans and $433,000 and $235,000 in outstanding commercial letters of credit, respectively. There were no outstanding commitments to sell loans or purchase investment securities at September 30, 2008 or 2007.

 

**Impact of Inflation and Changing Prices**

 

The consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in            the increased cost of our operations. Unlike industrial companies, nearly all of our assets and liabilities are financial in nature. As a result, our earnings are impacted by changes in interest rates, which are influenced by inflationary expectations. Our asset/liability management strategy seeks to minimize the effects of changes in interest rates on our net income.

 

**Recent Accounting Pronouncements**

 

In September 2006, the FASB issued Statement of Financial Accounting Standards SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements.            The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on our consolidated financial position, results of operations and cash flows.

 

In September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.06-5, “Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.” The scope of EITF 06-5 consists of various issues relating to accounting for life            insurance policies purchased by entities protecting against the loss of “key persons.” Those issues are clarifications of previously issued guidance on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after December 15, 2006. Application of this issue did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115.” This statement permits an entity to choose to measure many financial instruments and certain other items at fair value. A business entity will report unrealized gains and losses in earnings at each            subsequent reporting date on items for which the fair value option has been elected. The fair value option 1) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, 2) is irrevocable (unless a new election date occurs) and 3) is applied only to entire instruments and not to portions of instruments. The

 

14

 

 

----

statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact of this pronouncement.

 

In March 2007, the FASB ratified EITF No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements”. EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is            effective for fiscal years beginning after December 15, 2007. The Company does not expect EITF 06-10 will have a material impact on its financial position, results of operations and cash flows.

 

In June 2007, the FASB issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”. EITF Issue No. 06-11 addresses a company’s recognition of an income tax benefit received on dividends that are (a) paid to employees holding equity-classified non-vested shares, equity-classified non-vested share units, or            equity-classified outstanding share options and (b) charged to retained earnings under SFAS No. 123(R). The EITF reached a consensus that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in-capital. The amount recognized in additional            paid-in-capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. Unrealized income tax benefits from dividends on equity-classified employee share-based payment awards should be excluded from the pool of excess tax benefits available to absorb potential future tax deficiencies. The accounting treatment of the income tax benefits from these            dividends would be applied on a prospective basis. EITF Issue No. 06-11 is effective for fiscal years beginning after December 15, 2007. The company does not expect that EITF Issue No. 06-11 will have a material impact on its financial condition or results of operations.

 

In February, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” which permits a one year delay of the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least            annually).

 

In June, 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of            earnings per share pursuant to the two-class method. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently evaluating the potential impact of this pronouncement on its consolidated financial statements.

 

 

15

 

 

----

****MANAGEMENT’S REPORT ON****

****INTERNAL CONTROL OVER FINANCIAL REPORTING****

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officer, or persons performing            similar functions, and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in            accordance with generally accepted accounting principles, and that receipts and expenditures are being made in accordance with authorization of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not            prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in*Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that, as of September 30, 2008, our            internal control over financial reporting was effective.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to            provide only management’s report in this annual report.

 

16

 

 

----

 

 

| **Fontanella and Babitts**

CERTIFIED PUBLIC ACCOUNTANTS |  

 

 

534 Union Boulevard

Totowa Boro, New Jersey 07512

Tel:    (973) 595-5300

Fax:   (973) 595-5890 |
|----------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

To the Board of Directors

Roebling Financial Corp, Inc. and Subsidiary

 

 

We have audited the accompanying consolidated statements of financial condition of Roebling Financial Corp, Inc. and Subsidiary, as of September 30, 2008 and 2007, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management.            Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the            consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Roebling Financial Corp, Inc. and Subsidiary, at September 30, 2008 and 2007, and the results of their operations and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 

As discussed in Notes 1 and 13, the Company changed its method of accounting for Defined Benefit Pension and Other Postretirement Plans and its method of accounting for share-based payments in 2007.

 

 

|   | /s/ Fontanella and Babitts |
|--------|----------------------------|

 

 

December 19, 2008

 

 

 

17

 

 

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**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**

 

|                                                                                                     |   | **September 30,** |   |
|----------------------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                                     |   | **2008**          |   |   |   | **2007** |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Assets                                                                                                   |   |              |   |   |   |   |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Cash and due from banks                                                                                  | $      | 2,513,465         |   |   | $ | 2,582,785 |   |
| Interest-bearing deposits                                                                                |   | 3,842,369         |   |   |   | 877,275 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Total cash and cash equivalents                                                                          |   | 6,355,834         |   |   |   | 3,460,060 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Securities available for sale                                                                            |   | 32,853,202        |   |   |   | 34,657,309 |   |
| Securities held to maturity; approximate fair value of $182,000 (2008) and $243,000 (2007), respectively |   | 180,818           |   |   |   | 242,058 |   |
| Loans receivable, net                                                                                    |   | 109,474,175       |   |   |   | 102,771,656 |   |
| Real estate owned                                                                                        |   | 305,500           |   |   |   | — |   |
| Accrued interest receivable                                                                              |   | 674,952           |   |   |   | 766,065 |   |
| Federal Home Loan Bank of New York stock, at cost                                                        |   | 445,300           |   |   |   | 596,000 |   |
| Premises and equipment                                                                                   |   | 3,362,672         |   |   |   | 3,611,600 |   |
| Other assets                                                                                             |   | 1,013,845         |   |   |   | 902,937 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Total assets                                                                                             | $      | 154,666,298       |   |   | $ | 147,007,685 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Liabilities and stockholders' equity                                                                     |   |              |   |   |   |   |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Liabilities                                                                                              |   |              |   |   |   |   |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Deposits                                                                                                 | $      | 130,574,638       |   |   | $ | 119,207,507 |   |
| Borrowed funds                                                                                           |   | 5,000,000         |   |   |   | 9,500,000 |   |
| Advances from borrowers for taxes and insurance                                                          |   | 443,716           |   |   |   | 429,485 |   |
| Other liabilities                                                                                        |   | 1,339,945         |   |   |   | 1,011,894 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Total liabilities                                                                                        |   | 137,358,299       |   |   |   | 130,148,886 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Commitments and contingencies                                                                            |   | —           |   |   |   | — |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Stockholders' equity                                                                                     |   |              |   |   |   |   |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Serial preferred stock, par value $.10, authorized 5,000,000 shares, no shares issued                    |   | —           |   |   |   | — |   |
| Common stock; par value $.10; 20,000,000 shares authorized and 1,718,473 shares issued                   |   | 171,847           |   |   |   | 171,847 |   |
| Additional paid-in-capital                                                                               |   | 10,442,095        |   |   |   | 10,428,731 |   |
| Unallocated employee stock ownership plan shares                                                         |   | (465,390          | )      |   |   | (542,955 | ) |
| Unallocated restricted stock plan shares                                                                 |   | (93,869           | )      |   |   | (131,809 | ) |
| Deferred compensation obligation                                                                         |   | 157,609           |   |   |   | 151,024 |   |
| Stock purchased for deferred compensation plan                                                           |   | (157,609          | )      |   |   | (151,024 | ) |
| Retained earnings - substantially restricted                                                             |   | 7,296,951         |   |   |   | 6,989,982 |   |
| Accumulated other comprehensive income (loss):                                                           |   |              |   |   |   |   |   |
| Unrealized gain (loss) on securities available for sale, net of tax                                      |   | 175,473           |   |   |   | (15,338 | ) |
| Defined benefit plan, net of tax                                                                         |   | (219,108          | )      |   |   | (41,659 | ) |
|                                                                                                     |   |              |   |   |   |   |   |
| Total stockholders' equity                                                                               |   | 17,307,999        |   |   |   | 16,858,799 |   |
|                                                                                                     |   |              |   |   |   |   |   |
| Total liabilities and stockholders' equity                                                               | $      | 154,666,298       |   |   | $ | 147,007,685 |   |

 

 

 

See accompanying notes to consolidated financial statements.

 

18

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF INCOME**

 

|                                                |   | **Year Ended**    |      |
|-----------------------------------------------------|--------|-------------------|-----------|
|                                                |   | **September 30,** |      |
|                                                |   | **2008**          |      |   |   | **2007** |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Interest income:                                    |   |              |      |   |   |   |   |   |   |
| Loans receivable                                    |   | $                 | 6,923,074 |   |   |   | $ | 6,544,829 |   |
| Securities                                          |   |              | 1,628,513 |   |   |   |   | 1,326,131 |   |
| Other interest-earning assets                       |   |              | 74,121    |   |   |   |   | 103,879 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Total interest income                               |   |              | 8,625,708 |   |   |   |   | 7,974,839 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Interest expense:                                   |   |              |      |   |   |   |   |   |   |
| Deposits                                            |   |              | 3,142,321 |   |   |   |   | 3,159,364 |   |
| Borrowed funds                                      |   |              | 308,253   |   |   |   |   | 323,985 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Total interest expense                              |   |              | 3,450,574 |   |   |   |   | 3,483,349 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Net interest income                                 |   |              | 5,175,134 |   |   |   |   | 4,491,490 |   |
| Provision for loan losses                           |   |              | 277,500   |   |   |   |   | 47,000 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Net interest income after provision for loan losses |   |              | 4,897,634 |   |   |   |   | 4,444,490 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Non-interest income:                                |   |              |      |   |   |   |   |   |   |
| Loan fees                                           |   |              | 65,019    |   |   |   |   | 99,161 |   |
| Account servicing and other                         |   |              | 445,157   |   |   |   |   | 463,262 |   |
| Gain on sale of loans                               |   |              | 1,793     |   |   |   |   | 177 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Total non-interest income                           |   |              | 511,969   |   |   |   |   | 562,600 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Non-interest expense:                               |   |              |      |   |   |   |   |   |   |
| Compensation and benefits                           |   |              | 2,478,691 |   |   |   |   | 2,505,057 |   |
| Occupancy and equipment                             |   |              | 627,072   |   |   |   |   | 650,316 |   |
| Service bureau and data processing                  |   |              | 501,892   |   |   |   |   | 438,556 |   |
| Federal insurance premiums                          |   |              | 93,944    |   |   |   |   | 12,692 |   |
| Real estate and repossessed assets                  |   |              | 50,483    |   |   |   |   | — |   |
| Other                                               |   |              | 914,875   |   |   |   |   | 810,782 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Total non-interest expense                          |   |              | 4,666,957 |   |   |   |   | 4,417,403 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Income before income taxes                          |   |              | 742,646   |   |   |   |   | 589,687 |   |
| Income taxes                                        |   |              | 270,234   |   |   |   |   | 250,413 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Net income                                          |   | $                 | 472,412   |   |   |   | $ | 339,274 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Basic earnings per share                            |   | $                 | 0.28      |   |   |   | $ | 0.21 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Diluted earnings per share                          |   | $                 | 0.28      |   |   |   | $ | 0.21 |   |
|                                                |   |              |      |   |   |   |   |   |   |
| Weighted average shares outstanding - basic         |   |              | 1,658,995 |   |   |   |   | 1,644,407 |   |
| Weighted average shares outstanding - diluted       |   |              | 1,662,376 |   |   |   |   | 1,653,182 |   |

 

 

See accompanying notes to consolidated financial statements.

 

19

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

 

 

|                                                                                                             |   | **Year Ended**    |     |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------|
|                                                                                                             |   | **September 30,** |     |
|                                                                                                             |   | **2008**          |     |   |   | **2007** |   |
|                                                                                                             |   |              |     |   |   |   |   |   |   |
| Net income                                                                                                       |   | $                 | 472,412  |   |   |   | $ | 339,274 |   |
|                                                                                                             |   |              |     |   |   |   |   |   |   |
| Other comprehensive income (loss):                                                                               |   |              |     |   |   |   |   |   |   |
| Unrealized net holding gains on securities available for sale, net of tax of $126,890 and $159,433, respectively |   |              | 190,811  |   |   |   |   | 239,747 |   |
| Adjustment to minimum pension liability, net of tax of $118,003                                                  |   |              | (177,449 | ) |   |   |   | — |   |
|                                                                                                             |   |              |     |   |   |   |   |   |   |
| Comprehensive income                                                                                             |   | $                 | 485,774  |   |   |   | $ | 579,021 |   |

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

20

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

 

|                                                                          |   |       |    |           |   |            |   |            |     |             |   | **Common**       |   |         |    | **Accumulated**   |   |      |   |
|-------------------------------------------------------------------------------|--------|------------|---------|----------------|--------|-----------------|--------|-----------------|----------|------------------|--------|------------------|--------|--------------|---------|-------------------|--------|-----------|--------|
|                                                                          |   |       |    | **Additional** |   | **Unallocated** |   | **Unallocated** |     | **Deferred**     |   | **Stock for**    |   |         |    | **Other**         |   |      |   |
|                                                                          |   | **Common** |    | **Paid-in**    |   | **ESOP**        |   | **RSP**         |     | **Compensation** |   | **Deferred**     |   | **Retained** |    | **Comprehensive** |   |      |   |
|                                                                          |   | **Stock**  |    | **Capital**    |   | **Shares**      |   | **Shares**      |     | **Obligation**   |   | **Compensation** |   | **Earnings** |    | **Income (Loss)** |   | **Total** |   |
|                                                                          |   |       |    |           |   |            |   |            |     |             |   |             |   |         |    |              |   |      |   |
| Balance - September 30, 2006                                                  |   | $          | 171,226 |           | $      | 10,354,309      |   | $               | (620,520 | )                | $      | (54,331          | )      | $            | — |              | $      | —   |   | $ | 6,814,613 |   | $ | (255,085 | ) | $ | 16,410,212 |   |
| Dividends paid on common stock                                                |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | (163,905 | ) |   | — |   |   | (163,905 | ) |
| Net income                                                                    |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | 339,274 |   |   | — |   |   | 339,274 |   |
| Amortization of ESOP shares                                                   |   |       | — |           |   | 34,574          |   |            | 77,565   |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 112,139 |   |
| Change in unrealized gain (loss) on securities available for sale, net of tax |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | 239,747 |   |   | 239,747 |   |
| Deferred compensation plan                                                    |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | 151,024 |              |   | —   |   |   | — |   |   | — |   |   | 151,024 |   |
| Common stock acquired for deferred compensation plan                          |   |       | — |           |   | —         |   |            | —  |             |   |             |   |         | — |              |   | (151,024  | )      |   | — |   |   | — |   |   | (151,024 | ) |
| Exercise of stock options                                                     |   |       | 621     |           |   | 21,718          |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 22,339 |   |
| Common stock acquired by RSP                                                  |   |       | — |           |   | (2,173          | )      |            | —  |             |   | (130,260         | )      |         | — |              |   | —   |   |   | — |   |   | — |   |   | (132,433 | ) |
| Allocation of RSP shares                                                      |   |       | — |           |   | (281            | )      |            | —  |             |   | 52,782           |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 52,501 |   |
| Tax benefit of stock benefit plans                                            |   |       | — |           |   | 20,584          |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 20,584 |   |
| Adjustment to initially apply FASB Statement No. 158, net of tax              |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | (41,659 | ) |   | (41,659 | ) |
|                                                                          |   |       |    |           |   |            |   |            |     |             |   |             |   |         |    |              |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - September 30, 2007                                                  |   |       | 171,847 |           |   | 10,428,731      |   |            | (542,955 | )                |   | (131,809         | )      |         | 151,024 |              |   | (151,024  | )      |   | 6,989,982 |   |   | (56,997 | ) |   | 16,858,799 |   |
| Dividends paid on common stock                                                |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | (165,443 | ) |   | — |   |   | (165,443 | ) |
| Net income                                                                    |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | 472,412 |   |   | — |   |   | 472,412 |   |
| Amortization of ESOP shares                                                   |   |       | — |           |   | 11,147          |   |            | 77,565   |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 88,712 |   |
| Change in unrealized gain (loss) on securities available for sale, net of tax |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | 190,811 |   |   | 190,811 |   |
| Deferred compensation plan                                                    |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | 6,585   |              |   | —   |   |   | — |   |   | — |   |   | 6,585 |   |
| Common stock acquired for deferred compensation plan                          |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | (6,585    | )      |   | — |   |   | — |   |   | (6,585 | ) |
| Allocation of RSP shares                                                      |   |       | — |           |   | (2,346          | )      |            | —  |             |   | 37,940           |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 35,594 |   |
| Tax benefit of stock benefit plans                                            |   |       | — |           |   | 4,563           |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | — |   |   | 4,563 |   |
| Adjustment to minimum pension liability, net of tax                           |   |       | — |           |   | —         |   |            | —  |             |   | —          |   |         | — |              |   | —   |   |   | — |   |   | (177,449 | ) |   | (177,449 | ) |
|                                                                          |   |       |    |           |   |            |   |            |     |             |   |             |   |         |    |              |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - September 30, 2008                                                  |   | $          | 171,847 |           | $      | 10,442,095      |   | $               | (465,390 | )                | $      | (93,869          | )      | $            | 157,609 |              | $      | (157,609  | )      | $ | 7,296,951 |   | $ | (43,635 | ) | $ | 17,307,999 |   |

 

 

See accompanying notes to consolidated financial statements.

 

21

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

|                                                                   |   | **Year Ended**    |       |
|------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                   |   | **September 30,** |       |
|                                                                   |   | **2008**          |       |   |   | **2007** |   |
|                                                                   |   |              |       |   |   |   |   |   |   |
| Cash flows from operating activities:                                  |   |              |       |   |   |   |   |   |   |
| Net income                                                             |   | $                 | 472,412    |   |   |   | $ | 339,274 |   |
| Adjustments to reconcile net income to                                 |   |              |       |   |   |   |   |   |   |
| net cash provided by operating activities:                             |   |              |       |   |   |   |   |   |   |
| Depreciation                                                           |   |              | 307,147    |   |   |   |   | 329,865 |   |
| Amortization of premiums and discounts, net                            |   |              | (20,340    | ) |   |   |   | (3,378 | ) |
| Amortization of deferred loan fees and costs, net                      |   |              | (8,853     | ) |   |   |   | (48,235 | ) |
| Provision for loan losses                                              |   |              | 277,500    |   |   |   |   | 47,000 |   |
| Provision for loss on repossessed assets                               |   |              | 9,439      |   |   |   |   | — |   |
| Loss on sale of repossessed assets                                     |   |              | 16,650     |   |   |   |   | — |   |
| Origination of loans held for sale, net of repayments                  |   |              | (1,240,685 | ) |   |   |   | (142,061 | ) |
| Gain on sale of loans                                                  |   |              | (1,793     | ) |   |   |   | (177 | ) |
| Proceeds from sale of loans held for sale                              |   |              | 1,242,478  |   |   |   |   | 142,238 |   |
| Increase in other assets                                               |   |              | (204,321   | ) |   |   |   | (182,132 | ) |
| Decrease (increase) in accrued interest receivable                     |   |              | 81,678     |   |   |   |   | (119,332 | ) |
| Increase (decrease) in other liabilities                               |   |              | 32,599     |   |   |   |   | (43,617 | ) |
| Amortization/allocation of ESOP and RSP                                |   |              | 124,306    |   |   |   |   | 164,640 |   |
| Increase in deferred compensation stock obligation                     |   |              | 6,585      |   |   |   |   | 151,024 |   |
|                                                                   |   |              |       |   |   |   |   |   |   |
| Net cash provided by operating activities                              |   |              | 1,094,802  |   |   |   |   | 635,109 |   |
|                                                                   |   |              |       |   |   |   |   |   |   |
| Cash flows from investing activities:                                  |   |              |       |   |   |   |   |   |   |
| Purchase of securities available for sale                              |   |              | (9,227,905 | ) |   |   |   | (17,413,771 | ) |
| Proceeds from sales of securities available for sale                   |   |              | —    |   |   |   |   | 367,083 |   |
| Proceeds from payments and maturities of securities available for sale |   |              | 11,370,082 |   |   |   |   | 9,998,934 |   |
| Proceeds from payments and maturities of securities held to maturity   |   |              | 61,212     |   |   |   |   | 153,305 |   |
| Loan disbursements, net of principal repayments                        |   |              | (7,299,617 | ) |   |   |   | (8,843,264 | ) |
| Proceeds from sale of repossessed assets                               |   |              | 63,000     |   |   |   |   | — |   |
| Redemption (purchase) of Federal Home Loan Bank Stock                  |   |              | 150,700    |   |   |   |   | (20,600 | ) |
| Purchase of premises and equipment                                     |   |              | (58,219    | ) |   |   |   | (108,809 | ) |
|                                                                   |   |              |       |   |   |   |   |   |   |
| Net cash used in investing activities                                  |   |              | (4,940,747 | ) |   |   |   | (15,867,122 | ) |

 

 

 

See accompanying notes to consolidated financial statements.

 

22

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT’D)**

 

 

|                                                              |   | **Year Ended**    |       |
|-------------------------------------------------------------------|--------|-------------------|------------|
|                                                              |   | **September 30,** |       |
|                                                              |   | **2008**          |       |   |   | **2007** |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Cash flows from financing activities:                             |   |              |       |   |   |   |   |   |   |
| Net increase in deposits                                          |   |              | 11,399,516 |   |   |   |   | 15,525,146 |   |
| Net (decrease) increase in short-term borrowed funds              |   |              | (2,500,000 | ) |   |   |   | 1,200,000 |   |
| Repayment of long-term borrowed funds                             |   |              | (2,000,000 | ) |   |   |   | (1,000,000 | ) |
| Increase in advance payments by borrowers for taxes and insurance |   |              | 14,231     |   |   |   |   | 11,705 |   |
| Dividends paid                                                    |   |              | (165,443   | ) |   |   |   | (163,905 | ) |
| Purchase of common shares by RSP                                  |   |              | —    |   |   |   |   | (132,433 | ) |
| Proceeds from exercise of stock options                           |   |              | —    |   |   |   |   | 22,339 |   |
| Purchase of common shares for deferred compensation plan          |   |              | (6,585     | ) |   |   |   | (151,024 | ) |
|                                                              |   |              |       |   |   |   |   |   |   |
| Net cash provided by financing activities                         |   |              | 6,741,719  |   |   |   |   | 15,311,828 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Net increase in cash and cash equivalents                         |   |              | 2,895,774  |   |   |   |   | 79,815 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Cash and cash equivalents - beginning                             |   |              | 3,460,060  |   |   |   |   | 3,380,245 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Cash and cash equivalents - ending                                |   | $                 | 6,355,834  |   |   |   | $ | 3,460,060 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Supplemental Disclosures of Cash Flow Information                 |   |              |       |   |   |   |   |   |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Cash paid for:                                                    |   |              |       |   |   |   |   |   |   |
| Interest on deposits and borrowed funds                           |   | $                 | 3,454,195  |   |   |   | $ | 3,478,671 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Income taxes                                                      |   | $                 | 384,788    |   |   |   | $ | 498,316 |   |
|                                                              |   |              |       |   |   |   |   |   |   |
| Transfer of loans to real estate owned                            |   | $                 | 305,500    |   |   |   | $ | — |   |

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

23

 

 

----

 

****ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY****

****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The following is a description of the more significant accounting policies used in preparation of the accompanying consolidated financial statements of Roebling Financial Corp, Inc. and Subsidiary (the “Company”).

 

Principles of Consolidation

 

The consolidated financial statements are comprised of the accounts of Roebling Financial Corp, Inc. and its wholly-owned subsidiary, Roebling Bank (the “Bank”). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Consolidated Financial Statement Presentation

 

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for            the period then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and the assessment of prepayment risks associated with mortgage-backed securities. Management believes that the allowance for loan losses considers all known and inherent losses, foreclosed real estate is            appropriately valued and prepayment risks associated with mortgage-backed securities are properly recognized. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowance for loan losses or further writedowns of foreclosed real estate may be necessary based on changes in economic conditions in the Company’s market area. Additionally, assessments of prepayment risks related to mortgage-backed securities            are based upon current market conditions, which are subject to frequent change.

 

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowance for loan losses or additional writedowns on foreclosed real estate based on their judgments about information available to them at the time            of their examination.

 

Concentration of Risk

 

The Company’s lending activity is concentrated in loans secured by real estate located in the State of New Jersey.

 

The Company’s loan portfolio is predominantly made up of 1-to-4 family residential mortgage and home equity loans, the majority of which are secured by properties located in Burlington County. These loans are secured by lien positions on the respective real estate properties and are subject to the Company’s loan underwriting policies. In general, the Company’s loan portfolio            performance is dependent upon the local economic conditions.

 

Interest-Rate Risk

 

The Company is principally engaged in the business of attracting deposits from the general public and using these deposits to make loans secured by real estate and, to a lesser extent, consumer and commercial loans and to purchase mortgage-backed and investment securities. The potential for interest-rate risk exists as a result of the shorter duration of the Company’s interest-sensitive            liabilities compared to the generally longer duration of interest-sensitive assets.

 

In a rising interest rate environment, liabilities will generally reprice faster than assets, and there may be a reduction in the market value of long-term assets and net interest income. For this reason, management regularly monitors the maturity and interest-rate structure of the Company’s assets and liabilities in order to control its level of interest-rate risk and to plan for future            volatility.

 

 

24

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****(Cont’d)**

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash, amounts due from depository institutions, and interest-bearing accounts with original maturities of three months or less.

 

Investments and Mortgage-backed Securities

 

Debt securities over which there exists positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in            earnings. Debt and equity securities not classified as trading securities, nor as held-to-maturity securities, are classified as available-for-sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in a separate component of stockholders’ equity.

 

Premiums and discounts on all securities are amortized/accreted using the interest method. Interest and dividend income on securities, which includes amortization of premiums and accretion of discounts, is recognized in the financial statements when earned. The adjusted cost basis of an identified security sold or called is used for determining security gains and losses recognized in the statements of            income.

 

In December 2003, the Emerging Issues Task Force issued EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This statement from the EITF addresses disclosure requirements regarding information about temporarily impaired investments. The requirements are effective for fiscal years ending after December 15, 2003, for all entities that have            debt or marketable equity securities with market values below carrying values. The requirements apply to investments in debt and marketable equity securities that are accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

 

Loans and Allowance for Loan Losses

 

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and discounts.

 

Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans, adjusted for prepayments.

 

An allowance for loan losses is maintained at a level considered necessary to provide for loan losses based upon the evaluation of known and inherent losses in the loan portfolio. Management of the Company, in determining the allowance for loan losses, considers the credit risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic            and real estate market conditions. The Company utilizes a two tier approach: (1) identification of problem loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of impaired problem loans. Such system takes into consideration, among other things,            delinquency status, size of loans, type of collateral and financial condition of the borrowers. A loan is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Loan impairment is measured based on the present            value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. General valuation allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

 

25

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****(Cont’d)**

 

Loans and Allowance for Loan Losses(Cont’d)

 

Regardless of the extent of the analysis of customer performance, portfolio evaluations, trends or risk management processes established, certain inherent, but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in condition, the judgmental nature of            individual loan evaluations, collateral assessments and the interpretation of economic trends, and the sensitivity of assumptions utilized to establish allocated allowances for homogeneous groups of loans, among other factors. An unallocated allowance is maintained to recognize the existence of these exposures. These other credit risk factors are regularly reviewed and revised by management where conditions indicate that the estimates initially applied are different from actual            results.

 

The Company accounts for its transfers and servicing of financial assets in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 140 revises the standards for accounting for the securitizations and other transfers of financial assets and collateral. Transfers of financial assets for which the Company has            surrendered control of the financial assets are accounted for as sales to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. Retained interests in a sale or securitization of financial assets are measured at the date of transfer by allocating the previous carrying amount between the assets transferred and based on their relative estimated fair values. The fair values of retained servicing rights and any other retained            interests are determined based on the present value of expected future cash flows associated with those interests and by reference to market prices for similar assets. There were no transfers of financial assets to related or affiliated parties. As of September 30, 2008 and 2007, the Company has not recorded mortgage servicing assets due to the immateriality of the amount that would have been capitalized based upon the limited amount of assets serviced by the Company.

 

Uncollected interest on loans that are contractually past due is charged off, or an allowance is established based on management’s periodic evaluation. The allowance is established by a charge to interest income and income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and            principal payments is reestablished, in which case the loan is returned to accrual status. At a minimum, an allowance is generally established for all interest payments that are more than 90 days delinquent.

 

Premises and Equipment

 

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization. Significant renovations and additions are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs            is charged to expense as incurred. The Company computes depreciation on a straight-line basis over the estimated useful lives of the assets.

 

Real Estate Owned

 

Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of cost or fair value less estimated costs to sell at the date of foreclosure. Costs relating to development and improvement of property are capitalized, whereas costs relating to the holding of property are expensed. Subsequent valuations are periodically performed by management, and an            allowance for losses is established by a charge to operations if the carrying value of a property exceeds its fair value less estimated selling cost. Gains and losses from sale of these properties are recognized as they occur. Income from operating properties is recorded in operations as earned.

 

26

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****(Cont’d)**

 

Income Taxes

 

Federal and state income taxes have been provided on the basis of reported income. Deferred income taxes are provided for certain items in income and expense which enter into the determination of income for financial reporting purposes in different periods than for income tax purposes.

 

Effective October 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN48”). The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,            “Accounting for Income Taxes.” The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation of the implementation of FIN 48, no significant income            tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the year ended September 30, 2008. Our policy is to recognize interest and penalties on unrecognized tax benefits in income taxes expense in the consolidated statement of income. The Company did not recognize any interest and penalties for the year ended September 30, 2008. The tax years subject to examination by the taxing authorities are the years ended            September 30, 2008, 2007, 2006, and 2005.

 

Accounting for Stock-Based Compensation

 

Effective October 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based Payment”, issued by the FASB. SFAS No. 123 (revised) requires compensation costs related to share-based payments transactions to be recognized in the financial statements over the period the employee provides service in exchange for the reward. Prior to adopting SFAS No. 123 (revised), the Company measured            the compensation cost of its stock compensation plans using the “intrinsic value based method” specified in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income for the year by the weighted average number of shares of common stock outstanding, adjusted for unearned shares of the Employee Stock Ownership Plan (“ESOP”). Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effect of outstanding stock options and            compensation grants, if dilutive, using the treasury stock method.

 

27

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES****(Cont’d)**

 

Earnings Per Share(Cont’d)

 

The following is a summary of the Company’s earnings per share calculations:

 

|                                                                                |   | **Year Ended**    |      |
|-------------------------------------------------------------------------------------|--------|-------------------|-----------|
|                                                                                |   | **September 30,** |      |
|                                                                                |   | **2008**          |      | **2007** |   |
|                                                                                |   |              |      |   |   |   |   |
| Net income                                                                          |   | $                 | 472,412   |   | $ | 339,274 |   |
|                                                                                |   |              |      |   |   |   |   |
| Weighted average common shares outstanding for computation of basic EPS (1)         |   |              | 1,658,995 |   |   | 1,644,407 |   |
|                                                                                |   |              |      |   |   |   |   |
| Common-equivalent shares due to the dilutive effect of stock options and RSP awards |   |              | 3,381     |   |   | 8,775 |   |
|                                                                                |   |              |      |   |   |   |   |
| Weighted-average common shares for computation of diluted EPS                       |   |              | 1,662,376 |   |   | 1,653,182 |   |
|                                                                                |   |              |      |   |   |   |   |
| Earnings per common share:                                                          |   |              |      |   |   |   |   |
| Basic                                                                               |   | $                 | 0.28      |   | $ | 0.21 |   |
| Diluted                                                                             |   | $                 | 0.28      |   | $ | 0.21 |   |

 

(1) Excludes unallocated ESOP shares

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation.

 

**2. SECURITIES AVAILABLE FOR SALE**

 

|                                   |   | **September 30, 2008** |       |
|----------------------------------------|--------|------------------------|------------|
|                                   |   | **Amortized**          |       | **Gross Unrealized** |   | **Estimated** |   |
|                                   |   | **Cost**               |       | **Gains** |   | **Losses** |   | **Fair Value** |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Investment Securities                  |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Government and Agency Securities: |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Due within one year                    |   | $                      | 2,735,000  |   | $ | 3,125 |   | $ | 228 |   | $ | 2,737,897 |   |
| Due after one year through five years  |   |                   | 8,500,000  |   |   | 116,919 |   |   | — |   |   | 8,616,919 |   |
| Due after five years through ten years |   |                   | 2,250,000  |   |   | 35,168 |   |   | — |   |   | 2,285,168 |   |
| Marketable Equity Securities           |   |                   | 2,888      |   |   | — |   |   | 2,276 |   |   | 612 |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities:            |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| GNMA                                   |   |                   | 234,200    |   |   | 2,321 |   |   | — |   |   | 236,521 |   |
| FHLMC                                  |   |                   | 11,053,924 |   |   | 72,592 |   |   | 16,024 |   |   | 11,110,492 |   |
| FNMA                                   |   |                   | 7,785,026  |   |   | 90,925 |   |   | 10,358 |   |   | 7,865,593 |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
|                                   |   | $                      | 32,561,038 |   | $ | 321,050 |   | $ | 28,886 |   | $ | 32,853,202 |   |

 

 

28

 

 

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**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**2. SECURITIES AVAILABLE FOR SALE****(Cont’d)**

 

|                                   |   | **September 30, 2007** |       |
|----------------------------------------|--------|------------------------|------------|
|                                   |   | **Amortized**          |       | **Gross Unrealized** |   | **Estimated** |   |
|                                   |   | **Cost**               |       | **Gains** |   | **Losses** |   | **Fair Value** |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Investment Securities                  |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Government and Agency Securities: |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Due within one year                    |   | $                      | 7,499,005  |   | $ | — |   | $ | 50,497 |   | $ | 7,448,508 |   |
| Due after one year through five years  |   |                   | 9,500,000  |   |   | 64,456 |   |   | 32,443 |   |   | 9,532,013 |   |
| Due after five years through ten years |   |                   | 3,000,000  |   |   | 15,472 |   |   | 2,580 |   |   | 3,012,892 |   |
| Marketable Equity Securities           |   |                   | 2,888      |   |   | 21,436 |   |   | — |   |   | 24,324 |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities:            |   |                   |       |   |   |   |   |   |   |   |   |   |   |
| GNMA                                   |   |                   | 335,822    |   |   | 2,581 |   |   | — |   |   | 338,403 |   |
| FHLMC                                  |   |                   | 8,968,307  |   |   | 9,979 |   |   | 43,957 |   |   | 8,934,329 |   |
| FNMA                                   |   |                   | 5,376,825  |   |   | 28,736 |   |   | 38,721 |   |   | 5,366,840 |   |
|                                   |   |                   |       |   |   |   |   |   |   |   |   |   |   |
|                                   |   | $                      | 34,682,847 |   | $ | 142,660 |   | $ | 168,198 |   | $ | 34,657,309 |   |

 

Securities available for sale with a carrying value of approximately $3,305,000 and $753,000, as of September 30, 2008 and 2007, respectively, are pledged as security for deposits of governmental entities under the provisions of the Governmental Unit Deposit Protection Act (GUDPA). Securities with a carrying value of approximately $15,571,000 and $13,973,000 are pledged as collateral for Federal Home            Loan Bank advances as of September 30, 2008 and 2007, respectively. In addition, securities with a carrying value of approximately $755,000 and $494,000 are pledged as collateral to the Federal Reserve Bank as of September 30, 2008 and 2007, respectively.

 

There were no sales of investment securities or mortgage-backed securities during the year ended September 30, 2008. During the year ended September 30, 2007, proceeds from the sale of securities available for sale totaled approximately $367,000, with no gain or loss on sale.

 

Provided below is a summary of securities available for sale which were in an unrealized loss position at September 30, 2008 and 2007. Approximately $5,000 or 18% and $134,000 or 80% of the unrealized loss, as of September 30, 2008 and 2007, respectively, was comprised of securities in a continuous loss position for twelve months or more. The Company has the ability and intent to hold these securities            until such time as the value recovers or the securities mature. Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not credit quality of the issuer.

 

|                                  |   | **September 30, 2008** |      |
|---------------------------------------|--------|------------------------|-----------|
|                                  |   | **Under One Year**     |      | **One Year or More** |   |
|                                  |   |                   |      | **Gross** |   |   |   | **Gross** |   |
|                                  |   | **Estimated**          |      | **Unrealized** |   | **Estimated** |   | **Unrealized** |   |
|                                  |   | **Fair Value**         |      | **Loss** |   | **Fair Value** |   | **Loss** |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| U.S. Government and Agency Securities |   | $                      | 734,772   |   | $ | 228 |   | $ | — |   | $ | — |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| Marketable Equity Securities          |   |                   | 612       |   |   | 2,276 |   |   | — |   |   | — |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities:           |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                 |   |                   | 2,509,247 |   |   | 13,471 |   |   | 370,322 |   |   | 2,553 |   |
| FNMA                                  |   |                   | 992,994   |   |   | 7,827 |   |   | 949,091 |   |   | 2,531 |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| Total available for sale              |   | $                      | 4,237,625 |   | $ | 23,802 |   | $ | 1,319,413 |   | $ | 5,084 |   |

 

 

29

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**2. SECURITIES AVAILABLE FOR SALE****(Cont’d)**

 

|                                  |   | **September 30, 2007** |      |
|---------------------------------------|--------|------------------------|-----------|
|                                  |   | **Under One Year**     |      | **One Year or More** |   |
|                                  |   |                   |      | **Gross** |   |   |   | **Gross** |   |
|                                  |   | **Estimated**          |      | **Unrealized** |   | **Estimated** |   | **Unrealized** |   |
|                                  |   | **Fair Value**         |      | **Loss** |   | **Fair Value** |   | **Loss** |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| U.S. Government and Agency Securities |   | $                      | 747,420   |   | $ | 2,580 |   | $ | 11,666,065 |   | $ | 82,940 |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities:           |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| FHLMC                                 |   |                   | 5,105,316 |   |   | 24,380 |   |   | 894,513 |   |   | 19,577 |   |
| FNMA                                  |   |                   | 1,369,355 |   |   | 6,843 |   |   | 1,349,746 |   |   | 31,878 |   |
|                                  |   |                   |      |   |   |   |   |   |   |   |   |   |   |
| Total available for sale              |   | $                      | 7,222,091 |   | $ | 33,803 |   | $ | 13,910,324 |   | $ | 134,395 |   |

 

 

**3. SECURITIES HELD TO MATURITY**

 

|                        |   | **September 30, 2008** |    |
|-----------------------------|--------|------------------------|---------|
|                        |   | **Amortized**          |    | **Gross Unrealized** |   | **Estimated** |   |
|                        |   | **Cost**               |    | **Gains** |   | **Losses** |   | **Fair Value** |   |
|                        |   |                   |    |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities: |   |                   |    |   |   |   |   |   |   |   |   |   |   |
| GNMA                        |   | $                      | 26,419  |   | $ | 377 |   | $ | — |   | $ | 26,796 |   |
| FHLMC                       |   |                   | 76,798  |   |   | 2,044 |   |   | — |   |   | 78,842 |   |
| FNMA                        |   |                   | 77,601  |   |   | 358 |   |   | 1,437 |   |   | 76,522 |   |
|                        |   |                   |    |   |   |   |   |   |   |   |   |   |   |
|                        |   | $                      | 180,818 |   | $ | 2,779 |   | $ | 1,437 |   | $ | 182,160 |   |

 

 

|                        |   | **September 30, 2007** |    |
|-----------------------------|--------|------------------------|---------|
|                        |   | **Amortized**          |    | **Gross Unrealized** |   | **Estimated** |   |
|                        |   | **Cost**               |    | **Gains** |   | **Losses** |   | **Fair Value** |   |
|                        |   |                   |    |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed Securities: |   |                   |    |   |   |   |   |   |   |   |   |   |   |
| CMO                         |   | $                      | 8,196   |   | $ | 32 |   | $ | 12 |   | $ | 8,216 |   |
| GNMA                        |   |                   | 36,386  |   |   | 366 |   |   | — |   |   | 36,752 |   |
| FHLMC                       |   |                   | 90,161  |   |   | 1,489 |   |   | — |   |   | 91,650 |   |
| NMA                         |   |                   | 107,315 |   |   | 69 |   |   | 1,296 |   |   | 106,088 |   |
|                        |   |                   |    |   |   |   |   |   |   |   |   |   |   |
|                        |   | $                      | 242,058 |   | $ | 1,956 |   | $ | 1,308 |   | $ | 242,706 |   |

 

 

Securities held to maturity with a carrying value of approximately $19,000 and $26,000 are pledged as collateral for Federal Home Loan Bank advances as of September 30, 2008 and 2007, respectively.

 

30

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**4. LOANS RECEIVABLE, NET**

 

|                                       |   | **September 30,** |        |
|--------------------------------------------|--------|-------------------|-------------|
|                                       |   | **2008**          |        |   |   | **2007** |   |
|                                       |   |              |        |   |   |   |   |   |   |
| Mortgage loans:                            |   |              |        |   |   |   |   |   |   |
| One-to-four family residential             |   | $                 | 47,722,631  |   |   |   | $ | 43,806,047 |   |
| Multi-family residential                   |   |              | 3,849,021   |   |   |   |   | 3,868,450 |   |
| Commercial real estate                     |   |              | 20,001,742  |   |   |   |   | 15,495,886 |   |
| Construction and land                      |   |              | 12,715,325  |   |   |   |   | 15,017,093 |   |
|                                       |   |              |        |   |   |   |   |   |   |
|                                       |   |              | 84,288,719  |   |   |   |   | 78,187,476 |   |
|                                       |   |              |        |   |   |   |   |   |   |
| Consumer and other loans:                  |   |              |        |   |   |   |   |   |   |
| Home equity                                |   |              | 27,867,147  |   |   |   |   | 27,628,486 |   |
| Other consumer                             |   |              | 264,981     |   |   |   |   | 265,429 |   |
| Commercial                                 |   |              | 2,294,122   |   |   |   |   | 2,266,921 |   |
|                                       |   |              |        |   |   |   |   |   |   |
|                                       |   |              | 30,426,250  |   |   |   |   | 30,160,836 |   |
|                                       |   |              |        |   |   |   |   |   |   |
| Total loans                                |   |              | 114,714,969 |   |   |   |   | 108,348,312 |   |
|                                       |   |              |        |   |   |   |   |   |   |
| Less:                                      |   |              |        |   |   |   |   |   |   |
| Loans in process                           |   |              | 4,298,915   |   |   |   |   | 4,868,201 |   |
| Net deferred loan origination fees (costs) |   |              | (13,808     | ) |   |   |   | (41,281 | ) |
| Allowance for loan losses                  |   |              | 955,687     |   |   |   |   | 749,736 |   |
|                                       |   |              |        |   |   |   |   |   |   |
|                                       |   |              | 5,240,794   |   |   |   |   | 5,576,656 |   |
|                                       |   |              |        |   |   |   |   |   |   |
|                                       |   | $                 | 109,474,175 |   |   |   | $ | 102,771,656 |   |

 

At September 30, 2008 and 2007, non-accrual loans for which interest had been discontinued totaled approximately $922,000 and $430,000, respectively. Interest income actually recognized on non-accrual loans totaled approximately $25,800 and $700 for the years ended September 30, 2008 and 2007, respectively. Additional interest income that would have been recognized, had the loans been current and            performing in accordance with the original terms of their contracts, totaled approximately $57,800 and $38,100 for the years ended September 30, 2008 and 2007, respectively.

 

At September 30, 2008, one loan with an outstanding balance of $392,000 was identified as impaired, and a specific loan loss allowance of $44,000 has been recorded. The average balance outstanding during the year ended September 30, 2008 was $391,000 and $3,000 of interest income was recorded. There were no other impaired loans at or for the year ended September 30, 2008, and none outstanding in            fiscal 2007.

 

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

 

|                        |   | **Year Ended**    |    |
|-----------------------------|--------|-------------------|---------|
|                        |   | **September 30,** |    |
|                        |   | **2008**          |    |   |   | **2007** |   |
|                        |   |              |    |   |   |   |   |   |   |
| Balance - beginning         |   | $                 | 749,736 |   |   |   | $ | 703,236 |   |
| Provision charged to income |   |              | 277,500 |   |   |   |   | 47,000 |   |
| Charge offs                 |   |              | (71,549 | ) |   |   |   | (500 | ) |
|                        |   |              |    |   |   |   |   |   |   |
| Balance - ending            |   | $                 | 955,687 |   |   |   | $ | 749,736 |   |

 

 

31

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**4. LOANS RECEIVABLE, NET****(Cont’d)**

 

The activity with respect to loans to directors, officers and associates of such persons is as follows:

 

|                    |   | **Year Ended**    |    |
|-------------------------|--------|-------------------|---------|
|                    |   | **September 30,** |    |
|                    |   | **2008**          |    |   |   | **2007** |   |
|                    |   |              |    |   |   |   |   |   |   |
| Balance - beginning     |   | $                 | 763,857 |   |   |   | $ | 915,324 |   |
| Loan disbursements      |   |              | 56,682  |   |   |   |   | 148,169 |   |
| Collection of principal |   |              | (65,577 | ) |   |   |   | (299,636 | ) |
|                    |   |              |    |   |   |   |   |   |   |
| Balance - ending        |   | $                 | 754,962 |   |   |   | $ | 763,857 |   |

 

 

**5. ACCRUED INTEREST RECEIVABLE**

 

|                       |   | **September 30,** |    |
|----------------------------|--------|-------------------|---------|
|                       |   | **2008**          |    |   |   | **2007** |   |
|                       |   |              |    |   |   |   |   |   |   |
| Loans receivable           |   | $                 | 416,340 |   |   |   | $ | 458,750 |   |
| Mortgage-backed securities |   |              | 83,381  |   |   |   |   | 66,379 |   |
| Investment securities      |   |              | 175,231 |   |   |   |   | 240,936 |   |
|                       |   |              |    |   |   |   |   |   |   |
|                       |   | $                 | 674,952 |   |   |   | $ | 766,065 |   |

 

 

**6. PREMISES AND EQUIPMENT**

 

|                              |   | **September 30,** |      |
|-----------------------------------|--------|-------------------|-----------|
|                              |   | **2008**          |      |   |   | **2007** |   |
|                              |   |              |      |   |   |   |   |   |   |
| Land                              |   | $                 | 1,428,056 |   |   |   | $ | 1,427,120 |   |
| Buildings and improvements        |   |              | 2,612,355 |   |   |   |   | 2,611,170 |   |
| Furniture, fixtures and equipment |   |              | 1,105,711 |   |   |   |   | 1,049,613 |   |
|                              |   |              |      |   |   |   |   |   |   |
|                              |   |              | 5,146,122 |   |   |   |   | 5,087,903 |   |
|                              |   |              |      |   |   |   |   |   |   |
| Less accumulated depreciation     |   |              | 1,783,450 |   |   |   |   | 1,476,303 |   |
|                              |   |              |      |   |   |   |   |   |   |
|                              |   | $                 | 3,362,672 |   |   |   | $ | 3,611,600 |   |

 

 

Useful lives generally used in the calculation of depreciation are as follows:

 

| Buildings                                   | 25 to 50 years |
|---------------------------------------------|----------------|
| Paving and other building related additions | 5 to 10 years  |
| Furniture and equipment                     | 3 to 10 years  |

 

 

32

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**7. LOAN SERVICING**

 

Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of these loans are summarized as follows:

 

|                     |   | **September 30,** |      |
|--------------------------|--------|-------------------|-----------|
|                     |   | **2008**          |      |   |   | **2007** |   |
|                     |   |              |      |   |   |   |   |   |   |
| Mortgage loan portfolios |   |              |      |   |   |   |   |   |   |
| serviced for:            |   |              |      |   |   |   |   |   |   |
| FNMA                     |   | $                 | 7,119,220 |   |   |   | $ | 6,730,790 |   |
| Other                    |   |              | 553,056   |   |   |   |   | 485,813 |   |
|                     |   |              |      |   |   |   |   |   |   |
|                     |   | $                 | 7,672,276 |   |   |   | $ | 7,216,603 |   |

 

Custodial escrow balances maintained in connection with loan servicing totaled approximately $97,000 and $92,000, at September 30, 2008 and 2007, respectively.

 

**8. DEPOSITS**

 

|                               |   | **September 30,** |   |
|------------------------------------|--------|-------------------|--------|
|                               |   | **2008**          |   | **2007** |   |
|                               |   | **Weighted**      |   |   |   | **Weighted** |   |   |   |
|                               |   | **Average**       |   |   |   | **Average** |   |   |   |
|                               |   | **Rate**          |   | **Amount** |   | **Rate** |   | **Amount** |   |
|                               |   |              |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing deposits      |   | 0.00%             |   | $ | 18,628,487 |   | 0.00% |   | $ | 16,156,475 |   |
| Interest-bearing checking accounts |   | 0.26%             |   |   | 8,123,986 |   | 0.29% |   |   | 7,768,595 |   |
| Money market accounts              |   | 1.49%             |   |   | 16,522,343 |   | 3.49% |   |   | 14,298,266 |   |
| Savings accounts                   |   | 0.63%             |   |   | 16,536,409 |   | 0.60% |   |   | 16,545,758 |   |
| Certificates of deposits           |   | 3.56%             |   |   | 70,763,413 |   | 4.80% |   |   | 64,438,413 |   |
|                               |   |              |   |   |   |   |   |   |   |   |   |
| Total deposits                     |   | 2.21%             |   | $ | 130,574,638 |   | 3.11% |   | $ | 119,207,507 |   |

 

Deposit accounts with balances of $100,000 or more totaled approximately $36,025,000 and $32,499,000 at September 30, 2008 and 2007, respectively.

 

Scheduled maturities of certificates of deposit are as follows (in thousands):

 

|                   |   | **September 30,** |   |
|------------------------|--------|-------------------|--------|
|                   |   | **2008**          |   |   |   | **2007** |   |
|                   |   |              |   |   |   |   |   |   |   |
| 1 year or less         |   | $                 | 44,421 |   |   |   | $ | 54,698 |   |
| Over 1 year to 3 years |   |              | 20,191 |   |   |   |   | 6,216 |   |
| Over 3 years           |   |              | 6,151  |   |   |   |   | 3,524 |   |
|                   |   |              |   |   |   |   |   |   |   |
|                   |   | $                 | 70,763 |   |   |   | $ | 64,438 |   |

 

 

33

 

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**8. DEPOSITS****(Cont’d)**

 

Interest expense on deposits is summarized as follows:

 

|   |   |   |                               |   |   | **Year Ended**    |      |
|--------|--------|--------|------------------------------------|--------|--------|-------------------|-----------|
|   |   |   |                               |   |   | **September 30,** |      |
|   |   |   |                               |   |   | **2008**          |      |   |   | **2007** |   |
|   |   |   |                               |   |   |              |      |   |   |   |   |
|   |   |   | Interest-bearing checking accounts |   |   | $                 | 21,109    |   |   |   | $ | 23,899 |   |
|   |   |   | Money market accounts              |   |   |              | 406,438   |   |   |   |   | 421,673 |   |
|   |   |   | Savings accounts                   |   |   |              | 101,345   |   |   |   |   | 104,017 |   |
|   |   |   | Certificates of deposit            |   |   |              | 2,613,429 |   |   |   |   | 2,609,775 |   |
|   |   |   |                               |   |   |              |      |   |   |   |   |   |   |
|   |   |   | Total                              |   |   | $                 | 3,142,321 |   |   |   | $ | 3,159,364 |   |

 

**9. BORROWED FUNDS**

 

The Company has available overnight lines of credit and a one-month overnight repricing line of credit with the Federal Home Loan Bank of New York (“FHLB”), totaling $26.6 million and $22.9 million at September 30, 2008 and 2007, respectively, subject to the terms and conditions of the lender’s overnight advance program. There were no borrowings under this program as of September 30,            2008. As of September 30, 2007, the Company had a $2.5 million balance in the overnight line of credit at a rate of 5.24%.

 

At September 30, 2008 and 2007, fixed rate advances have contractual maturities as follows:

 

|                 |   |   | **September 30, 2008** |   |   |         | **September 30, 2007** |   |
|----------------------|--------|--------|------------------------|--------|--------|--------------|------------------------|--------|
|                 |   |   |                   |   |   | **Weighted** |                   |   |   |   |   | **Weighted** |   |
|                 |   |   |                   |   |   | **Average**  |                   |   |   |   |   | **Average** |   |
|                 |   |   | **Amount**             |   |   | **Rate**     |                   |   |   | **Amount** |   | **Rate** |   |
|                 |   |   |                   |   |   |         |                   |   |   |   |   |   |   |
| Due by September 30, |   |   |                   |   |   |         |                   |   |   |   |   |   |   |
|                 |   |   |                   |   |   |         |                   |   |   |   |   |   |   |
| 2008                 |   | $      | -                      |   |   | -            |                   |   | $ | 2,000,000 |   | 3.98 | % |
| 2009                 |   |   | 1,000,000              |   |   | 4.41         | %                      |   |   | 1,000,000 |   | 4.41 | % |
| 2010                 |   |   | 4,000,000              |   |   | 4.43         | %                      |   |   | 4,000,000 |   | 4.43 | % |
|                 |   |   |                   |   |   |         |                   |   |   |   |   |   |   |
|                 |   | $      | 5,000,000              |   |   | 4.43         | %                      |   | $ | 7,000,000 |   | 4.30 | % |

 

At September 30, 2008 and 2007, the FHLB borrowings were secured by pledges of the Company’s investment in the capital stock of the FHLB totaling $445,300 and $596,000 and mortgage-backed and other securities with a carrying value of approximately $15.6 million and $14.0 million, respectively.

 

34

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**10. INCOME TAXES**

 

The Bank qualifies as a savings institution under the provisions of the Internal Revenue Code and was therefore, prior to September 30, 1996, permitted to deduct from taxable income an allowance for bad debts based upon eight percent of taxable income before such deduction, less certain adjustments. Retained earnings, at September 30, 2008 and 2007, include approximately $306,000 of such bad debt,            which, in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” is considered a permanent difference between the book and income tax basis of loans receivable, and for which income taxes have not been provided. If such amount is used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate.

 

The components of income taxes are summarized as follows:

 

|   |   |   |                            | **Year Ended**    |     |
|--------|--------|--------|---------------------------------|-------------------|----------|
|   |   |   |                            | **September 30,** |     |
|   |   |   |                            | **2008**          |     |   |   | **2007** |   |
|   |   |   |                            |              |     |   |   |   |   |
|   |   |   | Current tax expense:            |              |     |   |   |   |   |   |   |
|   |   |   | Federal                         | $                 | 331,601  |   |   |   | $ | 387,262 |   |
|   |   |   | State                           |              | 101,390  |   |   |   |   | 119,932 |   |
|   |   |   |                            |              |     |   |   |   |   |   |   |
|   |   |   |                            |              | 432,991  |   |   |   |   | 507,194 |   |
|   |   |   |                            |              |     |   |   |   |   |   |   |
|   |   |   | Deferred tax expense (benefit): |              |     |   |   |   |   |   |   |
|   |   |   | Federal                         |              | (135,005 | ) |   |   |   | (195,036 | ) |
|   |   |   | State                           |              | (27,752  | ) |   |   |   | (61,745 | ) |
|   |   |   |                            |              |     |   |   |   |   |   |   |
|   |   |   |                            |              | (162,757 | ) |   |   |   | (256,781 | ) |
|   |   |   |                            |              |     |   |   |   |   |   |   |
|   |   |   |                            | $                 | 270,234  |   |   |   | $ | 250,413 |   |

 

 

The provision for income taxes differs from that computed at the federal statutory rate of 34% as follows:

 

|                                   |   |   |   |   |   | **Year Ended**    |    |
|----------------------------------------|--------|--------|--------|--------|--------|-------------------|---------|
|                                   |   |   |   |   |   | **September 30,** |    |
|                                   |   |   |   |   |   | **2008**          |    |   |   | **2007** |   |
|                                   |   |   |   |   |   |              |    |   |   |   |   |
| Tax at federal statutory rates         |   |   |   |   |   | $                 | 252,499 |   |   |   | $ | 200,494 |   |
|                                   |   |   |   |   |   |              |    |   |   |   |   |   |   |
| Increase in tax resulting from:        |   |   |   |   |   |              |    |   |   |   |   |   |   |
| State taxes, net of federal tax effect |   |   |   |   |   |              | 48,602  |   |   |   |   | 38,403 |   |
| Other items                            |   |   |   |   |   |              | (30,867 | ) |   |   |   | 11,516 |   |
|                                   |   |   |   |   |   |              |    |   |   |   |   |   |   |
|                                   |   |   |   |   |   | $                 | 270,234 |   |   |   | $ | 250,413 |   |

 

 

35

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**10. INCOME TAXES (Cont’d)**

 

The following temporary differences gave rise to deferred tax assets and liabilities:

 

|                                                 |   |   |   | **September 30,** |    |
|------------------------------------------------------|--------|--------|--------|-------------------|---------|
|                                                 |   |   |   | **2008**          |    |   |   | **2007** |   |
| Deferred tax assets:                                 |   |   |   |              |    |   |   |   |   |   |   |
| Allowance for loan losses                            |   |   |   | $                 | 364,004 |   |   |   | $ | 299,444 |   |
| Net unrealized loss on securities available for sale |   |   |   |              | — |   |   |   |   | 10,200 |   |
| Depreciation                                         |   |   |   |              | 36,340  |   |   |   |   | — |   |
| Accrual to cash adjustments, net                     |   |   |   |              | 223,043 |   |   |   |   | 176,653 |   |
| Pension funding status                               |   |   |   |              | 145,707 |   |   |   |   | 27,704 |   |
|                                                 |   |   |   |              |    |   |   |   |   |   |   |
| Total deferred tax assets                            |   |   |   |              | 769,094 |   |   |   |   | 514,001 |   |
|                                                 |   |   |   |              |    |   |   |   |   |   |   |
| Deferred tax liabilities:                            |   |   |   |              |    |   |   |   |   |   |   |
| Net unrealized gain on securities available for sale |   |   |   |              | 116,690 |   |   |   |   | — |   |
| Depreciation                                         |   |   |   |              | — |   |   |   |   | 11,898 |   |
| Deferred loan origination costs                      |   |   |   |              | 80,030  |   |   |   |   | 81,969 |   |
| Discounts on investments                             |   |   |   |              | — |   |   |   |   | 1,630 |   |
|                                                 |   |   |   |              |    |   |   |   |   |   |   |
| Total deferred tax liabilities                       |   |   |   |              | 196,720 |   |   |   |   | 95,497 |   |
|                                                 |   |   |   |              |    |   |   |   |   |   |   |
| Net deferred tax asset included in other assets      |   |   |   | $                 | 572,374 |   |   |   | $ | 418,504 |   |

 

**11. COMMITMENTS AND CONTINGENCIES** 

 

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount            recognized in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

 

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

 

With the exception of letters of credit, the Company does not require collateral or other security to support financial instruments with credit risk, unless noted otherwise.

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future            cash requirements. The Company has approved lines of credit unused but accessible to borrowers totaling $14.8 million and $11.9 million, at September 30, 2008 and 2007, respectively.

 

At September 30, 2008 and 2007, the Company had $9.8 million and $9.2 million in outstanding commitments to fund loans and $433,000 and $235,000 in outstanding commercial letters of credit, respectively. There were no outstanding commitments to sell loans or to purchase investment securities at September 30, 2008 or 2007.

 

36

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**12. REGULATORY CAPITAL**

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary actions, by regulators, that if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory            framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. The Bank’s capital amounts and classification 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 Bank to maintain minimum amounts and ratios (set forth in the following table) of tangible and core capital (as defined in the regulations) to total assets and of total risk-based capital (as defined) to risk-weighted assets (as defined). Management believes, as of September 30, 2008, that the Bank meets all capital            adequacy requirements to which it is subject.

 

The following table presents a reconciliation of capital per GAAP and regulatory capital at the dates indicated (in thousands):

 

|                                          |   |   |   | **September 30,** |    |
|-----------------------------------------------|--------|--------|--------|-------------------|---------|
|                                          |   |   |   | **2008**          |    |   |   | **2007** |   |
|                                          |   |   |   |              |    |   |   |   |   |
| GAAP capital                                  |   |   |   | $                 | 13,179  |   |   |   | $ | 12,428 |   |
| Add (subtract):                               |   |   |   |              |    |   |   |   |   |   |   |
| Unrealized (gain) loss                        |   |   |   |              |    |   |   |   |   |   |   |
| on securities available for sale              |   |   |   |              | (175    | ) |   |   |   | 15 |   |
| Adjustment to record funded status of pension |   |   |   |              | 219     |   |   |   |   | — |   |
|                                          |   |   |   |              |    |   |   |   |   |   |   |
| Core and tangible capital                     |   |   |   |              | 13,223  |   |   |   |   | 12,443 |   |
| Add:                                          |   |   |   |              |    |   |   |   |   |   |   |
| General allowance for loan losses             |   |   |   |              | 912     |   |   |   |   | 750 |   |
| Unrealized gains on equity securities         |   |   |   |              |    |   |   |   |   |   |   |
| available for sale                            |   |   |   |              | — |   |   |   |   | 10 |   |
|                                          |   |   |   |              |    |   |   |   |   |   |   |
| Total risk-based capital                      |   |   |   | $                 | 14,135  |   |   |   | $ | 13,203 |   |

 

 

37

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**12. REGULATORY CAPITAL****(Cont’d)**

 

The Bank’s actual capital amounts and ratios are presented in the following table:

 

|                     |   |       |   |      |   |                  |   |       |   | **To be Well-**       |   |
|--------------------------|--------|------------|--------|-----------|--------|-----------------------|--------|------------|--------|-----------------------|--------|
|                     |   |       |   |      |   |                  |   |       |   | **Capitalized Under** |   |
|                     |   |       |   |      |   | **For Capital**       |   |       |   | **Prompt Corrective** |   |
|                     |   | **Actual** |   |      |   | **Adequacy Purposes** |   |       |   | **Action Provisions** |   |
|                     |   | **Amount** |   | **Ratio** |   |                  |   | **Amount** |   | **Ratio**             |   |   |   | **Amount** |   | **Ratio** |   |
|                     |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| As of September 30, 2008 |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| Tangible capital         | $      | 13,223     |   | 8.57      | %      |                  | $      | 2,316      |   | 1.50                  | %      |   |   | N/A |   | - |   |
| Tier 1 (core) capital    |   | 13,223     |   | 8.57      | %      |                  |   | 6,175      |   | 4.00                  | %      |   |   | 7,719 |   | 5.00 | % |
| Risk-based capital:      |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| Tier 1                   |   | 13,223     |   | 13.09     | %      |                  |   | 4,041      |   | 4.00                  | %      |   |   | 6,061 |   | 6.00 | % |
| Total                    |   | 14,135     |   | 13.99     | %      |                  |   | 8,081      |   | 8.00                  | %      |   |   | 10,101 |   | 10.00 | % |
|                     |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| As of September 30, 2007 |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| Tangible capital         | $      | 12,443     |   | 8.46      | %      |                  | $      | 2,205      |   | 1.50                  | %      |   |   | N/A |   | - |   |
| Tier 1 (core) capital    |   | 12,443     |   | 8.46      | %      |                  |   | 5,881      |   | 4.00                  | %      |   | $ | 7,352 |   | 5.00 | % |
| Risk-based capital:      |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |
| Tier 1                   |   | 12,443     |   | 13.32     | %      |                  |   | 3,736      |   | 4.00                  | %      |   |   | 5,604 |   | 6.00 | % |
| Total                    |   | 13,203     |   | 14.14     | %      |                  |   | 7,472      |   | 8.00                  | %      |   |   | 9,340 |   | 10.00 | % |
|                     |   |       |   |      |   |                  |   |       |   |                  |   |   |   |   |   |   |   |

 

As of September 30, 2008, the Bank met all regulatory requirements for classification as a well-capitalized institution.

 

**13. BENEFIT PLANS**

 

**Deferred Compensation Plan**

 

The Company maintains a deferred compensation plan for both the directors and employees.

 

The directors’ arrangement is an individual contract between the Company and each participating director and can be terminated at any time. Directors may participate at their own discretion. The Company may secure the deferred compensation agreement by purchasing an investment grade life insurance contract on each participating director. The Company is the owner and beneficiary of each contract.            The use of the investment grade insurance contracts as the funding source of the program allows the Company to take advantage of preferential tax treatment provided to insurance contracts qualified under IRS Sections 101 and 7702. Alternatively, amounts deferred may be invested in common stock of the Company or credited with an earnings rate of one percent over prime.

 

The employees’ arrangement meets the requirements of Sections 401(a) and 401(k) of the Internal Revenue Code. Employees generally become eligible when they have attained age 21 and have one year of service. Each participant may elect to have his compensation reduced by up to the maximum amount allowed by law. The reduction is contributed to the plan. During 2008 and 2007, the Company contributed            100% of the first 3% of participants’ contributions and 50% of the next 2%, for a maximum match of 4%. All participants become 100% vested upon entering the plan. Contributions to the plan by the Company totaled approximately $44,200 and $36,600 for the years ended September 30, 2008 and 2007, respectively.

 

Directors Consultation and Retirement Plan

 

The Company maintains a Directors Consultation and Retirement Plan (“DRP”) to provide retirement benefits to directors of the Company who are not officers or employees (“Outside Directors”). Any director who has served as an Outside Director shall be a participant in the DRP, and payments under the DRP commence once the Outside Director retires as a director of the Company. The            DRP provides a retirement benefit based on the number of years of service

 

38

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**13. BENEFIT PLANS****(Cont’d)**

 

Directors Consultation and Retirement Plan(Cont’d)

 

to the Company. Outside Directors who have completed not less than 12 years of service shall receive a benefit equal to (50%) + 2.889% times the number of years of service in excess of 12, multiplied by the average monthly board fee in effect at the time of retirement. The maximum benefit shall be 85% of such monthly board fee. Benefits shall be paid for a maximum of 120 months to the retired            directors, a surviving spouse, or the director’s estate. The DRP was amended in 2008 to increase the payment period to 120 months from 84 months. The DRP is an unfunded nonqualified pension plan, which is not anticipated to ever hold assets for investment. Any contributions made to the DRP will be used to immediately pay DRP benefits as they come due. The Company does not expect to make any contributions to the DRP in fiscal 2009.

 

In September, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, an amendment of FASB Statement Nos. 87, 88, 106, and 132(R). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position            and to recognize changes in that funded status through comprehensive income in the year in which the changes occur. The Company adopted this provision of the Statement as of September 30, 2007. SFAS No. 158 also requires employers to measure the funded status of plans as of the date of its year-end statement of financial position. The Company currently uses a measurement date of July 1. This requirement is effective for the year ended September 30, 2009.

 

The following table summarizes changes in the DRP’s projected benefit obligation, assets and funded status:

 

|                                    |   |   |   | **At or for the Year Ending** |     |
|-----------------------------------------|--------|--------|--------|-------------------------------|----------|
|                                    |   |   |   | **September 30,**             |     |
|                                    |   |   |   | **2008**                      |     |   |   | **2007** |   |
|                                    |   |   |   |                          |     |   |   |   |   |
| Change in benefit obligation:           |   |   |   |                          |     |   |   |   |   |   |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Benefit obligation at beginning of year |   |   |   | $                             | 374,435  |   |   |   | $ | 353,781 |   |
| Service cost                            |   |   |   |                          | 14,400   |   |   |   |   | 15,456 |   |
| Interest cost                           |   |   |   |                          | 28,638   |   |   |   |   | 23,436 |   |
| Actuarial loss (gain)                   |   |   |   |                          | 197,618  |   |   |   |   | (18,238 | ) |
| Annuity payments                        |   |   |   |                          | —  |   |   |   |   | — |   |
| Plan amendments                         |   |   |   |                          | 115,648  |   |   |   |   | — |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Benefit obligation at end of year       |   |   |   |                          | 730,739  |   |   |   |   | 374,435 |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Change in plan assets:                  |   |   |   |                          |     |   |   |   |   |   |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Market value of assets - beginning      |   |   |   |                          | —  |   |   |   |   | — |   |
| Employer contributions                  |   |   |   |                          | —  |   |   |   |   | — |   |
| Annuity payments                        |   |   |   |                          | —  |   |   |   |   | — |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Market value of assets - ending         |   |   |   |                          | —  |   |   |   |   | — |   |
|                                    |   |   |   |                          |     |   |   |   |   |   |   |
| Funded status and accrued plan cost     |   |   |   |                          |     |   |   |   |   |   |   |
| included in other liabilities           |   |   |   | $                             | (730,739 | ) |   |   | $ | (374,435 | ) |

 

 

39

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**13. BENEFIT PLANS****(Cont’d)**

 

Directors Consultation and Retirement Plan(Cont’d)

 

Amounts recognized in accumulated other comprehensive loss in the statements of financial condition:

 

|               |   |   |   | **September 30,** |    |
|--------------------|--------|--------|--------|-------------------|---------|
|               |   |   |   | **2008**          |    |   |   | **2007** |   |
|               |   |   |   |              |    |   |   |   |   |
| Net loss           |   |   |   | $                 | 235,387 |   |   |   | $ | 37,791 |   |
| Prior service cost |   |   |   |              | 129,428 |   |   |   |   | 31,572 |   |
|               |   |   |   |              |    |   |   |   |   |   |   |
|               |   |   |   | $                 | 364,815 |   |   |   | $ | 69,363 |   |

 

Pension benefits expected to be paid for the fiscal years ending September 30 are $0 in 2009, $9,478 in 2010, $33,488 in 2011, $40,729 in 2012, $58,668 in 2013 and a total of $455,229 in 2014-2018. These amounts are based on the same assumptions used to measure the benefit obligation at September 30, 2008 and include estimated future service.

 

|                                                |   | **Year Ended**    |    |
|-----------------------------------------------------|--------|-------------------|---------|
|                                                |   | **September 30,** |    |
|                                                |   | **2008**          |    |   |   | **2007** |   |
| Components of net periodic plan cost:               |   |              |    |   |   |   |   |   |   |
| Service cost                                        |   | $                 | 14,400  |   |   |   | $ | 15,456 |   |
| Interest cost                                       |   |              | 28,638  |   |   |   |   | 23,436 |   |
| Amortization of unrecognized loss                   |   |              | 22      |   |   |   |   | 2,700 |   |
| Amortization of unrecognized past service liability |   |              | 17,792  |   |   |   |   | 10,808 |   |
|                                                |   |              |    |   |   |   |   |   |   |
| Net periodic plan cost included in                  |   |              |    |   |   |   |   |   |   |
| compensation and benefits                           |   |              | 60,852  |   |   |   |   | 52,400 |   |
|                                                |   |              |    |   |   |   |   |   |   |
| Changes in benefit obligation recognized in other   |   |              |    |   |   |   |   |   |   |
| comprehensive loss:                                 |   |              |    |   |   |   |   |   |   |
| Net loss                                            |   |              | 197,618 |   |   |   |   |   |   |
| Prior service cost                                  |   |              | 115,648 |   |   |   |   |   |   |
| Amortization of loss                                |   |              | (22     | ) |   |   |   |   |   |
| Amortization of prior service cost                  |   |              | (17,792 | ) |   |   |   |   |   |
|                                                |   |              |    |   |   |   |   |   |   |
| Benefit obligation recognized in other              |   |              |    |   |   |   |   |   |   |
| comprehensive loss                                  |   |              | 295,452 |   |   |   |   |   |   |
|                                                |   |              |    |   |   |   |   |   |   |
| Total recognized in net periodic plan cost          |   |              |    |   |   |   |   |   |   |
| and other comprehensive loss                        |   | $                 | 356,304 |   |   |   | $ | 52,400 |   |

 

For the year ended September 30, 2009, $19,964 of net loss and $24,776 of prior service cost included in other comprehensive loss is expected to be recognized as a component of net periodic pension cost.

 

A discount rate of 7.00% and 6.625% and rates of increase in future compensation levels of 4.50% and 5.00% were assumed in the plan valuation for the years ended September 30, 2008 and 2007, respectively.

 

40

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**13. BENEFIT PLANS****(Cont’d)**

 

Stock Option Plan

 

The Company has stock option plans (“Plans”) which authorize the issuance of up to 168,746 shares upon the exercise of stock options that may be awarded to officers, directors, key employees, and other persons providing services to the Company. Shares issued on the exercise of options may be authorized but unissued shares, treasury shares or shares acquired on the open market. The options            granted under the Plans constitute either Incentive Stock Options or Non-Incentive Stock Options. The options are granted at an exercise price equal to the fair market value of the Company’s common stock on the date of grant and expire not more than 10 years after the date of grant. At September 30, 2008, there were 25,220 shares remaining for future option awards.

 

The following table summarizes activity under the Plans for the years ended September 30, 2008 and 2007:

 

|                               |   | **Year Ended September 30,** |   |
|------------------------------------|--------|------------------------------|--------|
|                               |   | **2008**                     |   |   |   | **2007** |   |
|                               |   |                         |   |   |   | **Weighted** |   |   |   |   |   |   |   | **Weighted** |   |
|                               |   |                         |   |   |   | **Average** |   |   |   |   |   |   |   | **Average** |   |
|                               |   | **Number**                   |   |   |   | **Exercise** |   |   |   | **Number** |   |   |   | **Exercise** |   |
|                               |   | **of Shares**                |   |   |   | **Price** |   |   |   | **of Shares** |   |   |   | **Price** |   |
|                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at beginning of period |   | 117,656                      |   |   |   | $ | 10.977 |   |   |   | 125,870 |   |   |   | $ | 10.641 |   |
| Granted                            |   | —                      |   |   |   |   | — |   |   |   | — |   |   |   |   | — |   |
| Exercised                          |   | —                      |   |   |   |   | — |   |   |   | (6,214 | ) |   |   |   | 3.595 |   |
| Forfeited                          |   | (5,200                       | )      |   |   |   | 12.725 |   |   |   | (2,000 | ) |   |   |   | 12.725 |   |
|                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at end of period       |   | 112,456                      |   |   |   | $ | 10.896 |   |   |   | 117,656 |   |   |   | $ | 10.977 |   |
|                               |   |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Options exercisable at period end  |   | 112,456                      |   |   |   |   |   |   |   |   | 117,656 |   |   |   |   |   |   |

 

The following table summarizes all stock options outstanding as of September 30, 2008, all of which are exercisable:

 

|   |   |   |   |         |   |   |   |          |    |   |   | **Weighted Average** |   |
|--------|--------|--------|--------|--------------|--------|--------|--------|---------------|---------|--------|--------|----------------------|--------|
|   |   |   |   | **Exercise** |   |   |   | **Number**    |    |   |   | **Remaining**        |   |
|   |   |   |   | **Price**    |   |   |   | **of Shares** |    |   |   | **Contractual Life** |   |
|   |   |   |   | $            | 3.595  |   |   |          | 6,214   |   |   |                 |   | .4 years |   |   |
|   |   |   |   |         | 10.000 |   |   |          | 54,642  |   |   |                 |   | 7.3 years |   |   |
|   |   |   |   |         | 12.725 |   |   |          | 51,600  |   |   |                 |   | 7.9 years |   |   |
|   |   |   |   |         |   |   |   |          |    |   |   |                 |   |   |   |   |
|   |   |   |   | $            | 10.896 |   |   |          | 112,456 |   |   |                 |   | 7.2 years |   |   |

 

On October 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised), (“SFAS 123(R)”), Share-Based Payment. SFAS 123(R) replaces SFAS No. 123 and supersedes APB 25, Accounting for Stock Issued to Employees. Under SFAS 123(R), compensation cost is recognized prospectively for new and modified awards over the related vesting period of such awards. Results for            prior periods have not been restated. Prior to October 1, 2006, the Company accounted for these Plans under the recognition and measurement principles of APB 25 and related interpretations using the intrinsic value method. In accordance with APB 25, no compensation cost related to these plans was reflected in net income prior to fiscal 2007, as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the grant date. No            stock option expense was recorded in fiscal 2008 or 2007 because all options were fully vested prior to fiscal 2007.

 

41

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**13. BENEFIT PLANS****(Cont’d)**

 

Restricted Stock Plan

 

The Company has restricted stock plans (“Plans”) which provide for the award of shares of restricted stock to directors, officers and employees. The Plans provide for the purchase of 67,496 shares of common stock in the open market to fund such awards. All of the Common Stock to be purchased by the Plans is purchased at the fair market value on the date of purchase. Awards under the Plans            are made in recognition of expected future services to the Company by its directors, officers, and key employees responsible for implementation of the policies adopted by the Company’s Board of Directors and as a means of providing a further retention incentive. Compensation expense on Plan shares is recognized over the vesting periods based on the market value of the stock on the date of grant. Recipients of awards receive compensation payments equal to dividends paid prior            to the date of vesting within 30 days of each dividend payment date. As of September 30, 2008, there were 26,660 shares remaining for future awards. Compensation expense for the Plans was approximately $41,000 and $61,000 for the years ended September 30, 2008 and 2007, respectively, resulting in a tax benefit of $16,000 and $24,000, respectively.

 

The following table summarizes changes in nonvested shares:

 

|                      |   | **Year Ended September 30,** |
|---------------------------|--------|------------------------------|
|                      |   | **2008**                     |   | **2007** |
|                      |   |                         |   | **Weighted** |   |   |   | **Weighted** |
|                      |   |                         |   | **Average** |   |   |   | **Average** |
|                      |   | **Number**                   |   | **Grant Date** |   | **Number** |   | **Grant Date** |
|                      |   | **of Shares**                |   | **Fair Value** |   | **of Shares** |   | **Fair Value** |
|                      |   |                         |   |   |   |   |   |   |   |
| Nonvested share awards at |   |                         |   |   |   |   |   |   |   |
| beginning of period       |   | 8,011                        |   | $ | 10.494 |   | 11,306 |   |   | $ | 9.936 |
| Granted                   |   | 3,634                        |   |   | 11.000 |   | 2,240 |   |   |   | 12.500 |
| Vested                    |   | (6,266                       | ) |   | 10.262 |   | (5,535 | ) |   |   | 10.166 |
| Forfeited                 |   | (90                          | ) |   | 12.500 |   | - |   |   |   | - |
|                      |   |                         |   |   |   |   |   |   |   |   |   |
| Nonvested share awards at |   |                         |   |   |   |   |   |   |   |   |   |
| end of period             |   | 5,289                        |   | $ | 11.082 |   | 8,011 |   |   | $ | 10.494 |
|                           |        |                              |  |  |  |  |  |  |  |  |  |  |

 

For the years ended September 30, 2008 and 2007, 3,634 and 2,240 shares were awarded with a grant date fair value of $11.00 and $12.50 per share, respectively. The awards vest 20% on the date of grant and 20% each of the next four years. As of September 30, 2008, there is $43,000 of unrecognized Plan compensation expense, which will be recognized over a weighted average period of 1.9 years.

 

Employee Stock Ownership Plan

 

Effective upon the consummation of the Bank’s initial stock offering, an Employee Stock Ownership Plan (“ESOP”) was established for all eligible employees who have completed a twelve-month period of employment with the Bank and at least 1,000 hours of service, and have attained the age of 21. The ESOP used $156,800 in proceeds from a term loan to purchase 62,149 shares of Bank common            stock during the stock offering. In fiscal 2004, the ESOP purchased 72,861 shares of common stock in the second-step conversion with the proceeds of a $776,000 loan from the Company, which has a 10-year term and an interest rate of 4.75%. $47,000 of the proceeds were used to payoff the prior outstanding debt.

 

Shares purchased with the loan proceeds were initially pledged as collateral for the loans and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account are in an amount proportional to the loan repayment. Shares are allocated among the participants on the basis of compensation, as described by the Plan, in the year            of allocation.

 

42

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**13. BENEFIT PLANS****(Cont’d)**

 

Employee Stock Ownership Plan(Cont’d)

 

The ESOP is accounted for in accordance with Statement of Position 93-6, “Accounting for Employee Stock Ownership Plans,” which was issued by the American Institute of Certified Public Accountants in November 1993. Accordingly, the ESOP shares pledged as collateral are reported as unallocated ESOP shares in the statements of financial condition. As shares are committed to be released from            collateral, the Bank reports compensation expense equal to the current market price of the shares, and the shares become outstanding for basic net income per common share computations. ESOP compensation expense was approximately $89,000 and $112,000 for the years ended September 30, 2008 and 2007, respectively.

 

The ESOP shares are as follows:

 

|   |                            |   | **Year Ended**          |
|--------|---------------------------------|--------|-------------------------|
|   |                            |   | **September 30,**  |
|   |                            |   | **2008**                |   | **2007** |
|   |                            |   |                    |   |   |
|   | Allocated shares                |   |                    | 66,244 |   |   | 57,094 |
|   | Shares committed to be released |   |                    | — |   |   | — |
|   | Unreleased shares               |   |                    | 54,903 |   |   | 64,053 |
|   |                            |   |                    |   |   |   |   |
|   | Total ESOP shares               |   |                    | 121,147 |   |   | 121,147 |
|   |                            |   |                    |   |   |   |   |
|   | Fair value of unreleased shares |   | $                       | 491,382 |   | $ | 803,865 |

 

Employment Agreements

 

The Bank has entered into employment agreements (the “Agreements”) with its Chief Executive Officer and Chief Financial Officer, each for a one-year term subject to an annual extension for an additional year on each anniversary date. Under the Agreements, their employment may be terminated by the Bank with or without “just cause” as defined in the Agreement. If the Bank            terminates their employment without just cause, they will be entitled to a continuation of salary from the date of termination through the remaining term of Agreement, but in no event for a period of less than six months thereafter. The Agreements also provide for payments in the event of termination of employment in connection with a change in control.

 

Directors Change in Control Severance Plan

 

On May 8, 2008 the Company adopted a Directors Change in Control Severance Plan (the “Plan”) for non-employee members of the Board of Directors. The Plan provides for a severance benefit payment to directors upon their termination of service as a director following a change in control or within two years thereafter.

 

**14. FAIR VALUES OF FINANCIAL INSTRUMENTS**

 

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:

 

Cash and Cash Equivalents and Certificates of Deposit

 

The carrying amounts of cash and short-term instruments approximate their fair value.

 

Investment and Mortgage-Backed Securities

 

Fair values for securities, excluding restricted equity securities, are based on quoted market prices. The carrying values of restricted equity securities approximate fair values.

 

43

 

 

----

****ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY****

****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****

 

 

**14. FAIR VALUES OF FINANCIAL INSTRUMENTS****(Cont’d)**

 

Loans Receivable

 

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain mortgage loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and            commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

 

Deposit Liabilities

 

The fair value of demand deposits, savings deposits and money market accounts are the amounts payable on demand. The fair values of certificates of deposit are based on the discounted value of contractual cash flows. The discount rate was estimated using the rate currently offered for deposits of similar remaining maturities.

 

Short-Term Borrowings

 

The carrying amounts of federal funds purchased, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

 

Long-Term Debt

 

The fair value of long-term debt is estimated using discounted cash flow analysis based on the current incremental borrowing rates for similar types of borrowing arrangements.

 

Accrued Interest Receivable

 

The carrying amounts of accrued interest approximate their fair values.

 

***Federal Home Loan Bank of New York Stock***

 

Federal Home Loan Bank of New York stock is valued at cost.

 

Off-Balance-Sheet Instruments

 

In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. Their fair value would approximate fees currently charged to enter into similar agreements.

 

44

 

 

----

**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**14. FAIR VALUES OF FINANCIAL INSTRUMENTS****(Cont’d)**

 

Off-Balance-Sheet Instruments(Cont’d)

 

The carrying values and estimated fair values of financial instruments are as follows (in thousands):

 

|                          |   | **September 30, 2008** |    | **September 30, 2007** |
|-------------------------------|--------|------------------------|---------|------------------------|
|                          |   | **Carrying**           |    | **Fair**               |   | **Carrying** |   | **Fair** |
|                          |   | **Amount**             |    | **Value**              |   | **Amount** |   | **Value** |
| Financial Assets              |   |                   |    |                   |   |   |   |   |
|                          |   |                   |    |                   |   |   |   |   |
| Cash and cash equivalents     |   | $                      | 6,356   |                   | $ | 6,356 |   | $ | 3,460 |   | $ | 3,460 |
| Securities available for sale |   |                   | 32,853  |                   |   | 32,853 |   |   | 34,657 |   |   | 34,657 |
| Securities held to maturity   |   |                   | 181     |                   |   | 182 |   |   | 242 |   |   | 243 |
| Loans receivable              |   |                   | 109,474 |                   |   | 110,230 |   |   | 102,772 |   |   | 102,010 |
| Accrued interest receivable   |   |                   | 675     |                   |   | 675 |   |   | 766 |   |   | 766 |
| FHLB stock                    |   |                   | 445     |                   |   | 445 |   |   | 596 |   |   | 596 |
|                          |   |                   |    |                   |   |   |   |   |   |   |   |   |
| Financial Liabilities         |   |                   |    |                   |   |   |   |   |   |   |   |   |
|                          |   |                   |    |                   |   |   |   |   |   |   |   |   |
| Deposits                      |   |                   | 130,575 |                   |   | 131,647 |   |   | 119,208 |   |   | 119,352 |
| Borrowed funds                |   |                   | 5,000   |                   |   | 5,052 |   |   | 9,500 |   |   | 9,464 |

 

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties            and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.

 

In addition, the fair value estimates were based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include real estate owned, premises and equipment,            and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses have a significant effect on fair value estimates and have not been considered in any of the estimates.

 

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. The lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

 

**15. RECENT ACCOUNTING PRONOUNCEMENTS**

 

In September 2006, the FASB issued Statement of Financial Accounting Standards SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is            effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of FASB Statement No. 157 on our consolidated financial position, results of operations and cash flows.

 

45

 

 

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**ROEBLING FINANCIAL CORP, INC. AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**15. RECENT ACCOUNTING PRONOUNCEMENTS****(Cont’d)**

 

In September 2006, the FASB issued Emerging Issues Task Force (“EITF”) Issue No.06-5, “Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.” The scope of EITF 06-5 consists of various issues relating to accounting for life insurance policies            purchased by entities protecting against the loss of “key persons.” Those issues are clarifications of previously issued guidance on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after December 15, 2006. Application of this issue did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115.” This statement permits an entity to choose to measure many financial instruments and certain other items at fair value. A business entity will report unrealized gains and losses in earnings at each subsequent reporting            date on items for which the fair value option has been elected. The fair value option 1) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method, 2) is irrevocable (unless a new election date occurs) and 3) is applied only to entire instruments and not to portions of instruments. The statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The            Company is currently evaluating the impact of this pronouncement.

 

In March 2007, the FASB ratified EITF No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements”. EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal            years beginning after December 15, 2007. The Company does not expect EITF 06-10 will have a material impact on its financial position, results of operations and cash flows.

 

In June 2007, the FASB issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”. EITF Issue No. 06-11 addresses a company’s recognition of an income tax benefit received on dividends that are (a) paid to employees holding equity-classified non-vested shares, equity-classified non-vested share units, or equity-classified outstanding            share options and (b) charged to retained earnings under SFAS No. 123(R). The EITF reached a consensus that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the            realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. Unrealized income tax benefits from dividends on equity-classified employee share-based payment awards should be excluded from the pool of excess tax benefits available to absorb potential future tax deficiencies. The accounting treatment of the income tax benefits from these dividends would be applied on            a prospective basis. EITF Issue No. 06-11 is effective for fiscal years beginning after December 15, 2007. The company does not expect that EITF Issue No. 06-11 will have a material impact on its financial condition or results of operations.

 

In February, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157” which permits a one year delay of the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annual).

 

In June, 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of earnings per share pursuant            to the two-class method. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company is currently evaluating the potential impact of this pronouncement on its consolidated financial statements.

 

46

 

 

 

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| ***ROEBLING FINANCIAL CORP, INC.***

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ***BOARD OF DIRECTORS AND EXECUTIVE OFFICERS***

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| John J. Ferry, Chairman of the Board of Directors

*President, John J. Ferry Enterprises, Inc.*

John A. LaVecchia, Director and Vice Chairman

*Senior Sales Consultant, Colonial Auto Complex*

Frank J. Travea, III, President and Chief Executive Officer

Janice A. Summers, Senior Vice President, Chief Operating Officer and

Chief Financial Officer

Mark V. Dimon, Director and Treasurer

*Sole Proprietor, Dimon Oil Corp.*

Joan K. Geary, Director and Secretary

*President, Keating Realty Company*

George N. Nyikita, Director

*Manager of Corporate Development, Pennoni Associates*

Robert R. Semptimphelter, Sr., Director

*Principal, Farnsworth & Semptimphelter, LLC*

 

***ROEBLING BANK OFFICERS***

 

Frank J. Travea, III,*President and CEO*

Janice A. Summers,*Senior Vice President, COO and CFO*

John W. Clawges,*Senior**Vice President and Senior Lending Officer*

Bonnie L. Horner,*Vice President, Consumer Lending*

John C. Lauricella*, Vice President and Commercial Loan Officer*

Donna M. Rinaldi*, Assistant Vice President and Human Resource Director* |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ***ROEBLING BANK OFFICES***

 

*Route 130 South and Delaware Avenue, Roebling, New Jersey*

*34 Main Street, Roebling, New Jersey*

*8 Jacobstown Road, New Egypt, New Jersey*

*3104 Bridgeboro Road, Delran, New Jersey*

*1934 Route 541, Westampton, New Jersey (Banking and Administrative Center)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ***CORPORATE OFFICE***

*Route 130 South and Delaware Avenue*

*Roebling, New Jersey 08554*

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ***TRANSFER AGENT***

*Registrar and Transfer Company*

*10 Commerce Drive*

*Cranford, New Jersey 07016* |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| ***INDEPENDENT AUDITORS***

*Fontanella and Babitts*

*534 Union Boulevard*

*Totowa, New Jersey 07512*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ***SPECIAL COUNSEL***

*Malizia Spidi & Fisch, PC*

*901 New York Avenue, N.W., Suite 210 East*

*Washington, D.C. 20001* |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *Our Annual Report for the year ended September 30, 2008 as filed with the Securities & Exchange Commission on Form 10-K, including exhibits, is available without charge upon written request. For a copy of the Form 10-K, please contact Frank* *J. Travea, III at our Corporate Office. The                            Annual Meeting of Stockholders will be held on January* *26, 2009 at 11:00 a.m. at Bung’s Tavern, 2031 Route 130 South, Burlington, New Jersey.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |