Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements, which are not statements of historical fact and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated, including, but not limited to:
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•
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the Merger Agreement with Washington Federal, Inc. may be terminated in accordance with its terms, and the Merger may not be completed;
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•
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termination of the Merger Agreement could negatively impact us;
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•
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we will be subject to business uncertainties and contractual restrictions while the Merger is pending;
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•
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the Merger Agreement limits our ability to pursue an alternative acquisition proposal and requires us to pay a termination fee of $2.2 million under limited circumstances relating to alternative acquisition proposals;
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•
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the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;
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•
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changes in general economic conditions, either nationally or in our market areas;
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•
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changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;
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•
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fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;
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•
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secondary market conditions for loans and our ability to sell loans in the secondary market;
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•
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results of examinations of us by the Federal Deposit Insurance Corporation ("FDIC"), the Washington Department of Financial Institutions, Division of Banks ("DFI") or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;
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•
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our ability to attract and retain deposits;
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•
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increases in premiums for deposit insurance;
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•
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management's assumptions in determining the adequacy of the allowance for loan losses;
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•
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our ability to control operating costs and expenses;
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•
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the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;
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•
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difficulties in reducing risks associated with the loans on our balance sheet;
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•
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staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;
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•
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computer systems on which we depend could fail or experience a security breach;
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•
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our ability to retain key members of our senior management team;
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•
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costs and effects of litigation, including settlements and judgments;
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•
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our ability to manage loan delinquency rates;
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•
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increased competitive pressures among financial services companies;
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•
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changes in consumer spending, borrowing and savings habits;
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•
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legislative or regulatory changes that adversely affect our business including the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III;
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•
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the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
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•
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our ability to pay dividends on our common stock;
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•
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adverse changes in the securities markets;
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•
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inability of key third-party providers to perform their obligations to us;
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•
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changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods including relating to fair value accounting and loan loss reserve requirements; and
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•
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other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q.
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Some of these and other factors are discussed in our 2016 Form10-K under Item 1A. “Risk Factors.” Such developments could have an adverse impact on our financial position and results of operations.
Any of the forward-looking statements that we make in this quarterly report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Because of these and other uncertainties, our actual results for fiscal year 2017 and beyond may differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect our financial condition, liquidity, operating results and stock price performance.
Background and Overview
Anchor Bancorp is a bank holding company which primarily engages in the business activity of its subsidiary, Anchor Bank. Anchor Bank is a community-based savings bank primarily serving Western Washington through our
10
full-service banking offices (including
one
Wal-Mart in-store location) within Grays Harbor, Thurston, Lewis, Pierce, and Mason counties, and
one
loan production office located in King County, Washington. We are in the business of attracting deposits from the public and utilizing those deposits to originate loans. We offer a wide range of loan products to meet the demands of our customers. Historically, our principal lending activity has consisted of the origination of loans secured by first mortgages on owner-occupied, one-to-four family residences and loans for the construction of one-to-four family residences, as well as consumer loans, with an emphasis on home equity loans and lines of credit. Recently, we have been aggressively offering commercial real estate, multi-family, and construction loans primarily in Western Washington.
Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates also affect our net interest income. Additionally, to offset the impact of the current low interest rate environment, we are seeking other means of increasing interest income while controlling expenses. We intend to enhance the mix of our assets by further increasing our commercial business relationships which have higher risk-adjusted returns. These commercial business relationships also typically help us generate lower cost deposits. A secondary source of income is noninterest income, which includes gains on sales of assets, and revenue we receive from providing products and services. In recent years, our noninterest expense has exceeded our net interest income after provision for loan losses and we have relied primarily on fee income to supplement our net interest income.
Our operating expenses consist primarily of compensation and benefits, general and administrative, real estate owned expenses, FDIC insurance premiums, information technology, occupancy and equipment, deposit services and marketing expenses. Compensation and benefits expense consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, taxes, depreciation charges, maintenance and costs of utilities. Also included in noninterest expense are changes to the Company’s unfunded commitment reserve which are reflected in general and administrative expenses. This unfunded commitment reserve expense can vary significantly each quarter, based on the amount believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities, and reflects changes in the amounts that the Company has committed to fund but has not yet disbursed.
Critical Accounting Estimates and Related Accounting Policies
We use estimates and assumptions in our consolidated financial statements in accordance with generally accepted accounting principles. Management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to the determination of the allowance for loan losses and the associated provision for loan losses, deferred income taxes and the associated income tax expense, as well as valuation of real estate owned. Management reviews the allowance for loan losses for adequacy on a monthly basis and establishes a provision for loan losses that it believes is sufficient for the loan portfolio growth expected and the loan quality of the existing portfolio. The carrying value of real estate owned is assessed on a quarterly basis.
Income tax expense and deferred income taxes are calculated using an estimated tax rate and are based on management's understanding of our effective tax rate and the tax code.
Allowance for Loan Losses.
Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. Our Board of Directors and management assess the allowance for loan losses on a quarterly basis. The Executive Loan Committee analyzes several different factors including delinquency rates, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, the bankruptcies and vacancy rates of business and residential properties.
We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about future losses on loans. The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.
Our methodology for analyzing the allowance for loan losses consists of specific allocations on significant individual credits that meet the definition of impaired and a general allowance amount. The specific allowance component is determined when management believes that the collectability of a specifically identified large loan has been impaired and a loss is probable. The general allowance component relates to assets with no well-defined deficiency or weakness and takes into consideration loss that is inherent within the portfolio but has not been realized. The general allowance is determined by applying an expected loss percentage to various classes of loans with similar characteristics and classified loans that are not analyzed specifically for impairment. Because of the imprecision in calculating inherent and potential losses, the national and local economic conditions are also assessed to determine if the general allowance is adequate to cover losses. The allowance is increased by the provision for loan losses, which is charged against current period operating results and decreased by the amount of actual loan charge-offs, net of recoveries.
Deferred Income Taxes.
Deferred income taxes are reported for temporary differences between items of income or expense reported in the financial statements and those reported for income tax purposes. Deferred taxes are computed using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in an institution's income tax returns. Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. As required by GAAP, available evidence is weighted heavily on cumulative losses with less weight placed on future projected profitability. Realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income of the appropriate character in the period during which deductible temporary differences reverse or within the carryback and carryforward periods available under tax law. Based upon the available evidence, we carried no valuation allowance at March 31, 2017. The tax provision for the period is equal to the net change in the net deferred tax asset from the beginning to the end of the period, less amounts applicable to the change in value related to securities available-for-sale. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The primary differences between financial statement income and taxable income result from REO, deferred loan fees and costs, and loan loss reserves.
Deferred income taxes do not include a liability for pre-1988 bad debt deductions allowed to thrift institutions that may be recaptured if the institution fails to qualify as a bank for income tax purposes in the future.
Real Estate Owned.
Real estate acquired through foreclosure is transferred to the real estate owned asset classification at fair value estimated fair market value less estimated costs of disposal and subsequently carried at the lower of cost or market. Any impairment on the initial transfer is charged to the allowance for loan losses. Costs associated with real estate owned for maintenance, repair, property tax, etc., are expensed during the period incurred. Assets held in real estate owned are reviewed quarterly for potential impairment. When impairment is indicated the impairment is charged against current period operating results and netted against the real estate owned to reflect a net book value. At disposition any residual difference is either charged to current period earnings as a loss on sale or reflected as income in a gain on sale.
Comparison of Financial Condition at
March 31, 2017
and
June 30, 2016
General.
Total assets increased by
$33.9 million
, or
7.9%
, to
$465.4 million
at
March 31, 2017
from
$431.5 million
at
June 30, 2016
. The increase in assets during this period was primarily a result of a $31.5 million, or 9.1% increase in loans receivable, net, to $378.9 million at March 31, 2017 from $347.4 million at June 30, 2016. In addition, cash and cash equivalent increased $8.3 million, or 99.7% to $16.6 million at March 31, 2017 from $8.3 million at June 30, 2016 due to an increase in deposits. Partially offsetting these increases was a $2.9 million, or 12.4%, decline in securities available-for-sale comprised almost entirely of mortgage-backed securities. Total liabilities increased
$32.2 million
, or
8.7%
, to
$400.5 million
at
March 31, 2017
compared to
$368.3 million
at
June 30, 2016
. Total deposits increased
$42.4 million
, or
14.1%
, to $343.3 million at March 31, 2017 compared to $300.9 million at June 30, 2016 primarily due to a $35.4 million, or 14.2% increase in interest bearing deposits to $285.5 million at March 31, 2017 from $250.1 million at June 30, 2016. The increase was primarily a result of the Bank's deposit marketing campaign as well as other deposit gathering activities. In addition, FHLB advances decreased $11.5 million, or 18.6%, to $50.5 million at March 31, 2017 from $62.0 million at June 30, 2016.
Assets.
The following table details the increases and decreases in the composition of the Company's assets from
June 30, 2016
to
March 31, 2017
:
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|
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|
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|
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|
|
|
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|
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|
|
|
|
Balance at March 31, 2017
|
|
Balance at June 30, 2016
|
|
Increase/(Decrease)
|
|
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Cash and cash equivalents
|
$
|
16,614
|
|
|
$
|
8,320
|
|
|
$
|
8,294
|
|
|
99.7
|
%
|
Securities, available-for-sale
|
20,720
|
|
|
23,665
|
|
|
(2,945
|
)
|
|
(12.4
|
)
|
Securities, held-to-maturity
|
5,145
|
|
|
6,291
|
|
|
(1,146
|
)
|
|
(18.2
|
)
|
Loans receivable, net of allowance for loan losses
|
378,875
|
|
|
347,351
|
|
|
31,524
|
|
|
9.1
|
|
Real estate owned, net
|
220
|
|
|
373
|
|
|
(153
|
)
|
|
(41.0
|
)
|
Cash and cash equivalents increased by $8.3 million, or 99.7%, to $16.6 million at March 31, 2017, from $8.3 million at June 30, 2016 due to an increase in deposits.
Securities available-for-sale decreased
$2.9 million
, or
12.4%
, to $20.7 million at
March 31, 2017
from $23.7 million at
June 30, 2016
. Securities held-to-maturity decreased $1.1 million, or
18.2%
, to $5.1 million at March 31, 2017 from $6.3 million at June 30, 2016. The decreases in these portfolios were primarily the result of contractual principal repayments.
Loans receivable, net, increased $31.5 million, or 9.1%, to $378.9 million at March 31, 2017 from $347.4 million at June 30, 2016. Construction loans increased $28.1 million, or 129.2%, to $49.9 million at March 31, 2017 from $21.8 million at June 30, 2016. The increase was due to disbursements of prior construction loan commitments as well as new construction loan originations. There was $65.9 million in undisbursed construction loan commitments at March 31, 2017. Our construction loans are primarily for the construction of one-to-four family residences and to a lesser extent, loans for the construction of multi-family and hospitality properties. Multi-family loans increased $7.4 million, or 13.7%, to $61.1 million at March 31, 2017 from $53.7 million at June 30, 2016. Land loans increased $2.5 million, or 36.4%, to $9.3 million at March 31, 2017 from $6.8 million at June 30, 2016. Commercial business loans increased $914,000, or 2.5%, to $37.8 million at March 31, 2017 from $36.8 million at June 30, 2016. One-to-four family loans decreased $1.9 million, or 3.2%, to $59.3 million at March 31, 2017 from $61.2 million at June 30, 2016. Commercial real estate loans decreased $2.2 million, or 1.5%, to $147.3 million at March 31, 2017 from $149.5 million at June 30, 2016. This decrease was partially due to the repayment of a $4.2 million commercial real estate loan secured by a hotel and the sale during the first quarter of a $4.0 million participation interest in a commercial real estate loan which is secured by a parking structure. Consumer loans decreased $2.6 million, or 11.9%, to $19.5 million at March 31, 2017 from $22.1 million at June 30, 2016.
Total delinquent loans (past due 30 days or more), decreased $513,000 to $2.8 million at March 31, 2017 from $3.3 million at June 30, 2016. Nonperforming loans, consisting solely of nonaccrual loans and primarily of one-to-four family loans, totaled $2.4 million at March 31, 2017 as compared to $2.0 million at June 30, 2016. Total classified loans consisting solely of substandard loans decreased $128,000, or 4.8%, to $2.6 million at March 31, 2017 from $2.8 million at June 30, 2016. The percentage of nonperforming loans, consisting solely of nonaccrual loans, to total loans remained unchanged at 0.6% at both March 31, 2017 and June 30, 2016.
Liabilities.
Total liabilities increased $32.2 million between June 30, 2016 and March 31, 2017. Deposits increased $42.4 million, or 14.1%, to $343.3 million at
March 31, 2017
from $300.9 million at
June 30, 2016
, primarily due to a $24.8 million, or 41.9%, increase in money market accounts primarily as a result of the Bank's deposit marketing campaign as well as other deposit gathering activities. Our core deposits, which consist of all deposits other than certificates of deposit, increased by $33.8 million, or 18.5%, to $216.3 million at March 31, 2017 from $182.5 million at June 30, 2016. We have also increased commercial lending which has increased the level of larger deposit customers. Certificates of deposit increased $8.6 million, or 7.2%, to $127.0 million at March 31, 2017 from $118.4 million at June 30, 2016. The increase in deposits was partially offset by the $11.5 million decrease in FHLB advances.
The following table details the changes in deposit accounts at the dates indicated:
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|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
Balance at June 30, 2016
|
|
Increase/(Decrease)
|
|
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Noninterest-bearing demand deposits
|
$
|
57,732
|
|
|
$
|
50,781
|
|
|
$
|
6,951
|
|
|
13.7
|
%
|
Interest-bearing demand deposits
|
29,863
|
|
|
27,419
|
|
|
2,444
|
|
|
8.9
|
|
Money market accounts
|
84,105
|
|
|
59,270
|
|
|
24,835
|
|
|
41.9
|
|
Savings deposits
|
44,558
|
|
|
44,986
|
|
|
(428
|
)
|
|
(1.0
|
)
|
Certificates of deposit
|
127,007
|
|
|
118,438
|
|
|
8,569
|
|
|
7.2
|
|
Total deposit accounts
|
$
|
343,265
|
|
|
$
|
300,894
|
|
|
$
|
42,371
|
|
|
14.1
|
%
|
Stockholders'
Equity.
Total stockholders' equity increased $1.8 million, or 2.8%, to $65.0 million at March 31, 2017 from $63.2 million at June 30, 2016 primarily due to net income of $1.7 million.
Comparison of Operating Results for the Three and Nine Months Ended March 31, 2017 and 2016
General.
Net income for the
three months ended March 31, 2017
was $702,000 or $0.29 per diluted share compared to net income of $101,000 or $0.04 per diluted share for the
three months ended March 31, 2016
. For the nine months ended March 31, 2017 net income was $1.7 million or $0.70 per diluted share compared to net income of $160,000 or $0.07 per diluted share for the same period last year.
Net Interest Income.
Net interest income before the provision for loan losses increased $460,000, or 12.3%, to $4.2 million for the quarter ended March 31, 2017 compared to $3.7 million for the same period last year primarily due to the increase in average loans receivable, net. Average loans receivable, net, for the quarter ended March 31, 2017 increased $51.4 million, or 15.9%, to $374.0 million compared to $322.6 million for the quarter ended March 31, 2016. For the nine months ended March 31, 2017 net interest income before the provision for loan losses increased $1.6 million, or 15.2%, to $12.4 million from $10.7 million for the same period in 2016 primarily due to the increase in average loans receivable, net.
The Company's net interest margin remained unchanged at 4.10% for both the quarters ended March 31, 2017 and 2016. The average yield on loans receivable, net, decreased four basis points to 5.20% for the quarter ended March 31, 2017 compared to 5.24% for the same period of the prior year. The average yield on average mortgage-backed securities during the three months ended March 31, 2017 decreased to 1.98% from 2.18% for the same period in the prior year primarily due to large principal pay downs resulting in an increase in amortization of premiums. The average yield on interest-earning assets increased six basis points to 4.92% from 4.86% for the quarters ended March 31, 2017 and 2016, respectively. The average cost of total deposits increased three basis points to 1.01% for the quarter ended March 31, 2017 compared to 0.98% for the same period in the prior year. The average cost of interest-bearing liabilities increased seven basis points to 1.03% for the quarter ended March 31, 2017 compared to 0.96% for the same period in the prior year.
The following table sets forth the changes to our net interest income for the
three months ended March 31, 2017
compared to the same period in
2016
. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The changes attributable to both rate and volume, which cannot be segregated, are allocated proportionately to the changes in rate and volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
|
|
Increase (Decrease) Due to
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
(In thousands)
|
Interest-earning assets:
|
|
|
|
|
|
Loans receivable, including fees
|
$
|
(43
|
)
|
|
$
|
674
|
|
|
$
|
631
|
|
Mortgage-backed securities
|
(13
|
)
|
|
(29
|
)
|
|
(42
|
)
|
Investment securities, FHLB stock and cash and cash equivalents
|
16
|
|
|
(3
|
)
|
|
13
|
|
Total net change in income on interest-earning assets
|
$
|
(40
|
)
|
|
$
|
642
|
|
|
$
|
602
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
Savings deposits
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest-bearing demand deposits
|
—
|
|
|
—
|
|
|
—
|
|
Money market accounts
|
78
|
|
|
12
|
|
|
90
|
|
Certificates of deposit
|
7
|
|
|
(16
|
)
|
|
(9
|
)
|
FHLB advances
|
38
|
|
|
23
|
|
|
61
|
|
Total net change in expense on interest-bearing liabilities
|
123
|
|
|
19
|
|
|
142
|
|
Net change in net interest income
|
$
|
(163
|
)
|
|
$
|
623
|
|
|
$
|
460
|
|
For the nine months ended March 31, 2017, the Company's net interest margin increased three basis points to 4.14% compared to 4.11% for the same period in 2016, reflecting the increase in the average balance of loans receivable, net. The average yield on loans receivable, net, decreased 22 basis points to 5.24% for the nine months ended March 31, 2017 compared to 5.46% for the same period of the prior year. The average yield on average mortgage-backed securities increased to 2.07% from 2.05% for the same period in the prior year. The average yield on interest-bearing assets increased three basis points to 4.94% for the nine months ended March 31, 2017 compared to 4.91% for the same period in the prior year. The average cost of total deposits decreased two basis points to 1.00% for the nine months ended March 31, 2017 compared to 1.02% for the same period in the prior year. The average cost of interest-bearing liabilities decreased one basis point to 1.01% for the nine months ended March 31, 2017 compared to 1.02% for the same period of the prior year as the cost of our liabilities continue to decline, due primarily to the reduction in the average balance of certificates of deposit.
The following table sets forth the changes to our net interest income for the nine months ended March 31, 2017 compared to the same period in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2017 Compared to Nine Months Ended March 31, 2016
|
|
Increase (Decrease) Due to
|
|
|
|
Rate
|
|
Volume
|
|
Total
|
|
(In thousands)
|
Interest-earning assets:
|
|
|
|
|
|
Loans receivable, including fees
|
$
|
(586
|
)
|
|
$
|
2,568
|
|
|
$
|
1,982
|
|
Mortgage-backed securities
|
5
|
|
|
(86
|
)
|
|
(81
|
)
|
Investment securities, FHLB stock and cash and cash equivalents
|
54
|
|
|
(25
|
)
|
|
29
|
|
Total net change in income on interest-earning assets
|
$
|
(527
|
)
|
|
$
|
2,457
|
|
|
$
|
1,930
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
Savings deposits
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest-bearing demand deposits
|
—
|
|
|
1
|
|
|
1
|
|
Money market accounts
|
121
|
|
|
17
|
|
|
138
|
|
Certificates of deposit
|
(23
|
)
|
|
(98
|
)
|
|
(121
|
)
|
FHLB advances
|
49
|
|
|
234
|
|
|
283
|
|
Total net change in expense on interest-bearing liabilities
|
147
|
|
|
154
|
|
|
301
|
|
Net change in net interest income
|
$
|
(674
|
)
|
|
$
|
2,303
|
|
|
$
|
1,629
|
|
Interest Income.
Total interest income for the
three months ended March 31, 2017
increased $602,000, or 13.6%, to $5.0 million from $4.4 million for the
three months ended March 31, 2016
. The increase during the period was primarily attributable to the increase in the average balance on loans receivable, net. Average loans receivable, net, increased $51.4 million during the quarter ended March 31, 2017 compared to the same quarter last year. The average yield on loans receivable, net, decreased four basis points to 5.20% during the three months ended March 31, 2017 compared to 5.24% for the same period in the prior year. Average mortgage-backed securities declined $5.3 million during the three months ended March 31, 2017 compared to the same period in the prior year. The average yield on mortgage-backed securities decreased 20 basis points to 1.98% for the three months ended March 31, 2017 compared to 2.18% for the same period in the prior year primarily due to large principal pay downs resulting in an increase in amortization of premiums. Average interest-earning assets increased $44.7 million, or 12.3%, to $408.6 million for the three months ended March 31, 2017 compared to $363.9 million for the same period in 2016.
The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the
three months ended March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase/(Decrease) in
Interest and
Dividend
Income from
2016
|
|
Average
Balance
|
|
Yield
|
|
Average
Balance
|
|
Yield
|
|
|
(Dollars in thousands)
|
Loans receivable, net
(1)
|
$
|
374,053
|
|
|
5.20
|
%
|
|
$
|
322,634
|
|
|
5.24
|
%
|
|
$
|
631
|
|
Mortgage-backed securities
|
26,646
|
|
|
1.98
|
|
|
31,928
|
|
|
2.18
|
|
|
(42
|
)
|
Investment securities
|
169
|
|
|
7.10
|
|
|
178
|
|
|
6.74
|
|
|
—
|
|
FHLB stock
|
2,266
|
|
|
3.18
|
|
|
1,774
|
|
|
1.13
|
|
|
13
|
|
Cash and cash equivalents
|
5,476
|
|
|
0.58
|
|
|
7,441
|
|
|
0.43
|
|
|
—
|
|
Total interest-earning assets
|
$
|
408,610
|
|
|
4.92
|
%
|
|
$
|
363,955
|
|
|
4.86
|
%
|
|
$
|
602
|
|
|
|
(1)
|
Nonaccruing loans have been included in the table as loans carrying a zero yield for the period that they have been on nonaccrual, calculated net of deferred loan fees and loans in process.
|
For the nine months ended March 31, 2017, total interest income increased $2.0 million, or 15.0%, to $14.8 million from $12.8 million for the nine months ended March 31, 2016. The increase during the period was primarily attributable to the increase in the average balance on loans receivable, net. The average yield on loans receivable, net, decreased 22 basis points to 5.24% for the nine months ended March 31, 2017 compared to 5.46% for the same period in the prior year as higher yielding loans continue to be repaid and new loan originations are at lower rates. Average loans receivable, net, increased $62.7 million during the nine months ended March 31, 2017 compared to the same period in the prior year. Average mortgage-backed securities declined $5.6 million during the nine months ended March 31, 2017 compared to the same period in the prior year. The average yield on mortgage-backed securities increased two basis points to 2.07% for the nine months ended March 31, 2017 compared to 2.05% for the same period in the prior year. Average interest-earning assets increased $50.0 million, or 14.3%, to $398.8 million for the nine months ended March 31, 2017 compared to $348.8 million for the same period in 2016.
The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the nine months ended March 31, 2017 and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase/(Decrease) in
Interest and
Dividend
Income from
2016
|
|
Average
Balance
|
|
Yield
|
|
Average
Balance
|
|
Yield
|
|
|
(Dollars in thousands)
|
Loans receivable, net
(1)
|
$
|
362,626
|
|
|
5.24
|
%
|
|
$
|
299,886
|
|
|
5.46
|
%
|
|
$
|
1,982
|
|
Mortgage-backed securities
|
28,256
|
|
|
2.07
|
|
|
33,854
|
|
|
2.05
|
|
|
(81
|
)
|
Investment securities
|
171
|
|
|
6.24
|
|
|
365
|
|
|
5.11
|
|
|
(6
|
)
|
FHLB stock
|
2,536
|
|
|
3.05
|
|
|
1,178
|
|
|
1.13
|
|
|
48
|
|
Cash and cash equivalents
|
5,186
|
|
|
0.39
|
|
|
13,565
|
|
|
0.28
|
|
|
(13
|
)
|
Total interest-earning assets
|
$
|
398,775
|
|
|
4.94
|
%
|
|
$
|
348,848
|
|
|
4.91
|
%
|
|
$
|
1,930
|
|
|
|
(1)
|
Nonaccruing loans have been included in the table as loans carrying a zero yield for the period that they have been on nonaccrual, calculated net of deferred loan fees and loans in process.
|
Interest Expense.
Interest expense increased $142,000, or 20.5% to $835,000 for the
three months ended March 31, 2017
as compared to $693,000 for the
three months ended March 31, 2016
. The increase during the period was primarily attributable to the increases in both the average balance and average cost of money market accounts and the increase in the average balance of FHLB advances. The average balance of money market accounts increased $27.3 million or 44.4% and the average cost increased by 35 basis points to 0.53% as compared to the same quarter last year primarily due to our marketing campaign. The average balance of FHLB advances increased $11.7 million, or 35.4%, to $44.7 million during the quarter ended March 31, 2017 compared to $33.0 million for the same quarter last year as these funds were primarily used to fund our loan growth over the last year. The average cost of FHLB advances increased 34 basis points to 1.14% for the three months ended March 31, 2017 compared to 0.80% for the same period of the prior year reflecting recent increases in the federal funds rate. The average balance of certificates of deposit declined $3.2 million, or 2.7%, to $117.7 million for the quarter ended March 31, 2017 compared to $120.9 million for the same period of the prior year. Average interest-bearing liabilities increased $35.5 million, or 12.3%, to
$323.7
million for the
three months ended March 31, 2017
compared to $288.2 million for the same period in 2016.
The following table details average balances, cost of funds and the change in interest expense for the
three months ended March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase/(Decrease) in
Interest Expense from
2016
|
|
Average
Balance
|
|
Cost
|
|
Average
Balance
|
|
Cost
|
|
|
(Dollars in thousands)
|
Savings deposits
|
$
|
44,632
|
|
|
0.15
|
%
|
|
$
|
45,521
|
|
|
0.15
|
%
|
|
$
|
—
|
|
Interest-bearing demand deposits
|
27,964
|
|
|
0.04
|
|
|
27,247
|
|
|
0.04
|
|
|
—
|
|
Money market deposits
|
88,760
|
|
|
0.53
|
|
|
61,473
|
|
|
0.18
|
|
|
90
|
|
Certificates of deposit
|
117,691
|
|
|
1.94
|
|
|
120,932
|
|
|
1.92
|
|
|
(9
|
)
|
FHLB advances
|
44,663
|
|
|
1.14
|
|
|
32,995
|
|
|
0.80
|
|
|
61
|
|
Total interest-bearing liabilities
|
$
|
323,710
|
|
|
1.03
|
%
|
|
$
|
288,168
|
|
|
0.96
|
%
|
|
$
|
142
|
|
For the nine months ended March 31, 2017 interest expense increased $301,000, or 14.4%, to $2.4 million from $2.1 million for the nine months ended March 31, 2016. The increase during the period was primarily attributable to the increase in the average cost of money market deposits and the increase in the average balance of FHLB advances. The average cost of money market deposits increased 22 basis points to 0.39% for the nine months ended March 31, 2017 compared to 0.17% for the same period of the prior year. The average balance of money market deposits increased $13.0 million, or 20.9%, to $75.6 million for the nine months ended March 31, 2017 compared to the same period last year. The increase in money market accounts was the result of the Bank's deposit marketing campaign as well as other deposit gathering activities. Average FHLB advances increased $33.2 million during the nine months ended March 31, 2017 compared to the same period last year as these funds were primarily used to fund our loan growth over the last year. The average cost of FHLB advances increased 13 basis points to 1.07% for the nine months ended March 31, 2017 compared to 0.94% for the same period of the prior year reflecting both recent increases in the federal funds rate and the repayment of higher cost term FHLB advances. Average interest-bearing liabilities increased $42.0 million, or 15.3%, to $316.4 million for the nine months ended March 31, 2017 compared to $274.4 million for the same period in 2016.
The following table details average balances, cost of funds and the change in interest expense for the nine months ended March 31, 2017 and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
2017
|
|
2016
|
|
Increase/(Decrease) in
Interest Expense from
2016
|
|
Average
Balance
|
|
Cost
|
|
Average
Balance
|
|
Cost
|
|
|
(Dollars in thousands)
|
Savings deposits
|
$
|
44,246
|
|
|
0.15
|
%
|
|
$
|
43,800
|
|
|
0.15
|
%
|
|
$
|
—
|
|
Interest-bearing demand deposits
|
28,186
|
|
|
0.04
|
|
|
26,297
|
|
|
0.04
|
|
|
1
|
|
Money market deposits
|
75,574
|
|
|
0.39
|
|
|
62,529
|
|
|
0.17
|
|
|
138
|
|
Certificates of deposit
|
117,026
|
|
|
1.95
|
|
|
123,617
|
|
|
1.97
|
|
|
(121
|
)
|
FHLB advances
|
51,416
|
|
|
1.07
|
|
|
18,171
|
|
|
0.94
|
|
|
283
|
|
Total interest-bearing liabilities
|
$
|
316,448
|
|
|
1.01
|
%
|
|
$
|
274,414
|
|
|
1.02
|
%
|
|
$
|
301
|
|
Provision for Loan Losses.
In connection with its analysis of the loan portfolio, management determined that a $135,000 provision for loan losses was required for the three months ended March 31, 2017 compared to a $75,000 provision for the three months ended March 31, 2016, primarily reflecting our recent loan growth. The provision for loan losses for the nine months ended March 31, 2017 was $285,000 compared to $165,000 for the same period last year.
Nonperforming loans decreased to $2.4 million at March 31, 2017, a decrease of $240,000 from $2.6 million at March 31, 2016. The ratio of nonperforming loans to total loans was 0.6% at March 31, 2017 compared to 0.8% at March 31, 2016. Total classified loans decreased $548,000, or 17.2%, to $2.6 million at March 31, 2017 from $3.2 million at March 31, 2016. The allowance for loan losses of $4.0 million at March 31, 2017 represented 1.0% of loans receivable and 167.4% of nonperforming loans. This compares to an allowance for loan losses of $3.8 million at June 30, 2016, representing 1.1% of loans receivable and 191.6% of nonperforming loans.
Management considers the allowance for loan losses at
March 31, 2017
to be adequate to cover probable losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by our regulators, as part of the routine examination process, which may result in the establishment of additional reserves based upon their judgment of information available to them at the time of their examination.
The following table details activity and information related to the allowance for loan losses at and for the
three months ended March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
At or For the Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Provision for loan losses
|
$
|
135
|
|
|
$
|
75
|
|
Net charge-offs (recoveries)
|
37
|
|
|
(20
|
)
|
Allowance for loan losses
|
3,959
|
|
|
3,974
|
|
Allowance for loan losses as a percentage of gross loans receivable at the end of the period
|
1.0
|
%
|
|
1.2
|
%
|
Nonaccrual and 90 days or more past due and still accruing interest
|
$
|
2,365
|
|
|
$
|
2,605
|
|
Allowance for loan losses as a percentage of nonperforming loans at the end of the period
|
167.4
|
%
|
|
152.6
|
%
|
Nonaccrual and 90 days or more past due loans still accruing interest as a percentage of loans receivable at the end of the period
|
0.6
|
%
|
|
0.8
|
%
|
Total loans
|
$
|
384,227
|
|
|
$
|
331,885
|
|
The following table details activity and information related to the allowance for loan losses at and for the nine months ended March 31, 2017 and
2016
:
|
|
|
|
|
|
|
|
|
|
At or For the Nine Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
(Dollars in thousands)
|
Provision for loan losses
|
$
|
285
|
|
|
$
|
165
|
|
Net charge-offs (recoveries)
|
105
|
|
|
(88
|
)
|
Allowance for loan losses
|
3,959
|
|
|
3,974
|
|
Allowance for loan losses as a percentage of gross loans receivable at the end of the period
|
1.0
|
%
|
|
1.2
|
%
|
Nonaccrual and 90 days or more past due and still accruing interest
|
$
|
2,365
|
|
|
$
|
2,605
|
|
Allowance for loan losses as a percentage of nonperforming loans at the end of the period
|
167.4
|
%
|
|
152.6
|
%
|
Nonaccrual and 90 days or more past due loans still accruing interest as a percentage of loans receivable at the end of the period
|
0.6
|
%
|
|
0.8
|
%
|
Total loans
|
$
|
384,227
|
|
|
$
|
331,885
|
|
We continue to restructure our delinquent loans, when appropriate, so our borrowers can continue to make payments while minimizing the Company's potential loss. As of March 31, 2017 and March 31, 2016, we have identified 29 and 38 loans, respectively, with aggregate net principal balances of $5.0 million and $9.0 million, respectively, as TDRs. At March 31, 2017 and March 31, 2016, there were $477,000 and $980,000, respectively, of TDRs included in nonperforming loans. At March 31, 2017 the Company had REO with a book value of $220,000 compared to $373,000 at June 30, 2016.
Noninterest Income.
Noninterest income increased $75,000, or 7.9%, to $1.0 million for the quarter ended March 31, 2017 compared to $948,000 for the same quarter a year ago. The following table provides a detailed analysis of the changes in the components of noninterest income for the
three months ended March 31, 2017
compared to the same period in
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Increase (decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Deposit services fees
|
$
|
314
|
|
|
$
|
315
|
|
|
$
|
(1
|
)
|
|
(0.3
|
)%
|
Other deposit fees
|
185
|
|
|
172
|
|
|
13
|
|
|
7.6
|
|
Other loan fees
|
175
|
|
|
189
|
|
|
(14
|
)
|
|
(7.4
|
)
|
Gain (loss) on sale of loans
|
25
|
|
|
(1
|
)
|
|
26
|
|
|
(2,600.0
|
)
|
Bank owned life insurance investment
|
125
|
|
|
124
|
|
|
1
|
|
|
0.8
|
|
Other income
|
199
|
|
|
149
|
|
|
50
|
|
|
33.6
|
|
Total noninterest income
|
$
|
1,023
|
|
|
$
|
948
|
|
|
$
|
75
|
|
|
7.9
|
%
|
The increase in noninterest income was primarily attributable to the $50,000, or 33.6% increase in other income in the quarter ended March 31, 2017 to $199,000 compared to $149,000 for the same quarter a year ago primarily due to an increase in prepayment penalties on multi-family loans. In addition, gain on sale of loans increased $26,000 to $25,000 from a loss of $1,000 for the same period in the previous year. These increases were partially offset by a decrease of $14,000, or 7.4%, to $175,000 for other loan fees.
The following table provides a detailed analysis of the changes in the components of noninterest income for the nine months ended March 31, 2017 compared to the same period in
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
Increase (decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Deposit services fees
|
$
|
1,010
|
|
|
$
|
1,018
|
|
|
$
|
(8
|
)
|
|
(0.8
|
)%
|
Other deposit fees
|
558
|
|
|
530
|
|
|
28
|
|
|
5.3
|
|
Other loan fees
|
618
|
|
|
517
|
|
|
101
|
|
|
19.5
|
|
Gain on sale of loans
|
125
|
|
|
127
|
|
|
(2
|
)
|
|
1.6
|
|
Bank owned life insurance investment
|
387
|
|
|
413
|
|
|
(26
|
)
|
|
(6.3
|
)
|
Other income
|
469
|
|
|
550
|
|
|
(81
|
)
|
|
(14.7
|
)
|
Total noninterest income
|
$
|
3,167
|
|
|
$
|
3,155
|
|
|
$
|
12
|
|
|
0.4
|
%
|
Noninterest income remained virtually unchanged at $3.2 million for both nine months ended March 31, 2017 and 2016. Other loan fees increased $101,000, or 19.5% to $618,000 reflecting our increased loan production during the period. This decrease was partially offset by an $81,000 or 14.7% decrease in other income to $469,000 for the nine months ended March 31, 2017 compared to $550,000 for the same period last year, primarily due to a decrease in prepayment penalties on multi-family loans.
Noninterest Expense.
For the three months ended March 31, 2017, noninterest expense decreased $404,000, or 9.0%, to $4.1 million from $4.5 million for the three months ended March 31, 2016. The following table provides an analysis of the changes in the components of noninterest expense for the three months ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Increase (decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Compensation and benefits
|
$
|
2,191
|
|
|
$
|
2,483
|
|
|
$
|
(292
|
)
|
|
(11.8
|
)%
|
General and administrative expenses
|
654
|
|
|
735
|
|
|
(81
|
)
|
|
(11.0
|
)
|
Real estate holding costs
|
(1
|
)
|
|
29
|
|
|
(30
|
)
|
|
(103.4
|
)
|
FDIC insurance premiums
|
14
|
|
|
66
|
|
|
(52
|
)
|
|
(78.8
|
)
|
Information technology
|
509
|
|
|
435
|
|
|
74
|
|
|
17.0
|
|
Occupancy and equipment
|
485
|
|
|
455
|
|
|
30
|
|
|
6.6
|
|
Deposit services
|
111
|
|
|
99
|
|
|
12
|
|
|
12.1
|
|
Marketing
|
130
|
|
|
234
|
|
|
(104
|
)
|
|
(44.4
|
)
|
Loss on sale of property, premises and equipment
|
—
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
Gain on sale of real estate owned
|
(20
|
)
|
|
(61
|
)
|
|
41
|
|
|
(67.2
|
)
|
Total noninterest expense
|
$
|
4,073
|
|
|
$
|
4,477
|
|
|
$
|
(404
|
)
|
|
(9.0
|
)%
|
The decrease in noninterest expense was primarily due to a $292,000, or 11.8%, decrease in compensation and benefits primarily due to a $365,000 decrease in stock-based compensation expense related to the Anchor Bancorp 2015 Equity Plan. Marketing expense decreased $104,000, or 44.4% to $130,000 during the three months ended March 31, 2017 compared to $234,000 for the three months ended March 31, 2016. These decreases were partially offset by an increase of $74,000, or 17.0%, for information technology expense to $509,000 for the quarter ended March 31, 2017 from $435,000 for the quarter ended March 31, 2016 primarily due to increased core processing costs. Also included in noninterest expense are changes to the Company’s unfunded commitment reserve of $75,000 which are reflected in general and administrative expenses.
The following table provides an analysis of the changes in the components of noninterest expense for the nine months ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
Increase (decrease)
|
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
(Dollars in thousands)
|
Compensation and benefits
|
$
|
6,797
|
|
|
$
|
7,318
|
|
|
$
|
(521
|
)
|
|
(7.1
|
)%
|
General and administrative expenses
|
2,223
|
|
|
2,463
|
|
|
(240
|
)
|
|
(9.7
|
)
|
Real estate holding costs
|
37
|
|
|
94
|
|
|
(57
|
)
|
|
(60.6
|
)
|
FDIC insurance premiums
|
106
|
|
|
198
|
|
|
(92
|
)
|
|
(46.5
|
)
|
Information technology
|
1,534
|
|
|
1,292
|
|
|
242
|
|
|
18.7
|
|
Occupancy and equipment
|
1,433
|
|
|
1,394
|
|
|
39
|
|
|
2.8
|
|
Deposit services
|
350
|
|
|
334
|
|
|
16
|
|
|
4.8
|
|
Marketing
|
397
|
|
|
490
|
|
|
(93
|
)
|
|
(19.0
|
)
|
Loss on sale of property, premises and equipment
|
—
|
|
|
6
|
|
|
(6
|
)
|
|
(100.0
|
)
|
Gain on sale of real estate owned
|
(59
|
)
|
|
(57
|
)
|
|
(2
|
)
|
|
3.5
|
|
Total noninterest expense
|
$
|
12,818
|
|
|
$
|
13,532
|
|
|
$
|
(714
|
)
|
|
(5.3
|
)%
|
Noninterest expense decreased $714,000, or 5.3%, to $12.8 million in the nine months ended March 31, 2017 compared to $13.5 million for the nine months ended March 31, 2016. The decrease was primarily due to a $521,000 decrease in compensation and benefits primarily due to a $794,000 decrease in stock-based compensation expense related to the Anchor
Bancorp 2015 Equity Plan during the nine months ended March 31, 2016. General and administrative expenses decreased $240,000 to $2.2 million for the nine months ended March 31, 2017 compared to $2.5 million for the nine months ended March 31, 2016 primarily due to no proxy contest expenses during the current nine month period and a $77,000 reduction of credit card expense due to the successful migration to a new system in 2016. The unfunded commitment reserve expense was $150,000 for the nine months ended March 31, 2017 as compared to none for the same period last year. These decreases were partially offset by an increase of $242,000, or 18.7%, for information technology expense to $1.5 million for the nine months ended March 31, 2017 from $1.3 million for the same period last year primarily due to increased core processing costs.
Liquidity, Commitments and Capital Resources
Liquidity.
We are required to have enough cash flow in order to maintain sufficient liquidity to ensure a safe and sound operation. Historically, we have maintained cash flow above the minimum level believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. On a monthly basis, we review and update cash flow projections to ensure that adequate liquidity is maintained.
Our primary sources of funds are from customer deposits, loan repayments, loan sales, investment payments, maturing investment securities and advances from the FHLB of Des Moines. These funds, together with retained earnings and equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by the level of interest rates, economic conditions and competition.
We believe that our current liquidity position is sufficient to fund all of our existing commitments. At
March 31, 2017
, the total approved loan origination commitments outstanding were $8.6 million and undisbursed construction loan commitments totaled $65.9 million. At the same date, unused lines of credit were $91.1 million.
For purposes of determining our liquidity position, we use the liquidity ratio, a regulatory measure of liquidity calculated as the total of net cash, short-term, and marketable assets divided by net deposits and short-term liabilities. Our Board of Directors has established a liquidity ratio target of 10%. For the three months ended March 31, 2017, our average liquidity ratio was 8.3%, which indicates we are below the liquidity standard set by our Board. Management believes the Bank's current liquidity position is adequate to meet foreseeable short and long term liquidity requirements.
Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or mortgage-backed securities. On a longer-term basis, we maintain a strategy of investing in various lending products. We use our sources of funds primarily to meet ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities.
Certificates of deposit scheduled to mature in one year or less at
March 31, 2017
totaled $42.5 million. We had no brokered deposits at
March 31, 2017
. Management's policy is to generally maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing deposits will remain with us. In addition, we had the ability to borrow an additional $97.6 million from the FHLB of Des Moines. We also have a line of credit with the Federal Reserve Bank of San Francisco for $1.0 million which is collateralized with securities and a line of credit for $5.0 million with Pacific Coast Bankers' Bank.
We measure our liquidity based on our ability to fund assets and to meet liability obligations when they come due. Liquidity (and funding) risk occurs when funds cannot be raised at reasonable prices, or in a reasonable time frame, to meet our normal or unanticipated obligations. We regularly monitor the mix between our assets and liabilities to manage effectively our liquidity and funding requirements.
Our primary source of funds is the Bank's deposits. When deposits are not available to provide the funds for our assets, we use alternative funding sources. These sources include, but are not limited to: cash management from the FHLB of Des Moines, wholesale funding, brokered deposits, federal funds purchased and dealer repurchase agreements, as well as other short-term alternatives. Alternatively, we may also liquidate assets to meet our funding needs. On a monthly basis, we estimate our liquidity sources and needs for the coming three-month, nine-month, and one-year time periods. Also, we determine funding concentrations and our need for sources of funds other than deposits. This information is used by our Asset Liability Management Committee in forecasting funding needs and investing opportunities.
The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations. The Company's primary sources of income are dividends from the Bank, ESOP loan payments and ESOP loan interest income. During the nine month period ended March 31, 2017, the Bank paid a $802,000 dividend to the Company. The payment is being used for the Company's general corporate purposes, including supporting the Company's ongoing operations and stock repurchases. At March 31, 2017, the Company (on an unconsolidated basis) had liquid assets of $2.8 million.
Commitments and Off-Balance Sheet Arrangements.
We are a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of our customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the consolidated balance sheets. Our maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Because some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Collateral is not required to support commitments.
Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for, home equity, commercial and consumer lines of credit.
Commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
The following is a summary of commitments and contingent liabilities with off-balance sheet risks as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
Amount of Commitment
Expiration Per Period
|
|
Total Amounts
Committed
(2)
|
|
Due in
One Year
|
|
(In thousands)
|
Commitments to originate loans
(1)
|
$
|
8,614
|
|
|
$
|
8,614
|
|
Undisbursed portion of construction loans
|
65,894
|
|
|
65,894
|
|
Total loan commitments
|
$
|
74,508
|
|
|
$
|
74,508
|
|
|
|
|
|
Lines of credit
|
|
|
|
|
Fixed rate
(3)
|
$
|
24,192
|
|
|
$
|
939
|
|
Adjustable rate
|
66,914
|
|
|
10,777
|
|
Undisbursed balance of lines of credit
|
$
|
91,106
|
|
|
$
|
11,716
|
|
|
|
(1)
|
Interest rates on fixed rate loans are 4.25% to 5.00%.
|
|
|
(2)
|
At March 31, 2017 there was $150 in reserves for unfunded commitments.
|
|
|
(3)
|
Includes standby letters of credit.
|
Operating lease commitment
- The Bank leases space for branches and operations located in Shelton, Puyallup, and Seattle Washington. These leases run for periods ranging from three to five years. All leases require the Bank to pay all taxes, maintenance, and utility costs, as well as maintain certain types of insurance. The annual lease commitments for the next five years are as follows:
|
|
|
|
Year Ended June 30,
|
|
|
|
Amount
|
|
|
(In thousands)
|
2017
|
|
$36
|
2018
|
|
$144
|
2019
|
|
$90
|
2020
|
|
$36
|
Capital.
Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a “well capitalized” institution in accordance with regulatory standards. As of
March 31, 2017
, the Bank exceeded all regulatory capital requirements with, Tier 1 Leverage-Based Capital, Common Equity Tier 1 Capital (CET1), Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios of
13.1%
,
13.7%
,
13.7%
, and
14.6%
, respectively. As of June 30, 2016 these ratios were 13.5%, 14.7%, 14.7%, and 15.7%, respectively. At March 31, 2017, the Bank met the requirements to be deemed "well-capitalized" under applicable regulatory guidelines.
In addition to the minimum CET1, Tier 1 and total capital ratios, the Bank now has to maintain a capital conservation buffer consisting of additional CET1 capital above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement began to be phased in starting in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount equal to 2.5% of risk-weighted assets in January 2019.
Anchor Bancorp exceeded all regulatory capital requirements with Tier 1 Leverage-Based Capital, CET1, Tier 1 Risk- Based Capital and Total Risk-Based Capital ratios of
14.1%
,
14.7%
,
14.7%
, and
15.6%
, respectively, as of March 31, 2017. As of June 30, 2016, these ratios were 14.4%, 15.7%, 15.7% and 16.6%, respectively.
The Bank's actual capital amounts and ratios at
March 31, 2017
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anchor Bank
|
|
|
|
|
Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
|
|
|
|
Minimum Capital Requirement
|
|
|
Actual
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
(Dollars in thousands)
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
(to risk-weighted assets)
|
$
|
61,926
|
|
|
14.6
|
%
|
|
$
|
33,919
|
|
|
8.0
|
%
|
|
$
|
42,399
|
|
|
10.0
|
%
|
Tier I capital
(to risk-weighted assets)
|
$
|
57,967
|
|
|
13.7
|
%
|
|
$
|
25,440
|
|
|
6.0
|
%
|
|
$
|
33,919
|
|
|
8.0
|
%
|
Common equity tier 1 capital (to risk-weighted assets)
|
$
|
57,967
|
|
|
13.7
|
%
|
|
$
|
19,080
|
|
|
4.5
|
%
|
|
$
|
27,560
|
|
|
6.5
|
%
|
Tier I leverage capital
(to average assets)
|
$
|
57,967
|
|
|
13.1
|
%
|
|
$
|
17,708
|
|
|
4.0
|
%
|
|
$
|
22,134
|
|
|
5.0
|
%
|
The actual regulatory capital amounts and ratios calculated for Anchor Bancorp as of
March 31, 2017
, were as follows:
|
|
|
|
|
|
|
|
Anchor Bancorp
|
Actual
|
|
Amount
|
|
Ratio
|
|
(Dollars in thousands)
|
March 31, 2017
|
|
|
|
Total capital
(to risk-weighted assets)
|
$
|
66,265
|
|
|
15.6
|
%
|
Tier I capital
(to risk-weighted assets)
|
$
|
62,306
|
|
|
14.7
|
%
|
Common equity tier 1 capital (to risk-weighted assets)
|
$
|
62,306
|
|
|
14.7
|
%
|
Tier I leverage capital
(to average assets)
|
$
|
62,306
|
|
|
14.1
|
%
|