Notes to Consolidated Financial Statements (Unaudited)
NOTE 1. ORGANIZATION
Nature of operations
Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiary is Carver Federal Savings Bank (the “Bank” or “Carver Federal”). Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a real estate investment trust, Carver Asset Corporation ("CAC"), that was formed in February 2004.
“Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued
2,314,375
shares of its common stock, par value
0.01
per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly-owned subsidiary of the Company.
Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has eight branches located throughout the City of New York that primarily serve the communities in which they operate.
In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations,” Carver Statutory Trust I is unconsolidated for financial reporting purposes. On September 17, 2003, Carver Statutory Trust I issued
13,000
shares, liquidation amount
$1,000
per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred debt securities of
$13 million
, and proceeds from the sale of the trust's common securities of
$0.4 million
, were used to purchase approximately
$13.4 million
aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033. The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of
3.05%
over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. The interest rate was
5.46%
and the total amount of deferred interest was
$1.9 million
at
June 30, 2019
.
Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended Carver’s regular quarterly cash dividend on its common stock. There are no assurances that dividend payments to Carver will resume.
Regulation
On October 23, 2015, the Board of Directors of the Company adopted resolutions requiring, among other things, written approval from the Federal Reserve Bank of Philadelphia prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock.
On May 24, 2016, the Bank entered into a Formal Agreement with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 27, 2016. As a result of the Formal Agreement (“the Agreement”), the Bank must obtain the approval
of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidated financial statement presentation
The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly-owned or majority-owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CCDC, and CFSB Credit Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended
June 30, 2019
are not necessarily indicative of the results that may be expected for the year ended
March 31, 2020
. The consolidated balance sheet at
June 30, 2019
has been derived from the unaudited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. These unaudited consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended
March 31, 2019
. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, realization of deferred tax assets, assessment of other-than-temporary impairment of securities, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future writedowns of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments. Actual results could differ significantly from those assumptions. Current market conditions increase the risk and complexity of the judgments in these estimates.
Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders' equity.
NOTE 3. LOSS PER COMMON SHARE
The following table reconciles the net loss (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted loss per share for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
$ in thousands except per share data
|
|
2019
|
|
2018
|
Net loss
|
|
$
|
(1,139
|
)
|
|
$
|
(1,030
|
)
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
3,698,897
|
|
|
3,697,958
|
|
Weighted average common shares outstanding – diluted
|
|
3,698,897
|
|
|
3,697,958
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.28
|
)
|
Diluted loss per common share
|
|
$
|
(0.31
|
)
|
|
$
|
(0.28
|
)
|
For the three months ended
June 30, 2019
and
2018
, all restricted shares and outstanding stock options were anti-dilutive.
NOTE 4. COMMON STOCK DIVIDENDS
On October 28, 2011, the Treasury exchanged the CDCI Series B preferred stock for
2,321,286
shares of Carver common stock and the Series C preferred stock converted into
1,208,039
shares of Carver common stock and
45,118
shares of Series D preferred stock. Series C stock was previously reported as mezzanine equity, and upon conversion to common and Series D preferred stock is now reported as equity attributable to Carver Bancorp, Inc. The holders of the Series D Preferred Stock are entitled to receive dividends, on an as-converted basis, simultaneously to the payment of any dividends on the common stock.
NOTE 5. OTHER COMPREHENSIVE INCOME (LOSS)
The following tables set forth changes in each component of accumulated other comprehensive income (loss), net of tax for the three months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
At
March 31, 2019
|
|
Other
Comprehensive
Income, net of tax
|
|
At
June 30, 2019
|
Net unrealized loss on securities available-for-sale
|
|
$
|
(939
|
)
|
|
$
|
879
|
|
|
$
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
At
March 31, 2018
|
|
ASU 2016-01 reclassification
|
|
Other
Comprehensive
Income, net of tax
|
|
At
June 30, 2018
|
Net unrealized loss on securities available-for-sale
|
|
$
|
(2,726
|
)
|
|
721
|
|
|
$
|
(338
|
)
|
|
$
|
(2,343
|
)
|
There were
no
reclassifications out of accumulated other comprehensive loss to the consolidated statement of operations for the three months ended
June 30, 2019
and
2018
.
NOTE 6. INVESTMENT SECURITIES
The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy. In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position, and its liquidity and cash flow.
Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank’s asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives. GAAP requires that securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At
June 30, 2019
,
$78.4 million
, or
87.8%
, of the Bank’s total securities were classified as available-for-sale, and
$10.9 million
, or
12.2%
, were classified as held-to-maturity. The Bank had
no
securities classified as trading at
June 30, 2019
and
March 31, 2019
.
Equity securities primarily consist of the Bank's investment in a Community Reinvestment Act ("CRA") mutual fund and other equity investments. As a result of the adoption of ASU 2016-01 in April 2018, the Company determined that these investments fall under the provisions of ASU 2016-01, and accordingly, were transferred from available-for-sale and reclassified into equity securities on the Statement of Financial Condition. These securities are measured at fair value with unrealized holding gains and losses reflected in net income. Effective April 1, 2018, the Company recorded a cumulative effect adjustment of
$721 thousand
as a reclassification from accumulated other comprehensive loss to retained earnings. Additionally, all subsequent changes in fair value have been recognized in the Statements of Operations. The Bank redeemed its
$9.2 million
investment in the CRA mutual fund during the third quarter of fiscal year 2019. Other investments totaled
$455 thousand
at
June 30, 2019
and are included in Other Assets on the Statement sof Financial Condition.
The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at
June 30, 2019
and
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
|
Amortized
|
|
Gross Unrealized
|
|
|
$ in thousands
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
4,193
|
|
|
$
|
53
|
|
|
$
|
41
|
|
|
$
|
4,205
|
|
Federal Home Loan Mortgage Corporation
|
|
10,756
|
|
|
138
|
|
|
65
|
|
|
10,829
|
|
Federal National Mortgage Association
|
|
26,264
|
|
|
275
|
|
|
323
|
|
|
26,216
|
|
Total mortgage-backed securities
|
|
41,213
|
|
|
466
|
|
|
429
|
|
|
41,250
|
|
U.S. Government Agency Securities
|
|
32,207
|
|
|
15
|
|
|
131
|
|
|
32,091
|
|
Corporate Bonds
|
|
5,047
|
|
|
18
|
|
|
15
|
|
|
5,050
|
|
Total available-for-sale
|
|
$
|
78,467
|
|
|
$
|
499
|
|
|
$
|
575
|
|
|
$
|
78,391
|
|
Held-to-Maturity
*
:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
1,155
|
|
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
1,216
|
|
Federal National Mortgage Association and Other
|
|
8,737
|
|
|
77
|
|
|
19
|
|
|
8,795
|
|
Total held-to-maturity mortgage-backed securities
|
|
9,892
|
|
|
138
|
|
|
19
|
|
|
10,011
|
|
Corporate Bonds
|
|
1,000
|
|
|
16
|
|
|
—
|
|
|
1,016
|
|
Total held-to maturity
|
|
$
|
10,892
|
|
|
$
|
154
|
|
|
$
|
19
|
|
|
$
|
11,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
|
Amortized
|
|
Gross Unrealized
|
|
|
$ in thousands
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
4,443
|
|
|
$
|
25
|
|
|
$
|
86
|
|
|
$
|
4,382
|
|
Federal Home Loan Mortgage Corporation
|
|
11,104
|
|
|
69
|
|
|
148
|
|
|
11,025
|
|
Federal National Mortgage Association
|
|
27,094
|
|
|
131
|
|
|
617
|
|
|
26,608
|
|
Total mortgage-backed securities
|
|
42,641
|
|
|
225
|
|
|
851
|
|
|
42,015
|
|
U.S. Government Agency Securities
|
|
33,089
|
|
|
—
|
|
|
236
|
|
|
32,853
|
|
Corporate Bonds
|
|
5,054
|
|
|
—
|
|
|
77
|
|
|
4,977
|
|
Total available-for-sale
|
|
$
|
80,784
|
|
|
$
|
225
|
|
|
$
|
1,164
|
|
|
$
|
79,845
|
|
Held-to-Maturity
*
:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
1,214
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
1,254
|
|
Federal National Mortgage Association and Other
|
|
8,923
|
|
|
—
|
|
|
87
|
|
|
8,836
|
|
Total held-to-maturity mortgage-backed securities
|
|
10,137
|
|
|
40
|
|
|
87
|
|
|
10,090
|
|
Corporate Bonds
|
|
1,000
|
|
|
17
|
|
|
—
|
|
|
1,017
|
|
Total held-to-maturity
|
|
$
|
11,137
|
|
|
$
|
57
|
|
|
$
|
87
|
|
|
$
|
11,107
|
|
*
The carrying amount and amortized cost are the same for all held-to-maturity securities, as no OTTI has been recorded.
There were
no
sales of available-for-sale and held-to-maturity securities for the three months ended
June 30, 2019
and
2018
.
The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at
June 30, 2019
and
March 31, 2019
for less than 12 months and 12 months or longer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
$ in thousands
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
429
|
|
|
$
|
24,340
|
|
|
$
|
429
|
|
|
$
|
24,340
|
|
U.S. Government Agency securities
|
|
27
|
|
|
20,027
|
|
|
104
|
|
|
8,349
|
|
|
131
|
|
|
28,376
|
|
Corporate Bonds
|
|
—
|
|
|
—
|
|
|
15
|
|
|
3,005
|
|
|
15
|
|
|
3,005
|
|
Total available-for-sale securities
|
|
$
|
27
|
|
|
$
|
20,027
|
|
|
$
|
548
|
|
|
$
|
35,694
|
|
|
$
|
575
|
|
|
$
|
55,721
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
3,006
|
|
|
$
|
19
|
|
|
$
|
3,006
|
|
Total held-to-maturity securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
3,006
|
|
|
$
|
19
|
|
|
$
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
$ in thousands
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
851
|
|
|
$
|
26,787
|
|
|
$
|
851
|
|
|
$
|
26,787
|
|
U.S. Government Agency securities
|
|
23
|
|
|
20,851
|
|
|
213
|
|
|
12,002
|
|
|
236
|
|
|
32,853
|
|
Corporate bonds
|
|
—
|
|
|
—
|
|
|
77
|
|
|
4,977
|
|
|
77
|
|
|
4,977
|
|
Total available-for-sale securities
|
|
$
|
23
|
|
|
$
|
20,851
|
|
|
$
|
1,141
|
|
|
$
|
43,766
|
|
|
$
|
1,164
|
|
|
$
|
64,617
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
8,752
|
|
|
$
|
87
|
|
|
$
|
8,752
|
|
Total held-to-maturity securities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
8,752
|
|
|
$
|
87
|
|
|
$
|
8,752
|
|
A total of
27
securities had an unrealized loss at
June 30, 2019
compared to
35
at
March 31, 2019
. U.S. government agency securities and mortgage-backed securities represented
50.9%
and
43.7%
, respectively, of total available-for-sale securities in an unrealized loss position at
June 30, 2019
. There were
17
mortgage-backed securities,
three
corporate bonds, and
two
U.S. government agency security, that had an unrealized loss position for more than 12 months at
June 30, 2019
. Given the high credit quality of the securities which are backed by the U.S. government's guarantees, and the corporate securities which are all reputable institutions in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and has the ability and intent to hold the securities until maturity or until the valuation recovers.
The amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Company will not be required to sell the security prior to the recovery of the non-credit impairment is accounted for as follows: (1) the portion of the total impairment that is attributable to the credit loss would be recognized in earnings, and (2) the remaining difference between the debt security's amortized cost basis and its fair value would be included in other comprehensive income (loss). The Bank did not have any other securities that were classified as having other-than-temporary impairment in its investment portfolio at
June 30, 2019
.
The following is a summary of the amortized cost and fair value of debt securities at
June 30, 2019
, by remaining period to contractual maturity (ignoring earlier call dates, if any). Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their
obligations. The table below does not consider the effects of possible prepayments or unscheduled repayments.
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Amortized Cost
|
|
Fair Value
|
|
Weighted
Average Yield
|
Available-for-Sale:
|
|
|
|
|
|
Less than one year
|
$
|
1,003
|
|
|
$
|
1,000
|
|
|
1.65
|
%
|
One through five years
|
8,275
|
|
|
8,235
|
|
|
1.72
|
%
|
Five through ten years
|
16,850
|
|
|
16,813
|
|
|
2.81
|
%
|
After ten years
|
52,339
|
|
|
52,343
|
|
|
2.67
|
%
|
Total
|
$
|
78,467
|
|
|
$
|
78,391
|
|
|
2.59
|
%
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
One through five years
|
$
|
4,527
|
|
|
$
|
4,568
|
|
|
2.40
|
%
|
Five through ten years
|
$
|
4,252
|
|
|
$
|
4,312
|
|
|
3.32
|
%
|
After ten years
|
2,113
|
|
|
2,147
|
|
|
2.79
|
%
|
Total
|
$
|
10,892
|
|
|
$
|
11,027
|
|
|
2.83
|
%
|
NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, business (including Small Business Administration loans), and consumer loans.
The allowance for loan and lease losses ("ALLL") reflects management’s judgment in the evaluation of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to calculate the ALLL each quarter. To determine the total ALLL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.
From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional amounts or release balances from the ALLL. The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.
The following is a summary of loans receivable at
June 30, 2019
and
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
March 31, 2019
|
$ in thousands
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Gross loans receivable:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
106,013
|
|
|
25.3
|
%
|
|
$
|
108,363
|
|
|
25.5
|
%
|
Multifamily
|
|
85,145
|
|
|
20.3
|
%
|
|
86,177
|
|
|
20.2
|
%
|
Commercial real estate
|
|
131,597
|
|
|
31.4
|
%
|
|
130,812
|
|
|
30.7
|
%
|
Business
(1)
|
|
92,380
|
|
|
22.1
|
%
|
|
96,430
|
|
|
22.7
|
%
|
Consumer
(2)
|
|
3,789
|
|
|
0.9
|
%
|
|
4,023
|
|
|
0.9
|
%
|
Total loans receivable
|
|
$
|
418,924
|
|
|
100.0
|
%
|
|
$
|
425,805
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Unamortized premiums, deferred costs and fees, net
|
|
3,011
|
|
|
|
|
3,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
(4,670
|
)
|
|
|
|
(4,646
|
)
|
|
|
Total loans receivable, net
|
|
$
|
417,265
|
|
|
|
|
$
|
424,182
|
|
|
|
(1)
Includes business overdrafts
(2)
Includes personal loans and consumer overdrafts
The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three month periods ended
June 30, 2019
and
2018
, and the fiscal year ended
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four
family
|
|
Multifamily
|
|
Commercial Real Estate
|
|
Business
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,274
|
|
|
$
|
885
|
|
|
$
|
766
|
|
|
$
|
1,330
|
|
|
$
|
154
|
|
|
$
|
237
|
|
|
$
|
4,646
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(67
|
)
|
|
—
|
|
|
(67
|
)
|
Recoveries
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
2
|
|
|
—
|
|
|
90
|
|
Provision for (recovery of) Loan Losses
|
|
(42
|
)
|
|
(10
|
)
|
|
(98
|
)
|
|
(18
|
)
|
|
151
|
|
|
18
|
|
|
1
|
|
Ending Balance
|
|
$
|
1,232
|
|
|
$
|
875
|
|
|
$
|
668
|
|
|
$
|
1,400
|
|
|
$
|
240
|
|
|
$
|
255
|
|
|
$
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
|
|
$
|
1,052
|
|
|
$
|
875
|
|
|
$
|
668
|
|
|
$
|
1,383
|
|
|
$
|
240
|
|
|
$
|
255
|
|
|
$
|
4,473
|
|
Allowance for Loan Losses Ending Balance: individually evaluated for impairment
|
|
180
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables Ending Balance:
|
|
$
|
107,558
|
|
|
$
|
85,822
|
|
|
$
|
132,112
|
|
|
$
|
92,615
|
|
|
$
|
3,828
|
|
|
$
|
—
|
|
|
$
|
421,935
|
|
Ending Balance: collectively evaluated for impairment
|
|
102,259
|
|
|
82,678
|
|
|
132,112
|
|
|
89,390
|
|
|
3,828
|
|
|
—
|
|
|
410,267
|
|
Ending Balance: individually evaluated for impairment
|
|
5,299
|
|
|
3,144
|
|
|
—
|
|
|
3,225
|
|
|
—
|
|
|
—
|
|
|
11,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four family
|
|
Multifamily
|
|
Commercial Real Estate
|
|
Business
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
|
|
$
|
1,103
|
|
|
$
|
885
|
|
|
$
|
766
|
|
|
$
|
1,312
|
|
|
$
|
154
|
|
|
$
|
237
|
|
|
$
|
4,457
|
|
Allowance for Loan Losses Ending Balance: individually evaluated for impairment
|
|
171
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables Ending Balance:
|
|
$
|
109,926
|
|
|
$
|
86,886
|
|
|
$
|
131,292
|
|
|
$
|
96,661
|
|
|
$
|
4,063
|
|
|
$
|
—
|
|
|
$
|
428,828
|
|
Ending Balance: collectively evaluated for impairment
|
|
104,509
|
|
|
83,672
|
|
|
130,816
|
|
|
93,399
|
|
|
4,063
|
|
|
—
|
|
|
416,459
|
|
Ending Balance: individually evaluated for impairment
|
|
5,417
|
|
|
3,214
|
|
|
476
|
|
|
3,262
|
|
|
—
|
|
|
—
|
|
|
12,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four family
|
|
Multifamily
|
|
Commercial Real Estate
|
|
Business
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,210
|
|
|
$
|
1,819
|
|
|
$
|
1,052
|
|
|
$
|
1,003
|
|
|
$
|
18
|
|
|
$
|
24
|
|
|
$
|
5,126
|
|
Charge-offs
|
|
(96
|
)
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(3
|
)
|
|
—
|
|
|
(110
|
)
|
Recoveries
|
|
—
|
|
|
158
|
|
|
—
|
|
|
5
|
|
|
3
|
|
|
—
|
|
|
166
|
|
Provision for (recovery of) Loan Losses
|
|
739
|
|
|
(590
|
)
|
|
(512
|
)
|
|
172
|
|
|
154
|
|
|
42
|
|
|
5
|
|
Ending Balance
|
|
$
|
1,853
|
|
|
$
|
1,387
|
|
|
$
|
540
|
|
|
$
|
1,169
|
|
|
$
|
172
|
|
|
$
|
66
|
|
|
$
|
5,187
|
|
The following is a summary of nonaccrual loans at
June 30, 2019
and
March 31, 2019
.
|
|
|
|
|
|
|
|
|
$ in thousands
|
June 30, 2019
|
|
March 31, 2019
|
Gross loans receivable:
|
|
|
|
One-to-four family
|
$
|
4,132
|
|
|
$
|
4,488
|
|
Multifamily
|
3,144
|
|
|
3,214
|
|
Commercial real estate
|
—
|
|
|
476
|
|
Business
|
1,958
|
|
|
2,051
|
|
Consumer
|
—
|
|
|
65
|
|
Total nonaccrual loans
|
$
|
9,234
|
|
|
$
|
10,294
|
|
Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan.
At
June 30, 2019
, other non-performing assets totaled
$311 thousand
which consisted of other real estate owned comprised of
three
foreclosed residential properties, compared to
$404 thousand
comprised of
four
residential properties at
March 31, 2019
. At
June 30, 2019
and
March 31, 2019
, the Bank had
no
non-performing held-for-sale loans.
Although we believe that substantially all risk elements at
June 30, 2019
have been disclosed, it is possible that for a variety of reasons, including economic conditions, certain borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial loans.
The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.
One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.
At
June 30, 2019
, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Multifamily
|
|
Commercial
Real Estate
|
|
Business
|
Credit Risk Profile by Internally Assigned Grade:
|
|
|
|
|
|
|
Pass
|
|
$
|
82,678
|
|
|
$
|
131,484
|
|
|
$
|
84,725
|
|
Special Mention
|
|
—
|
|
|
628
|
|
|
4,046
|
|
Substandard
|
|
3,144
|
|
|
—
|
|
|
3,844
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
85,822
|
|
|
$
|
132,112
|
|
|
$
|
92,615
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
Consumer
|
Credit Risk Profile Based on Payment Activity:
|
|
|
|
|
|
|
Performing
|
|
|
|
$
|
103,426
|
|
|
$
|
3,794
|
|
Non-Performing
|
|
|
|
4,132
|
|
|
34
|
|
Total
|
|
|
|
$
|
107,558
|
|
|
$
|
3,828
|
|
At
March 31, 2019
, and based on the most recent analysis performed, the risk category by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Multifamily
|
|
Commercial Real Estate
|
|
Business
|
Credit Risk Profile by Internally Assigned Grade:
|
|
|
|
|
|
|
Pass
|
|
$
|
83,672
|
|
|
$
|
128,319
|
|
|
$
|
90,336
|
|
Special Mention
|
|
—
|
|
|
2,497
|
|
|
2,425
|
|
Substandard
|
|
3,214
|
|
|
476
|
|
|
3,900
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
86,886
|
|
|
$
|
131,292
|
|
|
$
|
96,661
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
Consumer
|
Credit Risk Profile Based on Payment Activity:
|
|
|
|
|
|
|
Performing
|
|
|
|
$
|
106,531
|
|
|
$
|
4,063
|
|
Non-Performing
|
|
|
|
3,395
|
|
|
—
|
|
Total
|
|
|
|
$
|
109,926
|
|
|
$
|
4,063
|
|
The following table presents an aging analysis of the recorded investment of past due loans receivables at
June 30, 2019
and
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 or More Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
Receivables
|
One-to-four family
|
|
$
|
—
|
|
|
$
|
874
|
|
|
$
|
3,394
|
|
|
$
|
4,268
|
|
|
$
|
103,290
|
|
|
$
|
107,558
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
2,056
|
|
|
2,056
|
|
|
83,766
|
|
|
85,822
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132,112
|
|
|
132,112
|
|
Business
|
|
—
|
|
|
148
|
|
|
1,018
|
|
|
1,166
|
|
|
91,449
|
|
|
92,615
|
|
Consumer
|
|
125
|
|
|
43
|
|
|
35
|
|
|
203
|
|
|
3,625
|
|
|
3,828
|
|
Total
|
|
$
|
125
|
|
|
$
|
1,065
|
|
|
$
|
6,503
|
|
|
$
|
7,693
|
|
|
$
|
414,242
|
|
|
$
|
421,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 or More Days Past Due
|
|
Total Past
Due
|
|
Current
|
|
Total Loans Receivables
|
One-to-four family
|
|
$
|
1,827
|
|
|
$
|
—
|
|
|
$
|
3,395
|
|
|
$
|
5,222
|
|
|
$
|
104,704
|
|
|
$
|
109,926
|
|
Multifamily
|
|
2,580
|
|
|
—
|
|
|
2,118
|
|
|
4,698
|
|
|
82,188
|
|
|
86,886
|
|
Commercial real estate
|
|
121
|
|
|
—
|
|
|
—
|
|
|
121
|
|
|
131,171
|
|
|
131,292
|
|
Business
|
|
780
|
|
|
—
|
|
|
599
|
|
|
1,379
|
|
|
95,282
|
|
|
96,661
|
|
Consumer
|
|
87
|
|
|
53
|
|
|
65
|
|
|
205
|
|
|
3,858
|
|
|
4,063
|
|
Total
|
|
$
|
5,395
|
|
|
$
|
53
|
|
|
$
|
6,177
|
|
|
$
|
11,625
|
|
|
$
|
417,203
|
|
|
$
|
428,828
|
|
The following table presents information on impaired loans with the associated allowance amount, if applicable, at
June 30, 2019
and
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019
|
|
At March 31, 2019
|
$ in thousands
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Associated
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Associated
Allowance
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
4,376
|
|
|
$
|
5,531
|
|
|
$
|
—
|
|
|
$
|
4,488
|
|
|
$
|
5,643
|
|
|
$
|
—
|
|
Multifamily
|
|
3,144
|
|
|
3,144
|
|
|
—
|
|
|
3,214
|
|
|
3,214
|
|
|
—
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
476
|
|
|
476
|
|
|
—
|
|
Business
|
|
1,980
|
|
|
2,037
|
|
|
—
|
|
|
1,974
|
|
|
2,017
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
923
|
|
|
923
|
|
|
180
|
|
|
929
|
|
|
929
|
|
|
171
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Business
|
|
1,245
|
|
|
1,245
|
|
|
17
|
|
|
1,288
|
|
|
1,288
|
|
|
18
|
|
Total
|
|
$
|
11,668
|
|
|
$
|
12,880
|
|
|
$
|
197
|
|
|
$
|
12,369
|
|
|
$
|
13,567
|
|
|
$
|
189
|
|
The following tables presents information on average balances on impaired loans and the interest income recognized on a cash basis for the three month periods ended
June 30, 2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
$ in thousands
|
|
Average Balance
|
|
Interest Income Recognized
|
|
Average Balance
|
|
Interest Income Recognized
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
4,432
|
|
|
$
|
17
|
|
|
$
|
5,178
|
|
|
$
|
29
|
|
Multifamily
|
|
3,179
|
|
|
27
|
|
|
1,700
|
|
|
9
|
|
Commercial real estate
|
|
238
|
|
|
—
|
|
|
1,017
|
|
|
8
|
|
Business
|
|
1,977
|
|
|
24
|
|
|
641
|
|
|
6
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
One-to-four family
|
|
926
|
|
|
—
|
|
|
949
|
|
|
—
|
|
Multifamily
|
|
—
|
|
|
—
|
|
|
371
|
|
|
—
|
|
Business
|
|
1,266
|
|
|
—
|
|
|
2,862
|
|
|
4
|
|
Total
|
|
$
|
12,018
|
|
|
$
|
68
|
|
|
$
|
12,718
|
|
|
$
|
56
|
|
Troubled debt restructured ("TDR") loans consist of modified loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms. Total TDR loans at
June 30, 2019
were
$5.3 million
,
$2.9 million
of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At
March 31, 2019
, total TDR loans were
$5.4 million
, of which
$3.2 million
were non-performing.
In certain circumstances, the Bank will modify a loan as part of a TDR under GAAP. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the
face amount of the debt or reduction of past accrued interest. Loans modified in TDRs are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were
no
loan modifications made during the three month periods ended
June 30, 2019
and
2018
.
In an effort to proactively resolve delinquent loans, the Bank has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the periods ended
June 30, 2019
and
2018
, there were
no
modified loans that defaulted within 12 months of modification.
At
June 30, 2019
, there were
9
loans in the TDR portfolio totaling
$2.4 million
that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to restructured terms for a period of at least six months. At
March 31, 2019
, there were
8
loans in the performing TDR portfolio totaling
$2.2 million
.
Transactions With Certain Related Persons
Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features.
The aggregate amount of loans outstanding to related parties was
$80 thousand
at
June 30, 2019
and
March 31, 2019
.
Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors.
NOTE 8. FAIR VALUE MEASUREMENTS
Per GAAP, fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
•
|
Level 1— Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2— Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3— Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of
June 30, 2019
and
March 31, 2019
, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2019, Using
|
$ in thousands
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Total Fair
Value
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168
|
|
|
$
|
168
|
|
Investment securities
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
—
|
|
|
4,205
|
|
|
—
|
|
|
4,205
|
|
Federal Home Loan Mortgage Corporation
|
|
—
|
|
|
10,829
|
|
|
—
|
|
|
10,829
|
|
Federal National Mortgage Association
|
|
—
|
|
|
26,216
|
|
|
—
|
|
|
26,216
|
|
U.S. Government Agency Securities
|
|
—
|
|
|
32,091
|
|
|
—
|
|
|
32,091
|
|
Corporate bonds
|
|
—
|
|
|
5,050
|
|
|
—
|
|
|
5,050
|
|
Total available-for-sale securities
|
|
—
|
|
|
78,391
|
|
|
—
|
|
|
78,391
|
|
Other investments
|
|
—
|
|
|
—
|
|
|
455
|
|
|
455
|
|
Total
|
|
$
|
—
|
|
|
$
|
78,391
|
|
|
$
|
623
|
|
|
$
|
79,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2019, Using
|
$ in thousands
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
180
|
|
|
$
|
180
|
|
Investment securities
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
—
|
|
|
4,382
|
|
|
—
|
|
|
4,382
|
|
Federal Home Loan Mortgage Corporation
|
|
—
|
|
|
11,025
|
|
|
—
|
|
|
11,025
|
|
Federal National Mortgage Association
|
|
—
|
|
|
26,608
|
|
|
—
|
|
|
26,608
|
|
U.S. Government Agency securities
|
|
—
|
|
|
32,853
|
|
|
—
|
|
|
32,853
|
|
Corporate bonds
|
|
—
|
|
|
4,977
|
|
|
—
|
|
|
4,977
|
|
Total available-for-sale securities
|
|
—
|
|
|
79,845
|
|
|
—
|
|
|
79,845
|
|
Other investments
|
|
—
|
|
|
—
|
|
|
454
|
|
|
454
|
|
Total
|
|
$
|
—
|
|
|
$
|
79,845
|
|
|
$
|
634
|
|
|
$
|
80,479
|
|
Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”) and other equity securities. Level 3 assets accounted for
0.11%
of the Company’s total assets measured at fair value at
June 30, 2019
and
March 31, 2019
.
The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.
Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.
If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or
debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.
In the three month period ended
June 30, 2019
, there were
no
transfers of investments into or out of each level of the fair value hierarchy.
In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and discount and prepayment rates.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the three months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Beginning balance, April 1, 2019
|
|
Total Realized/Unrealized Gains/(Losses) Recorded in Income
(1)
|
|
Issuances / (Settlements)
|
|
Transfers to/(from) Level 3
|
|
Ending balance,
June 30, 2019
|
|
Change in Unrealized Gains/(Losses) Related to Instruments Held at June 30, 2019
|
Other investments
|
$
|
454
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
455
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
180
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
168
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Beginning balance, April 1, 2018
|
|
Total Realized/Unrealized Gains/(Losses) Recorded in Income
(1)
|
|
Issuances / (Settlements)
|
|
Transfers to/(from) Level 3
|
|
Ending balance,
June 30, 2018
|
|
Change in Unrealized Gains/(Losses) Related to Instruments Held at June 30, 2018
|
Other investments
|
$
|
433
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
431
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
181
|
|
|
(7
|
)
|
|
—
|
|
—
|
|
174
|
|
|
(7
|
)
|
(1)
Includes net servicing cash flows and the passage of time.
For Level 3 assets measured at fair value on a recurring basis as of
June 30, 2019
and
March 31, 2019
, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Fair Value
June 30, 2019
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Significant Unobservable Input Value
|
Other investments
|
|
$
|
455
|
|
|
Cost
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
168
|
|
|
Discounted Cash Flow
|
|
Weighted Average Constant Prepayment Rate
(1)
|
|
12.79
|
%
|
|
|
|
|
|
|
Option Adjusted Spread ("OAS") applied to Treasury curve
|
|
1200 basis points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Fair Value
March 31, 2019
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Significant Unobservable Input Value
|
Other investments
|
|
$
|
454
|
|
|
Cost
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
180
|
|
|
Discounted Cash Flow
|
|
Weighted Average Constant Prepayment Rate
(1)
|
|
11.19
|
%
|
|
|
|
|
|
|
Option Adjusted Spread ("OAS" applied to Treasury curve
|
|
1000 basis points
|
(1)
Represents annualized loan repayment rate assumptions
Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of
June 30, 2019
and
March 31, 2019
, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
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Fair Value Measurements at June 30, 2019, Using
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Quoted Prices in Active Markets for Identical Assets
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Significant Other Observable Inputs
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Significant Unobservable Inputs
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Total Fair Value
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$ in thousands
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|
(Level 1)
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|
(Level 2)
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|
(Level 3)
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|
Impaired loans
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|
$
|
—
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|
|
$
|
—
|
|
|
$
|
1,971
|
|
|
$
|
1,971
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|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
311
|
|
|
$
|
311
|
|
|
|
|
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|
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|
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Fair Value Measurements at March 31, 2019, Using
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Quoted Prices in Active Markets for Identical Assets
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Significant Other Observable Inputs
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Significant Unobservable Inputs
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Total Fair Value
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$ in thousands
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|
(Level 1)
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|
(Level 2)
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|
(Level 3)
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|
Impaired loans
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|
$
|
—
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|
|
$
|
—
|
|
|
$
|
2,027
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|
$
|
2,027
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|
Other real estate owned
|
|
—
|
|
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—
|
|
|
404
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|
|
$
|
404
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|
For Level 3 assets measured at fair value on a non-recurring basis as of
June 30, 2019
and
March 31, 2019
, the significant unobservable inputs used in the fair value measurements were as follows:
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$ in thousands
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Fair Value
June 30, 2019
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Valuation Technique
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|
Significant Unobservable Inputs
|
|
Significant Unobservable Input Value
|
Impaired loans
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|
$
|
1,971
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|
|
Appraisal of collateral
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|
Appraisal adjustments
|
|
7.5% cost to sell
|
Other real estate owned
|
|
311
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|
|
Appraisal of collateral
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Appraisal adjustments
|
|
7.5% cost to sell
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|
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|
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$ in thousands
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|
Fair Value March 31, 2019
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Valuation Technique
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Significant Unobservable Inputs
|
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Significant Unobservable Input Value
|
Impaired loans
|
|
$
|
2,027
|
|
|
Appraisal of collateral
|
|
Appraisal adjustments
|
|
7.5% cost to sell
|
Other real estate owned
|
|
404
|
|
|
Appraisal of collateral
|
|
Appraisal adjustments
|
|
7.5% cost to sell
|
The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.
Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or market.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures regarding the fair value of financial instruments are required to include, in addition to the carrying value, the fair value of certain financial instruments, both assets and liabilities recorded on and off-balance sheet, for which it is practicable to estimate fair value. Accounting guidance defines financial instruments as cash, evidence of ownership of an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The fair value of a financial instrument is discussed below. In cases where quoted market prices are not available, estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each such category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded carrying value. The Bank's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the Bank's fair value of all interest-earning assets and interest-bearing liabilities, other than those which are short-term in maturity.
The carrying amounts and estimated fair values of the Bank’s financial instruments and estimation methodologies at
June 30, 2019
and
March 31, 2019
are as follows:
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June 30, 2019
|
$ in thousands
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|
Carrying
Amount
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|
Estimated
Fair Value
|
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Quoted Prices in Active Markets for Identical Assets (Level 1)
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Significant Other Observable Inputs (Level 2)
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Significant Unobservable Inputs (Level 3)
|
Financial Assets:
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Cash and cash equivalents
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$
|
32,595
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$
|
32,595
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|
$
|
32,595
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|
$
|
—
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|
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$
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—
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Securities available-for-sale
|
|
78,391
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|
|
78,391
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|
|
—
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|
78,391
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—
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Other investments
|
|
455
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|
455
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|
|
—
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|
|
—
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|
|
455
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|
FHLB Stock
|
|
658
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|
|
658
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|
|
—
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|
658
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|
|
—
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Securities held-to-maturity
|
|
10,892
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|
11,027
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|
—
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|
|
11,027
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|
—
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|
Loans receivable
|
|
417,265
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|
418,800
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|
|
—
|
|
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—
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|
|
418,800
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|
Accrued interest receivable
|
|
2,034
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|
|
2,034
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—
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|
|
2,034
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—
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Mortgage servicing rights
|
|
168
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|
|
168
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|
|
—
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|
—
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|
|
168
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Other assets - Interest-bearing deposits
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|
976
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|
976
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—
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|
976
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—
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Financial Liabilities:
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Deposits
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$
|
474,337
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$
|
483,127
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|
$
|
282,984
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|
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$
|
200,143
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|
$
|
—
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|
Advances from FHLB of New York
|
|
2,000
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|
|
2,000
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|
|
—
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|
2,000
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|
|
—
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Other borrowed money
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|
13,403
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|
|
13,360
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|
|
—
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|
13,360
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—
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|
Accrued interest payable
|
|
2,179
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|
|
2,179
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|
—
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|
2,179
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—
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|
March 31, 2019
|
$ in thousands
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
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Significant Other Observable Inputs (Level 2)
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|
Significant Unobservable Inputs (Level 3)
|
Financial Assets:
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Cash and cash equivalents
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$
|
31,228
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|
$
|
31,228
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|
|
$
|
31,228
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|
|
$
|
—
|
|
|
$
|
—
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|
Securities available-for-sale
|
|
79,845
|
|
|
79,845
|
|
|
—
|
|
|
79,845
|
|
|
—
|
|
Other investments
|
|
454
|
|
|
454
|
|
|
—
|
|
|
—
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|
|
454
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|
FHLB Stock
|
|
926
|
|
|
926
|
|
|
—
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|
926
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|
|
—
|
|
Securities held-to-maturity
|
|
11,137
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|
|
11,107
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|
|
—
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|
11,107
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|
|
—
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|
Loans receivable
|
|
424,182
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|
|
424,013
|
|
|
—
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—
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|
424,013
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|
Accrued interest receivable
|
|
2,019
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|
|
2,019
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|
—
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|
2,019
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—
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|
Mortgage servicing rights
|
|
180
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|
|
180
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|
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—
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|
|
—
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|
180
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|
Other assets - Interest-bearing deposits
|
|
976
|
|
|
976
|
|
|
—
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|
|
976
|
|
|
—
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|
Financial Liabilities:
|
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Deposits
|
|
$
|
480,196
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|
$
|
477,503
|
|
|
$
|
277,360
|
|
|
$
|
200,143
|
|
|
$
|
—
|
|
Advances from FHLB of New York
|
|
8,000
|
|
|
8,001
|
|
|
—
|
|
|
8,001
|
|
|
—
|
|
Other borrowed money
|
|
13,403
|
|
|
12,393
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|
|
—
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|
|
12,393
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|
|
—
|
|
Accrued interest payable
|
|
1,931
|
|
|
1,931
|
|
|
—
|
|
|
1,931
|
|
|
—
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|
Securities
The fair values for securities available-for-sale, securities held-to-maturity and equity securities are based on quoted market or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market or dealer prices for similar securities. Available-for-sale securities and equity securities are classified across Levels 1, 2 and 3. Held-to-maturity securities are classified as Level 2.
Mortgage Servicing Rights
The fair value of mortgage servicing rights is determined by discounting the present value of estimated future servicing cash flows using current market assumptions for prepayments, servicing costs and other factors and are classified as Level 3.
NOTE 10. NON-INTEREST REVENUE AND EXPENSE
On April 1, 2018, the Company adopted ASU No, 2014-09, "Revenue from Contracts with Customers (Topic 606)" and all subsequent ASUs that modified Topic 606. As stated in Note 12, Impact of Recent Accounting Standards, the implementation of the new standard did not have a material impact to the Company's consolidated financial statements and as such, management determined that a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after April 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous accounting guidance under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as gains on sales of residential mortgage and SBA loans, income associated with servicing assets, and loan fees, including residential mortgage originations to be sold and prepayment and late fees charged across all loan categories are also not in scope of the new guidance. Topic 606 is applicable to non-interest revenue streams, such as depository fees, service charges and commission revenues. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Non-interest revenue streams in-scope of Topic 606 are discussed below.
Depository fees and charges
Depository fees and charges primarily relate to service fees on deposit accounts and fees earned from debit cards and check cashing transactions. Service fees on deposit accounts consist of ATM fees, NSF fees, account maintenance charges and other deposit related fees. The revenue is recognized monthly when the Bank's performance obligations are complete, or as
incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services.
Loan fees and service charges
Loan fees and service charges primarily relate to program management fees and fees earned in accordance with the Bank's standard lending fees (such as inspection and late charges). These standard lending fees are earned on a monthly basis upon receipt.
Other non-interest income
Other non-interest income primarily relates to an advertising services agreement, covering marketing and use of the Bank's office space with a third party. The revenue is recognized on a monthly basis.
The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
$ in thousands
|
|
2019
|
|
2018
|
Non-interest income
|
|
|
|
|
In-scope of Topic 606
|
|
|
|
|
Depository fees and charges
|
|
$
|
804
|
|
|
$
|
833
|
|
Loan fees and service charges
|
|
75
|
|
|
55
|
|
Other non-interest income
|
|
14
|
|
|
17
|
|
Non-interest income (in-scope of Topic 606)
|
|
893
|
|
|
905
|
|
Non-interest income (out-of-scope of Topic 606)
|
|
67
|
|
|
399
|
|
Total non-interest income
|
|
$
|
960
|
|
|
$
|
1,304
|
|
The following table sets forth other non-interest income and expense totals exceeding 1% of the aggregate of total interest income and non-interest income for any of the periods presented:
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|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
$ in thousands
|
2019
|
|
2018
|
Other non-interest income:
|
|
|
|
Compliance fee
|
$
|
28
|
|
|
$
|
136
|
|
Other
|
37
|
|
|
109
|
|
Total non-interest income
|
$
|
65
|
|
|
$
|
245
|
|
|
|
|
|
Other non-interest expense:
|
|
|
|
Advertising
|
$
|
93
|
|
|
$
|
79
|
|
Legal expense
|
98
|
|
|
141
|
|
Insurance and surety
|
144
|
|
|
165
|
|
Audit expense
|
126
|
|
|
188
|
|
Outsourced service
|
156
|
|
|
135
|
|
Data lines / internet
|
108
|
|
|
76
|
|
Retail expenses
|
200
|
|
|
203
|
|
Regulatory assessment
|
55
|
|
|
88
|
|
Director's fees
|
77
|
|
|
86
|
|
Other
|
516
|
|
|
600
|
|
Total non-interest expense
|
$
|
1,573
|
|
|
$
|
1,761
|
|
NOTE 11. LEASES
On April 1, 2019, the Company adopted ASU No, 2016-02, "Leases (Topic 842)" and all subsequent ASUs that modified Topic 842. The Company has operating leases related to its administrative offices, eight retail branches and three ATM centers. Two of the operating leases are for branch locations where the Company had entered into a sale and leaseback transaction. The gain had been calculated utilizing the profit on sale in excess of the present value of the minimum lease payments, and the profit on the sale was deferred from gain recognition to be amortized into income over the terms of the leases in accordance with ASC 840. ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed. Because the transactions had no off-market terms, the Company recorded a
$5.3 million
cumulative effect adjustment to retained earnings to recognize the total deferred gain balance at the adoption date. The implementation of the new standard resulted in the recognition of
$20 million
right-of-use ("ROU") assets and corresponding operating lease liabilities upon adoption.
As the implicit rates of the Company's existing leases are not readily determinable, the discount rate used in determining the operating lease liability obligation for each individual lease was the FHLB-NY fixed-rate advance rates based on the remaining lease terms as of April 1, 2019. The weighted-average discount rate is
2.98%
and the weighted-average remaining lease term is
8.50
years as of
June 30, 2019
. The operating lease expense was
$730 thousand
for the three months ended
June 30, 2019
. Cash paid for amounts included in the measurement of the lease liabilities was
$686 thousand
for the three months ended
June 30, 2019
.
Maturities of operating lease liabilities at
June 30, 2019
are as follows:
|
|
|
|
|
|
$ in thousands
|
|
Operating Leases
|
Year ending March 31,
|
|
|
2020
|
|
$
|
2,074
|
|
2021
|
|
2,701
|
|
2022
|
|
2,600
|
|
2023
|
|
2,462
|
|
2024
|
|
2,534
|
|
Thereafter
|
|
10,231
|
|
Total lease payments
|
|
22,602
|
|
Interest
|
|
(2,803
|
)
|
Lease liability
|
|
$
|
19,799
|
|
NOTE 12. IMPACT OF RECENT ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard, as modified and augmented by subsequently issued pronouncements (ASUs 2016-08, 2016-10, 2016-12, 2016-20, 2017-05, 2017-13 and 2017-14) became effective for annual periods beginning after December 15, 2017 (April 1, 2018 for the Company), and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company completed its review of the impact of this guidance and concluded that (1) a substantial majority of the Company's revenue is comprised of interest income on financial assets, which is explicitly excluded from the scope of ASU 2014-09 and (2) based on our understanding of the standard and subsequent modification and the nature of our non-interest revenue, many elements of non-interest income are unaffected. The Company identified the non-interest income streams that are contractually based and adopted this ASU on a modified retrospective approach. Since the new guidance did not have a material impact to the Company's consolidated financial statements, a cumulative effect adjustment to opening retained earnings was not deemed necessary.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments (1) require equity investments, with certain
exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) require public business entities to use an exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) require an entity to separately present in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, and (7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. ASU No. 2016-01 is effective for fiscal years beginning after December 15, 2017 (for the Company, the fiscal year ended March 31, 2019), including interim periods within those fiscal years. The adoption of this standard by public entities is permitted as of the beginning of the year of adoption for selected amendments, including the amendment related to unrealized gains and losses on equity securities, by a cumulative effect adjustment to the statement of financial condition. In February 2018, the FASB issued ASU No. 2018-03, "Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10)" to clarify certain aspects of the guidance issued in ASU 2016-01. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The Company completed its evaluation of the provisions of ASU 2016-01 and identified the equity investments that falls under ASU 2016-01. The Company adopted this ASU during the first quarter of fiscal year 2019 and the impact amounted to a cumulative effect adjustment of
$721 thousand
as a reclassification from accumulated other comprehensive loss to accumulated deficit. There was no tax impact on this reclassification because of the full deferred tax asset valuation allowance. Additionally, all future unrealized gains and losses will be recognized in the Statements of Operations. See Note 6 "Investment Securities" for further information.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn't convey risks and rewards or control, an operating lease results. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU No. 2016-02, as augmented by ASU No. 2018-01, is effective for fiscal years beginning after December 15, 2018 (for the Company, the fiscal year ended March 31, 2020), including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to Topic 842, Leases," to clarify and correct unintended application of the guidance in ASU No. 2016-02. The amendments in this ASU affect aspects of the guidance and provide clarification to related topics such as 1) rate implicit in the lease; 2) reassessment of leases; 3) transition guidance; and 4) impairment of net investment in the lease. In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842) Target Improvements," which provides guidance related to comparative reporting requirements for initial adoption. This amendment provides entities with another transition method, in addition to the modified retrospective approach, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB issued ASU 2018-20, "Leases (Topic 842) Narrow-Scope Improvements for Lessors," which clarifies how to apply the leases standard when accounting for sales taxes and other similar taxes collected from lessees, certain lessor costs, and recognition of variable payments for contracts with lease and nonlease components. In March 2019, the FASB issued ASU 2019-01, "Leases (Topic 842) Codification Improvements," which clarifies certain issues related to 1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers; 2) presentation on the statement of cashflows for sales-type and direct financing leases; and 3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections. The Company adopted ASU No. 2016-02 effective April 1, 2019 and elected to apply the guidance as of the beginning of the period of adoption (April 1, 2019) and not restate comparative periods. The Company also elected certain optional practical expedients, which allow the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. See Note 11 "Leases" for further information.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, "Financial
Instruments - Credit Losses (Topic 326): Targeted Transition Relief," to provide transition relief by providing entities with an option to irrevocably elect the fair value option for certain financial assets measured at amortized cost upon adoption of ASU 2016-13. The fair value election option is applied on an instrument-by-instrument basis and does not apply to held-to-maturity debt securities. In July 2019, the FASB proposed an extension date for CECL implementation for smaller reporting companies, as defined by the SEC. The proposal was issued for a 30-day comment period beginning August 1. After review of all comments received, the FASB will make a final determination. If the extension is made official, the Company's new implementation date will be for the fiscal year ending March 31, 2024. The Company is currently in the implementation stage of ASU 2016-13 and has engaged two vendors to assist management in evaluating the requirements of the new standard, modeling requirements and assessment of the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," a consensus of the FASB's Emerging Issues Task Force. The update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows, and provides guidance on how the following cash receipts and payments should be presented and classified in the statement of cash flows: debt prepayment or debt extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, settlements of insurance claims, settlements of corporate-owned and bank-owned life insurance policies, distributions received from equity method investees, and beneficial interests in securitization transactions. The ASU also clarifies when an entity should separate cash receipts and payments and classify them into more than one class of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017 (for the Company, the fiscal year ending March 31, 2019), and interim periods within those fiscal years. The Company has evaluated the potential impact of the adoption of the new standard on its consolidated statement of cash flows and is generally unaffected by the update. The items defined in the ASU are not relevant to the Company's operations at this time.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," to require that a statement of cash flows explain the change during the period in restricted cash or restricted cash equivalents, in addition to changes in cash and cash equivalents. The update provides guidance that restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for fiscal years beginning after December 15, 2017 (for the Company, the fiscal year ending March 31, 2019), and interim periods within those fiscal years. The Company adopted ASU 2016-18 and was generally unaffected by the update. The Company does not have restricted cash at this time.
In March 2017, the FASB issued ASU No. 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The amendments are effective for fiscal years beginning after December 15, 2018 (for the Company, the fiscal year ending March 31, 2020), and interim periods within those fiscal years. Based on management's review of the securities in the Company's portfolio at March 31, 2019, the adoption of the standard is not expected to have a material impact on the Company's consolidated statements of financial condition and results of operations.
In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting," which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance became effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 (for the Company, the fiscal year ending March 31, 2019). The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.
In February 2018, the FASB issued ASU No. 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220)," which allows a reclassification for stranded tax effects from accumulated other comprehensive income to retained earnings, to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments addressed concerns regarding the guidance that requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting periods that include the enactment date. The amendments of this update are effective for fiscal years beginning after December 15, 2018 (for the Company, the fiscal year ending March 31, 2020), and interim periods within those fiscal years. Early adoption is permitted in any interim period for reporting periods for which financial statements have not yet been issued.
In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of an entity's financial statements. The amendments removed the disclosure requirements for (1) transfers between Levels 1 and 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level
3 fair value measurements. Additionally, the amendments modified the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for (1) the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The amendments in this update are effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), and interim periods within those fiscal years. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's consolidated statements of financial condition and results of operations.