NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 – Organization and Business
MSB Financial Corp. (the "Company") is a Maryland-chartered corporation organized in 2014 to be the successor to MSB Financial Corp., a federal corporation ("Old MSB") upon completion of the second-step conversion of Millington Bank (the "Bank") from the two-tier mutual holding company structure to the stock holding company structure. MSB Financial, MHC (the "MHC") was the former mutual holding company for Old MSB prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of the MHC and Old MSB ceased to exist.
The Company's principal business is the ownership and operation of the Bank. The Bank is a New Jersey-chartered stock savings bank and its deposits are insured by the Federal Deposit Insurance Corporation. The primary business of the Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. The Bank's loan portfolio primarily consists of one-to-four family and home equity residential loans, commercial and multi-family real estate loans, commercial and industrial loans, and construction loans. It also invests in U.S. government obligations, corporate bonds, state and political subdivisions, certificate of deposits and mortgage-backed securities. The Bank is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the "Federal Reserve") regulates the Company as a bank holding company.
The primary business of Millington Savings Service Corp (the "Service Corp"), the Bank's wholly-owned subsidiary, was the ownership and operation of a single commercial rental property. This property was sold during the year ended June 30, 2007. Currently the Service Corp is inactive.
Note 2 – Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank's wholly owned subsidiary the Service Corp. All significant intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X, and therefore, do not include all information or notes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America ("GAAP").
In the opinion of management, all adjustments, consisting of only normal recurring adjustments or accruals, which are necessary for a fair presentation of the consolidated financial statements have been made at
June 30, 2018
and for the
three and six
months ended
June 30, 2018
and
2017
. The results of operations for the
three and six
months ended
June 30, 2018
are not necessarily indicative of the results which may be expected for an entire fiscal year or other interim periods.
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 dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-9, "Revenue from Contracts with Customers (ASU 2014-9)", which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-9 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 2014-9 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 GAAP. The FASB also subsequently issued ASUs Nos. 2016-8, 2016-10, 2016-12, 2016-20 and 2017-5 to augment, amend and clarify the original pronouncement. The Company had evaluated all of its revenue streams and determined that the majority of its revenue is derived from financial instruments that are scoped out. In addition, non-interest revenue streams were evaluated, including deposit and service charges and interchange fees. The adoption of this guidance has not changed the recognition of our current revenue sources.
Note 2 - Basis of Consolidated Financial Statement Presentation (Continued)
In January 2016, the FASB issued ASU No. 2016-1, "Financial Instruments - Overall." The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities 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) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in 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) requires 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) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance effective January 1, 2018, did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-2, "Leases" (Topic 842). This ASU revises the method for lessee accounting. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability for all leases. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily due to the recognition of lease assets and lease liabilities. ASU 2016-2 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We currently expect that upon adoption of ASU 2016-2, right-of-use assets and lease liabilities will be recognized in our consolidated statements of condition in amounts that will be material; however, we do not expect a material impact to our consolidated income statement.
In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The standard is effective for public companies in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in the interim or annual period provided that the entire standard is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements. We have taken steps to begin preparations for implementation, such as evaluating changes to our current loss recognition model and evaluating the potential use of outside professionals for an updated model.
Note 3 – Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In Thousands, Except Per Share Data)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
1,243
|
|
|
$
|
732
|
|
|
$
|
2,265
|
|
|
$
|
1,281
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
5,331
|
|
|
5,540
|
|
|
5,400
|
|
|
5,530
|
|
Dilutive potential common shares
|
44
|
|
|
139
|
|
|
41
|
|
|
131
|
|
Weighted average fully diluted shares
|
5,375
|
|
|
5,679
|
|
|
5,441
|
|
|
5,661
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.23
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.23
|
|
Dilutive
|
$
|
0.23
|
|
|
$
|
0.13
|
|
|
$
|
0.42
|
|
|
$
|
0.23
|
|
For three and six months ended
June 30, 2018
and
June 30, 2017
, there were
no
anti-dilutive securities.
Note 4 - Securities Held to Maturity - Continued
Note 4 - Securities Held to Maturity
All mortgage-backed securities at
June 30, 2018
and
December 31, 2017
have been issued by FNMA, FHLMC or GNMA and are secured by one-to-four family residential real estate. The amortized cost and fair value of securities held to maturity at
June 30, 2018
and
December 31, 2017
, as shown below, are reported in total. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The amortized cost of securities held to maturity and their fair values as of
June 30, 2018
and
December 31, 2017
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Amortized
Cost
|
|
Gross Unrecognized Gains
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
June 30, 2018
|
|
U.S. Government agencies:
|
|
|
|
|
|
|
|
Due within one year
|
$
|
3,500
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
3,478
|
|
Due after one year through five years
|
1,000
|
|
|
—
|
|
|
17
|
|
|
983
|
|
Due after five through ten years
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
Due after ten years
|
3,000
|
|
|
—
|
|
|
—
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
Total U.S. Government agencies
|
10,500
|
|
|
—
|
|
|
39
|
|
|
10,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
25,630
|
|
|
90
|
|
|
513
|
|
|
25,207
|
|
|
|
|
|
|
|
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
502
|
|
|
1
|
|
|
—
|
|
|
503
|
|
Due after one year through five years
|
1,500
|
|
|
9
|
|
|
—
|
|
|
1,509
|
|
Due after five through ten years
|
1,000
|
|
|
—
|
|
|
41
|
|
|
959
|
|
Due after ten years
|
4,000
|
|
|
—
|
|
|
517
|
|
|
3,483
|
|
Total Corporate bonds
|
7,002
|
|
|
10
|
|
|
558
|
|
|
6,454
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
151
|
|
|
—
|
|
|
1
|
|
|
150
|
|
Due after one through five years
|
678
|
|
|
—
|
|
|
5
|
|
|
673
|
|
Due after five through ten years
|
364
|
|
|
—
|
|
|
5
|
|
|
359
|
|
Total State and political subdivisions
|
1,193
|
|
|
—
|
|
|
11
|
|
|
1,182
|
|
|
|
|
|
|
|
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
445
|
|
|
1
|
|
|
1
|
|
|
445
|
|
Total Certificates of deposit
|
445
|
|
|
1
|
|
|
1
|
|
|
445
|
|
|
|
|
|
|
|
|
|
Total Securities held to maturity
|
$
|
44,770
|
|
|
$
|
101
|
|
|
$
|
1,122
|
|
|
$
|
43,749
|
|
Note 4 - Securities Held to Maturity - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Amortized
Cost
|
|
Gross Unrecognized Gains
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
December 31, 2017
|
|
U.S. Government agencies:
|
|
|
|
|
|
|
|
Due within one year
|
$
|
3,500
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
$
|
3,484
|
|
Due after one year through five years
|
2,000
|
|
|
—
|
|
|
26
|
|
|
1,974
|
|
Total U.S. Government Agencies
|
5,500
|
|
|
—
|
|
|
42
|
|
|
5,458
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
23,839
|
|
|
263
|
|
|
207
|
|
|
23,895
|
|
|
|
|
|
|
|
|
|
Corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
512
|
|
|
3
|
|
|
—
|
|
|
515
|
|
Due after one year through five years
|
1,500
|
|
|
4
|
|
|
—
|
|
|
1,504
|
|
Due after five years through ten years
|
1,000
|
|
|
—
|
|
|
35
|
|
|
965
|
|
Due thereafter
|
4,000
|
|
|
—
|
|
|
209
|
|
|
3,791
|
|
Total Corporate bonds
|
7,012
|
|
|
7
|
|
|
244
|
|
|
6,775
|
|
|
|
|
|
|
|
|
|
State and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
151
|
|
|
—
|
|
|
1
|
|
|
150
|
|
Due after one through five years
|
680
|
|
|
1
|
|
|
4
|
|
|
677
|
|
Due after five through ten years
|
365
|
|
|
—
|
|
|
—
|
|
|
365
|
|
Total State and political subdivisions
|
1,196
|
|
|
1
|
|
|
5
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
935
|
|
|
1
|
|
|
1
|
|
|
935
|
|
Total Certificates of deposit
|
935
|
|
|
1
|
|
|
1
|
|
|
935
|
|
|
|
|
|
|
|
|
|
Total Securities held to maturity
|
$
|
38,482
|
|
|
$
|
272
|
|
|
$
|
499
|
|
|
$
|
38,255
|
|
There were
no
sales of securities held to maturity during the three and
six
month periods
June 30, 2018
or
2017
. At
June 30, 2018
and
December 31, 2017
, securities held to maturity with an amortized cost and fair value of approximately
$2.0 million
and
$1.0 million
, respectfully, were pledged to secure public funds on deposit.
The following tables set forth the gross unrecognized losses and fair value of securities in an unrecognized loss position as of
June 30, 2018
and
December 31, 2017
, and the length of time that such securities have been in an unrecognized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
More than 12 Months
|
|
Total
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
(In Thousands)
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
agencies
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,462
|
|
|
$
|
39
|
|
|
$
|
4,462
|
|
|
$
|
39
|
|
Mortgage-backed
securities
|
9,944
|
|
|
257
|
|
|
5,884
|
|
|
256
|
|
|
15,828
|
|
|
513
|
|
Corporate bonds
|
—
|
|
|
—
|
|
|
4,442
|
|
|
558
|
|
|
4,442
|
|
|
558
|
|
State and political subdivisions
|
1,182
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
1,182
|
|
|
11
|
|
Certificates of deposit
|
245
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
245
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities with gross unrecognized losses
|
$
|
11,371
|
|
|
$
|
269
|
|
|
$
|
14,788
|
|
|
$
|
853
|
|
|
$
|
26,159
|
|
|
$
|
1,122
|
|
Note 4 - Securities Held to Maturity - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
More than 12 Months
|
|
Total
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
|
Fair Value
|
|
Gross Unrecognized Losses
|
(In Thousands)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government
agencies
|
$
|
1,000
|
|
|
$
|
1
|
|
|
$
|
4,458
|
|
|
$
|
41
|
|
|
$
|
5,458
|
|
|
$
|
42
|
|
Mortgage-backed
securities
|
7,796
|
|
|
88
|
|
|
5,558
|
|
|
119
|
|
|
13,354
|
|
|
207
|
|
Corporate bonds
|
—
|
|
|
—
|
|
|
4,756
|
|
|
244
|
|
|
4,756
|
|
|
244
|
|
State and political subdivisions
|
655
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
655
|
|
|
5
|
|
Certificates of deposit
|
245
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
245
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities with gross unrecognized losses
|
$
|
9,696
|
|
|
$
|
95
|
|
|
$
|
14,772
|
|
|
$
|
404
|
|
|
$
|
24,468
|
|
|
$
|
499
|
|
At
June 30, 2018
, management concluded that the unrecognized losses summarized above (which related to
four
U.S. Government agency bonds,
twenty
mortgage-backed securities,
three
corporate bonds,
seven
state and political subdivision security and
one
certificate of deposit, compared to
five
U.S. Government agency bonds,
thirteen
mortgage-backed securities,
three
corporate bonds,
two
state and political subdivision bonds, and
three
certificate of deposit as of December 31, 2017) are temporary in nature since they are not related to the underlying credit quality of the issuer. As of
June 30, 2018
, the Company does not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities prior to the anticipated recovery of the remaining amortized cost. Management believes that the losses above are primarily related to the change in market interest rates. Accordingly, the Company has not recognized any other-than-temporary impairment loss on these securities.
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
Note 5 - Loans Receivable and Allowance for Credit Losses
The composition of loans receivable at
June 30, 2018
and
December 31, 2017
was as follows:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
June 30, 2018
|
|
December 31, 2017
|
Residential mortgage:
|
|
|
|
One-to-four family
|
$
|
151,372
|
|
|
$
|
157,876
|
|
Home equity
|
26,174
|
|
|
26,803
|
|
|
|
|
|
Total residential mortgages
|
177,546
|
|
|
184,679
|
|
|
|
|
|
Commercial loans:
|
|
|
|
|
|
Commercial and multi-family real estate
|
214,653
|
|
|
196,681
|
|
Construction
|
48,423
|
|
|
43,718
|
|
Commercial and industrial
|
94,140
|
|
|
73,465
|
|
|
|
|
|
Total commercial loans
|
357,216
|
|
|
313,864
|
|
|
|
|
|
Consumer:
|
608
|
|
|
618
|
|
|
|
|
|
Total loans receivable
|
535,370
|
|
|
499,161
|
|
|
|
|
|
Less:
|
|
|
|
|
|
Loans in process
|
19,594
|
|
|
19,868
|
|
Deferred loan fees
|
491
|
|
|
474
|
|
Allowance for loan losses
|
5,596
|
|
|
5,414
|
|
|
|
|
|
Total adjustments
|
25,681
|
|
|
25,756
|
|
|
|
|
|
Loans receivable, net
|
$
|
509,689
|
|
|
$
|
473,405
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
Allowance for Loan Losses
The following tables provide an analysis of the allowance for loan losses and the loan receivable recorded investments, by portfolio segment, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of
June 30, 2018
and
2017
and loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Residential
Mortgage
|
|
Commercial and
Multi-Family
Real Estate
|
|
Construction
|
|
Commercial and
Industrial
|
|
Consumer
|
|
Unallocated
|
|
Total
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
$
|
1,997
|
|
|
$
|
2,274
|
|
|
$
|
321
|
|
|
$
|
774
|
|
|
$
|
3
|
|
|
$
|
137
|
|
|
$
|
5,506
|
|
Provisions (credits)
|
(111
|
)
|
|
195
|
|
|
10
|
|
|
94
|
|
|
2
|
|
|
(100
|
)
|
|
$
|
90
|
|
Loans charged-off
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
$
|
(1
|
)
|
Recoveries
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1
|
|
Balance, ending
|
$
|
1,887
|
|
|
$
|
2,469
|
|
|
$
|
331
|
|
|
$
|
868
|
|
|
$
|
4
|
|
|
$
|
37
|
|
|
$
|
5,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
$
|
1,852
|
|
|
$
|
2,267
|
|
|
$
|
302
|
|
|
$
|
710
|
|
|
$
|
5
|
|
|
$
|
278
|
|
|
$
|
5,414
|
|
Provisions (credits)
|
30
|
|
|
202
|
|
|
29
|
|
|
158
|
|
|
2
|
|
|
(241
|
)
|
|
$
|
180
|
|
Loans charged-off
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
$
|
(3
|
)
|
Recoveries
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
5
|
|
Balance, ending
|
$
|
1,887
|
|
|
$
|
2,469
|
|
|
$
|
331
|
|
|
$
|
868
|
|
|
$
|
4
|
|
|
$
|
37
|
|
|
$
|
5,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 allowance allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25
|
|
Loans collectively evaluated for impairment
|
1,862
|
|
|
2,469
|
|
|
331
|
|
|
868
|
|
|
4
|
|
|
37
|
|
|
$
|
5,571
|
|
Ending Balance
|
$
|
1,887
|
|
|
$
|
2,469
|
|
|
$
|
331
|
|
|
$
|
868
|
|
|
$
|
4
|
|
|
$
|
37
|
|
|
$
|
5,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 loan balances evaluated for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
11,732
|
|
|
$
|
2,068
|
|
|
$
|
—
|
|
|
$
|
193
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,993
|
|
Loans collectively evaluated for impairment
|
165,734
|
|
|
212,295
|
|
|
28,770
|
|
|
93,885
|
|
|
608
|
|
|
—
|
|
|
$
|
501,292
|
|
Ending Balance
|
$
|
177,466
|
|
|
$
|
214,363
|
|
|
$
|
28,770
|
|
|
$
|
94,078
|
|
|
$
|
608
|
|
|
$
|
—
|
|
|
$
|
515,285
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Residential
Mortgage
|
|
Commercial and
Multi-Family
Real Estate
|
|
Construction
|
|
Commercial and
Industrial
|
|
Consumer
|
|
Unallocated
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
$
|
1,785
|
|
|
$
|
1,426
|
|
|
$
|
339
|
|
|
$
|
1,022
|
|
|
$
|
7
|
|
|
$
|
47
|
|
|
$
|
4,626
|
|
Provisions (credits)
|
26
|
|
|
172
|
|
|
(24
|
)
|
|
141
|
|
|
4
|
|
|
(19
|
)
|
|
$
|
300
|
|
Loans charged-off
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
$
|
(2
|
)
|
Recoveries
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1
|
|
Balance, ending
|
$
|
1,812
|
|
|
$
|
1,598
|
|
|
$
|
315
|
|
|
$
|
1,163
|
|
|
$
|
9
|
|
|
$
|
28
|
|
|
$
|
4,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
$
|
1,808
|
|
|
$
|
1,441
|
|
|
$
|
248
|
|
|
$
|
882
|
|
|
$
|
6
|
|
|
$
|
91
|
|
|
$
|
4,476
|
|
Provisions (credits)
|
3
|
|
|
200
|
|
|
67
|
|
|
282
|
|
|
6
|
|
|
(63
|
)
|
|
$
|
495
|
|
Loans charged-off
|
(2
|
)
|
|
(43
|
)
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|
$
|
(49
|
)
|
Recoveries
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
3
|
|
Balance, ending
|
$
|
1,812
|
|
|
$
|
1,598
|
|
|
$
|
315
|
|
|
$
|
1,163
|
|
|
$
|
9
|
|
|
$
|
28
|
|
|
$
|
4,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017 allowance allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100
|
|
Loans collectively evaluated for impairment
|
1,712
|
|
|
1,598
|
|
|
315
|
|
|
1,163
|
|
|
9
|
|
|
28
|
|
|
$
|
4,825
|
|
Ending Balance
|
$
|
1,812
|
|
|
$
|
1,598
|
|
|
$
|
315
|
|
|
$
|
1,163
|
|
|
$
|
9
|
|
|
$
|
28
|
|
|
$
|
4,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017 loan balances evaluated for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
14,562
|
|
|
$
|
1,750
|
|
|
$
|
—
|
|
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,524
|
|
Loans collectively evaluated for impairment
|
178,797
|
|
|
151,945
|
|
|
16,226
|
|
|
67,368
|
|
|
435
|
|
|
—
|
|
|
$
|
414,771
|
|
Ending Balance
|
$
|
193,359
|
|
|
$
|
153,695
|
|
|
$
|
16,226
|
|
|
$
|
67,580
|
|
|
$
|
435
|
|
|
$
|
—
|
|
|
$
|
431,295
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Residential
Mortgage
|
|
Commercial and
Multi-Family
Real Estate
|
|
Construction
|
|
Commercial and
Industrial
|
|
Consumer
|
|
Unallocated
|
|
Total
|
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end allowance balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
28
|
|
Loans collectively evaluated for impairment
|
1,852
|
|
|
2,267
|
|
|
302
|
|
|
683
|
|
|
4
|
|
|
278
|
|
|
$
|
5,386
|
|
Ending Balance
|
$
|
1,852
|
|
|
$
|
2,267
|
|
|
$
|
302
|
|
|
$
|
710
|
|
|
$
|
5
|
|
|
$
|
278
|
|
|
$
|
5,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end loan balances evaluated for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
12,609
|
|
|
$
|
2,057
|
|
|
$
|
—
|
|
|
$
|
205
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
14,872
|
|
Loans collectively evaluated for impairment
|
171,988
|
|
|
194,373
|
|
|
23,803
|
|
|
73,167
|
|
|
616
|
|
|
—
|
|
|
$
|
463,947
|
|
Ending Balance
|
$
|
184,597
|
|
|
$
|
196,430
|
|
|
$
|
23,803
|
|
|
$
|
73,372
|
|
|
$
|
617
|
|
|
$
|
—
|
|
|
$
|
478,819
|
|
Nonaccrual and Past Due Loans
The following table represents the recorded investments in classes of the loans receivable portfolio summarized by aging categories of performing loans and nonaccrual loans as of
June 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
30-59 Days Past Due and Still Accruing
|
|
60-89 Days Past Due and Still Accruing
|
|
Greater than 90 Days and Still Accruing
|
|
Total
Past Due and Still Accruing
|
|
Accruing
Current
Balances
|
|
Nonaccrual
Loans
|
|
Total Loans
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,295
|
|
|
$
|
297
|
|
|
$
|
129
|
|
|
$
|
2,721
|
|
|
$
|
145,526
|
|
|
$
|
3,045
|
|
|
$
|
151,292
|
|
Home equity
|
775
|
|
|
99
|
|
|
470
|
|
|
1,344
|
|
|
24,789
|
|
|
41
|
|
|
26,174
|
|
Commercial and multi-family real estate
|
1,046
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
|
212,973
|
|
|
344
|
|
|
214,363
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,770
|
|
|
—
|
|
|
28,770
|
|
Commercial and industrial
|
—
|
|
|
100
|
|
|
100
|
|
|
200
|
|
|
93,878
|
|
|
—
|
|
|
94,078
|
|
Consumer
|
4
|
|
|
2
|
|
|
—
|
|
|
6
|
|
|
602
|
|
|
—
|
|
|
608
|
|
Total
|
$
|
4,120
|
|
|
$
|
498
|
|
|
$
|
699
|
|
|
$
|
5,317
|
|
|
$
|
506,538
|
|
|
$
|
3,430
|
|
|
$
|
515,285
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
30-59 Days Past Due and Still Accruing
|
|
60-89 Days Past Due and Still Accruing
|
|
Greater than 90 Days and Still Accruing
|
|
Total
Past Due and Still Accruing
|
|
Accruing
Current
Balances
|
|
Nonaccrual
Loans
|
|
Total Loans
Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
1,221
|
|
|
$
|
700
|
|
|
$
|
—
|
|
|
$
|
1,921
|
|
|
$
|
152,425
|
|
|
$
|
3,446
|
|
|
$
|
157,792
|
|
Home equity
|
605
|
|
|
16
|
|
|
157
|
|
|
778
|
|
|
25,912
|
|
|
115
|
|
|
26,805
|
|
Commercial and multi-family real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
196,115
|
|
|
315
|
|
|
196,430
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,803
|
|
|
—
|
|
|
23,803
|
|
Commercial and industrial
|
68
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
73,205
|
|
|
99
|
|
|
73,372
|
|
Consumer
|
—
|
|
|
5
|
|
|
1
|
|
|
6
|
|
|
611
|
|
|
—
|
|
|
617
|
|
Total
|
$
|
1,894
|
|
|
$
|
721
|
|
|
$
|
158
|
|
|
$
|
2,773
|
|
|
$
|
472,071
|
|
|
$
|
3,975
|
|
|
$
|
478,819
|
|
Impaired Loans
The following tables provide an analysis of the impaired loans at
June 30, 2018
and
December 31, 2017
and the average balances of such loans for the
six
months and year, respectively, then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Recorded Investment
|
|
Loans with
No Related
Reserve
|
|
Loans with
Related
Reserve
|
|
Related
Reserve
|
|
Contractual
Principal
Balance
|
|
Average
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
10,078
|
|
|
$
|
9,744
|
|
|
$
|
334
|
|
|
$
|
25
|
|
|
$
|
10,689
|
|
|
$
|
10,483
|
|
Home equity
|
1,654
|
|
|
1,654
|
|
|
—
|
|
|
—
|
|
|
1,744
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and multi-family real estate
|
2,068
|
|
|
2,068
|
|
|
—
|
|
|
—
|
|
|
2,706
|
|
|
2,054
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
193
|
|
|
193
|
|
|
—
|
|
|
—
|
|
|
234
|
|
|
198
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total
|
$
|
13,993
|
|
|
$
|
13,659
|
|
|
$
|
334
|
|
|
$
|
25
|
|
|
$
|
15,373
|
|
|
$
|
14,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Recorded Investment
|
|
Loans with
No Related
Reserve
|
|
Loans with
Related
Reserve
|
|
Related
Reserve
|
|
Contractual
Principal
Balance
|
|
Average
Recorded Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
11,181
|
|
|
$
|
11,181
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,729
|
|
|
$
|
12,256
|
|
Home equity
|
1,428
|
|
|
1,428
|
|
|
—
|
|
|
—
|
|
|
1,522
|
|
|
1,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and multi-family real estate
|
2,057
|
|
|
2,057
|
|
|
—
|
|
|
—
|
|
|
2,680
|
|
|
1,787
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
205
|
|
|
173
|
|
|
32
|
|
|
27
|
|
|
242
|
|
|
296
|
|
Consumer
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Total
|
$
|
14,872
|
|
|
$
|
14,839
|
|
|
$
|
33
|
|
|
$
|
28
|
|
|
$
|
16,174
|
|
|
$
|
15,675
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
As of
June 30, 2018
and
December 31, 2017
, impaired loans listed above included
$11.6 million
and
$11.4 million
, respectively, of loans modified in troubled debt restructurings ("TDR") and as such are considered impaired under GAAP. As of
June 30, 2018
and
December 31, 2017
,
$9.7 million
and
$9.7 million
, respectively, of these loans have been performing in accordance with their modified terms for an extended period of time and as such were removed from non-accrual status and considered performing.
Interest income of
$120,000
and
$89,000
was recognized on impaired loans during the three months ended
June 30, 2018
and
2017
. The average balance of impaired loans for the three months ended
June 30, 2018
and
June 30, 2017
was
$13.8 million
and
$16.4 million
, respectively.
Interest income of
$236,000
and
$195,000
was recognized on impaired loans during the six months ended
June 30, 2018
and
2017
. The average balance of impaired loans for the six months ended
June 30, 2018
and
June 30, 2017
was
$14.2 million
and
$16.2 million
, respectively.
Credit Quality Indicators
Management uses a nine point internal risk rating system to monitor the credit quality of the loans in the Company's commercial real estate, construction and commercial and industrial loan segments. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually or when credit deficiencies, such as delinquent loan payments, arise. The criticized rating categories utilized by management generally follow bank regulatory definitions.
The Bank's rating categories are as follows:
1 – 5: The first five risk rating categories are considered not criticized, and are aggregated as "Pass" rated.
6: "Special Mention" category includes assets that are currently protected, but are potentially weak, resulting in increased credit risk and deserving management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.
7: "Substandard" loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. This includes loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.
8: "Doubtful" loans have all the weaknesses inherent in loans classified "Substandard" with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.
9: "Loss" loans are considered uncollectible and subsequently charged off.
The following table presents the recorded investment in classes of the loans receivable portfolio summarized by the aggregate "Pass" and the criticized categories of "Special Mention", "Substandard", "Doubtful" and "Loss" within the internal risk rating system as of
June 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and multi-family real estate
|
$
|
211,222
|
|
|
$
|
2,082
|
|
|
$
|
1,059
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
214,363
|
|
Construction
|
28,770
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,770
|
|
Commercial and industrial
|
93,441
|
|
|
422
|
|
|
215
|
|
|
—
|
|
|
—
|
|
|
94,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
333,433
|
|
|
$
|
2,504
|
|
|
$
|
1,274
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
337,211
|
|
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and multi-family real estate
|
$
|
193,982
|
|
|
$
|
1,415
|
|
|
$
|
1,033
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
196,430
|
|
Construction
|
23,803
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,803
|
|
Commercial and industrial
|
72,962
|
|
|
182
|
|
|
228
|
|
|
—
|
|
|
—
|
|
|
73,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
290,747
|
|
|
$
|
1,597
|
|
|
$
|
1,261
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
293,605
|
|
Management further monitors the performance and credit quality of the residential portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Residential mortgage
|
|
Consumer
|
|
Total Residential and Consumer
|
|
Jun 30, 2018
|
|
Dec 31, 2017
|
|
Jun 30, 2018
|
|
Dec 31, 2017
|
|
Jun 30, 2018
|
|
Dec 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
|
$
|
3,685
|
|
|
$
|
3,718
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
3,685
|
|
|
$
|
3,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
173,781
|
|
|
180,879
|
|
|
608
|
|
|
616
|
|
|
174,389
|
|
|
181,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
177,466
|
|
|
$
|
184,597
|
|
|
$
|
608
|
|
|
$
|
617
|
|
|
$
|
178,074
|
|
|
$
|
185,214
|
|
Troubled Debt Restructurings
Loans, the terms of which are modified, are classified as a TDR if, in connection with the modification, the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in the loan's interest rate below market rates given the associated credit risk, or an extension of a loan's stated maturity date or capitalization of interest and/or escrow. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold. The nature and extent of impairment of TDRs, including those which experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses.
The recorded investment balance of TDRs totaled
$11.6 million
at
June 30, 2018
compared with
$11.4 million
at
December 31, 2017
. The majority of the Company's TDRs are on accrual status. Accruing TDRs totaled
$9.7 million
at
June 30, 2018
versus
$9.7 million
at
December 31, 2017
. The total of TDRs on non-accrual status was
$1.9 million
at
June 30, 2018
and
$1.7 million
at
December 31, 2017
.
The Company did not modify any loans as a TDR during the three months ended June 30, 2018. For the three months ended June 30, 2017, the terms of
five
loans were modified into
two
TDRs. The Company refinanced and consolidated a one-to-four family loan and
three
commercial loans into a multi-family & commercial loan with an adjustable interest rate from a fixed interest rate. In addition, the Company refinanced a one-to-four family loan and capitalized the interest. For the six months ended
June 30, 2018
, the terms of
one
loan was modified into
one
TDR. The Company refinanced a multi-family & commercial loan that was restructured to extend the maturity date and capitalize the interest. For the six months ended June 30, 2017, the terms of
twelve
loans were modified into
five
TDRs. The Company refinanced and consolidated a one-to-four family and
one
home equity mortgage loan which was restructured to an adjustable interest rate from a fixed interest rate. In addition, the Company restructured a one-to-four family loan, a home equity loan and a commercial line of credit. These loans were consolidated into
one
one-to-four family TDR with an extended maturity date. The Company restructured a commercial loan and a multi-family real estate loan into
one
TDR and extended the maturity date. The Company refinanced and consolidated a one-to-four family loan and
three
commercial loans into a multi-family & commercial loan with an adjustable interest rate from a fixed interest rate. In addition, the Company refinanced a one-to-four family loan and capitalized the interest.
The following tables summarize by the recorded investment class loans modified into TDRs during the
three and six
months ended
June 30, 2018
and
June 30, 2017
:
Note 5 - Loans Receivable and Allowance for Loan Losses (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Number of
Contracts
|
|
Pre-Modification
Outstanding Recorded
Investments
|
|
Post-Modification
Outstanding Recorded
Investments
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Commercial and multi-family real estate
|
1
|
|
|
374
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
1
|
|
|
$
|
374
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Number of
Contracts
|
|
Pre-Modification
Outstanding Recorded
Investments
|
|
Post-Modification
Outstanding Recorded
Investments
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Residential Mortgage
|
|
|
|
|
|
One-to-four family
|
2
|
|
|
$
|
444
|
|
|
$
|
405
|
|
Commercial and multi-family real estate
|
—
|
|
|
—
|
|
|
263
|
|
Commercial
|
3
|
|
|
153
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
5
|
|
|
$
|
597
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
Number of
Contracts
|
|
Pre-Modification
Outstanding Recorded
Investments
|
|
Post-Modification
Outstanding Recorded
Investments
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Residential Mortgage
|
|
|
|
|
|
One-to-four family
|
4
|
|
|
$
|
1,019
|
|
|
$
|
1,283
|
|
Home equity
|
2
|
|
|
99
|
|
|
—
|
|
Commercial and multi-family real estate
|
1
|
|
|
419
|
|
|
661
|
|
Commercial
|
5
|
|
|
283
|
|
|
—
|
|
|
|
|
|
|
|
Total
|
12
|
|
|
$
|
1,820
|
|
|
$
|
1,944
|
|
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were
no
loans modified in TDRs during the previous 12 months and for which there was a subsequent payment default for the
three and six
months ended
June 30, 2018
and
2017
.
There was
no
Other Real Estate Owned ("OREO") at
June 30, 2018
and
December 31, 2017
. We may obtain physical possession of residential real estate collateralizing consumer mortgage loans via foreclosure or in-substance repossession. At
June 30, 2018
and
December 31, 2017
, we had consumer loans with a carrying value of
$375,000
and
$1.2 million
, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.
Note 6 - Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and certain liabilities and to determine fair value disclosures.
FASB ASC Topic 820,
Fair Market Value Disclosures
("ASC 820"), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement
Note 6 - Fair Value Measurements (Continued)
assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
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Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
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Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
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Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. While management believes the Company's valuation methodologies are appropriate and consistent with 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.
Assets Measured at Fair Value on a Recurring Basis
The Bank did not have any financial assets measured at fair value on a recurring basis as of
June 30, 2018
and
December 31, 2017
.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain financial and non-financial assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
The following table summarizes those assets measured at fair value on a non-recurring basis as of
June 30, 2018
and
December 31, 2017
:
Note 6 - Fair Value Measurements (Continued)
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As of June 30, 2018
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Level 1
Inputs
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Level 2
Inputs
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Level 3
Inputs
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Total Fair
Value
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(In thousands)
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Impaired loans
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$
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—
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$
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—
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$
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309
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$
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309
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As of December 31, 2017
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Level 1
Inputs
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Level 2
Inputs
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Level 3
Inputs
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Total Fair
Value
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(In thousands)
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Impaired loans
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$
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—
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$
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—
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$
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6
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$
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6
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For Level 3 assets measured at fair value on a non-recurring basis as of
June 30, 2018
and
December 31, 2017
, the significant unobservable inputs used in fair value measurements were as follows:
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As of June 30, 2018
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Fair Value
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Valuation Techniques
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Unobservable
Input
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Range (Weighted Average)
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(Dollars in thousands)
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Impaired loans
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$
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309
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Appraisal of collateral
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Appraisal adjustments
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0% (0%)
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Liquidation expense
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19.0% (19.0%)
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As of December 31, 2017
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Fair Value
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Valuation Techniques
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Unobservable
Input
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Range (Weighted Average)
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(Dollars in thousands)
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Impaired loans
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$
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6
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Appraisal of collateral
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Appraisal adjustments
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475.6% (475.6%)
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Liquidation expense
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0% (0%)
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A loan is measured for impairment at the time the loan is identified as impaired. Loans are considered impaired when based on current information and events it is probable that payments of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The Company's impaired loans are generally collateral dependent and, as such, are carried at the lower of cost or fair value less estimated selling costs. Fair values are estimated through current appraisals and adjusted as necessary to reflect current market conditions and as such are classified as Level 3.
Disclosure about Fair Value of Financial Instruments
The carrying amount and fair value (represents exit price) of financial instruments, at
June 30, 2018
and
December 31, 2017
were as follows:
Note 6 - Fair Value Measurements (Continued)
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Carrying
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Fair
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Level 1
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Level 2
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Level 3
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As of June 30, 2018
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Amount
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Value
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Inputs
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Inputs
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Inputs
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(In thousands)
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Financial assets:
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Cash and due from banks
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$
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16,314
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$
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16,314
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$
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16,314
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Securities held to maturity
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44,770
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43,749
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—
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43,749
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—
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Loans receivable
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509,689
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495,946
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—
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—
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495,946
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Federal Home Loan Bank of New York stock
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4,212
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4,212
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4,212
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Accrued interest receivable
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1,754
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1,754
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1,754
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Financial liabilities:
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Deposits
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448,512
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449,561
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—
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449,561
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—
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Advances from Federal Home Loan Bank of New York
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82,175
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57,459
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—
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57,459
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—
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As of December 31, 2017
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Financial assets:
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Cash and due from banks
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$
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22,309
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$
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22,309
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$
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22,309
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Securities held to maturity
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38,482
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38,255
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—
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38,255
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—
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Loans receivable
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473,405
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472,881
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—
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—
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472,881
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Federal Home Loan Bank of New York stock
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2,131
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2,131
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2,131
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Accrued interest receivable
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1,607
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1,607
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1,607
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Financial liabilities:
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Deposits
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448,913
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450,580
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—
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450,580
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—
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Advances from Federal Home Loan Bank of New York
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37,675
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37,400
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—
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37,400
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—
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Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Securities Held to Maturity
The fair value for securities held to maturity is based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar securities.
Loans Receivable
The fair value of loans is based upon a multitude of sources, including assumed current market rates by category and the Bank's current offering rates. Both fixed and variable rate loan fair values are derived at using a discounted cash flow methodology. For variable rate loans, repricing terms, including next reprice date, reprice frequency and reprice rate are factored into the discounted cash flow formula.
Federal Home Loan Bank Stock
The carrying amount of FHLB of New York stock approximates fair value since the Company is generally able to redeem this stock at par.
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest receivable and payable approximate fair value due to the short term nature of these instruments.
Deposits
Fair values for demand deposits, savings accounts and club accounts are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.
Note 6 - Fair Value Measurements (Continued)
Advances from Federal Home Loan Bank of New Yor
k
Fair values of advances are estimated using discounted cash flow analyses, based on rates currently available to the Company for advances from the FHLB of New York with similar terms and remaining maturities.
Off-Balance Sheet Financial Instruments
Fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreement, into account market interest rates, the remaining terms, and the present credit worthiness of the counterparties. As of June 30, 2018 and December 31,2017, the fair value of the commitments to extend credit was not considered to be material.