Notes to Consolidated Financial Statements
March 31, 2019
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Certain information and note disclosures normally included in the unaudited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Stewardship Financial Corporation Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
, filed with the SEC on March 15, 2019.
The interim unaudited consolidated financial statements included herein have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the SEC and, therefore, do not include information or footnotes necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of the interim consolidated financial statements, have been included. The results of operations for the
three
months ended
March 31, 2019
are not necessarily indicative of the results which may be expected for the entire year. Certain prior period amounts have been reclassified to conform with the current period presentation.
Principles of consolidation
The consolidated financial statements include the accounts of Stewardship Financial Corporation and its wholly-owned subsidiary, Atlantic Stewardship Bank (the “Bank”), together referred to as “the Corporation”. The Bank includes its wholly-owned subsidiaries, Stewardship Investment Corporation, Stewardship Realty LLC, Atlantic Stewardship Insurance Company, LLC and several other subsidiaries formed to hold title to properties acquired through foreclosure or deed in lieu of foreclosure. The Bank’s subsidiaries have an insignificant impact on the Bank’s daily operations. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The consolidated financial statements of the Corporation have been prepared in conformity with GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions, based on available information, that affect the amounts reported in the consolidated financial statements and disclosures provided. Actual results could differ from those estimates and assumptions.
Material estimates
Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses and deferred income taxes. Management believes the Corporation’s policies with respect to the methodology for the determination of the allowance for loan losses and the evaluation of deferred income taxes involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, “Leases (Subtopic 842).” This ASU requires all lessees to recognize a lease liability and a right of use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The amendments in ASU 2016-02 are effective for fiscal years, including interim periods, beginning after December 15, 2018. Early adoption of ASU 2016-02 was permitted. Subsequently, the FASB issued the following standards related to ASU 2016-02: ASU 2017-13, "Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments" ASU 2018-1, "Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842;" ASU 2018-10, "Codification Improvements to Topic 842,
Leases" ASU 2018-11, "Leases (Topic 842): Targeted Improvements" and ASU 2019-01, "Leases (Topic 842): Codification Improvements". The Corporation adopted the modified retrospective approach under ASU 2018-11. The Corporation's adoption of the modified retrospective approach under ASU 2018-11 on January 1, 2019 resulted in the recording of a
$3.4 million
lease liability with a corresponding right of use asset on the Consolidated Statements of Financial Condition.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments by a reporting entity at each reporting date. The amendments in this ASU require financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses would represent a valuation account that would be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement would reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses would be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity will be required to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The amendments in ASU 2016-13 are effective for fiscal years, including interim periods, beginning after December 15, 2019. Early adoption of this ASU is permitted for fiscal years beginning after December 15, 2018. The Corporation is currently evaluating the potential impact of ASU 2016-13 on the Corporation's consolidated financial statements. The Corporation has formed a working group, under the direction of the Chief Financial Officer, which is currently developing an implementation plan to include assessment of processes, portfolio segmentation, model development, system requirements and the identification of data and resource needs, among other things. Also, the Corporation is currently evaluating third-party vendor solutions to assist in the application of ASU 2016-13. The adoption of ASU 2016-13 may result in an increase in the allowance for loan losses due to changing from an "incurred loss" model, which encompasses allowances for current known and inherent losses within the portfolio, to an "expected loss" model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate establishing an allowance for expected credit losses on debt securities. The Corporation is currently unable to reasonably estimate the impact of adopting ASU 2016-13, and it is expected that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date. As of March 31, 2019, the Corporation has evaluated available historical data, identified the expected loan pools, put in place preliminary shadow accounting and is currently continuing to review assumptions and sample forecasts.
In March 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20)." The update shortens the amortization period for premiums on purchased callable debt securities to the earliest call date. The amendment will apply only to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates, apply to all premiums on callable debt securities, regardless of how they were generated, and require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount. The discount continues to be amortized to maturity and does not apply when the investor has already incorporated prepayments into the calculation of its effective yield under other GAAP. The amendments in ASU 2017-08 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. As the Corporation already amortizes these premiums to the call date, the adoption of this ASU on January 1, 2019 did not have any impact on the Corporation's consolidated financial statements.
Note 2. Securities – Available-for-Sale and Held-to-Maturity
The amortized cost, gross unrealized gains and losses and fair value of the available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agencies
|
$
|
21,744
|
|
|
$
|
9
|
|
|
$
|
(284
|
)
|
|
$
|
21,469
|
|
Obligations of state and political subdivisions
|
3,202
|
|
|
1
|
|
|
(17
|
)
|
|
3,186
|
|
Mortgage-backed securities
|
61,249
|
|
|
138
|
|
|
(845
|
)
|
|
60,542
|
|
Asset-backed securities (a)
|
4,201
|
|
|
3
|
|
|
(13
|
)
|
|
4,191
|
|
Corporate debt (b)
|
13,351
|
|
|
31
|
|
|
(251
|
)
|
|
13,131
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
$
|
103,747
|
|
|
$
|
182
|
|
|
$
|
(1,410
|
)
|
|
$
|
102,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
U.S. government-sponsored agencies
|
$
|
26,232
|
|
|
$
|
15
|
|
|
$
|
(498
|
)
|
|
$
|
25,749
|
|
Obligations of state and political subdivisions
|
3,205
|
|
|
—
|
|
|
(84
|
)
|
|
3,121
|
|
Mortgage-backed securities
|
63,659
|
|
|
68
|
|
|
(1,564
|
)
|
|
62,163
|
|
Asset-backed securities (a)
|
4,916
|
|
|
6
|
|
|
—
|
|
|
4,922
|
|
Corporate debt (b)
|
13,369
|
|
|
48
|
|
|
(561
|
)
|
|
12,856
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
$
|
111,381
|
|
|
$
|
137
|
|
|
$
|
(2,707
|
)
|
|
$
|
108,811
|
|
(a) Collateralized by student loans.
(b) Corporate debt securities are primarily in financial institutions.
Cash proceeds realized from sales and calls of securities available-for-sale for the
three
months ended
March 31, 2019
were
$4,170,000
. Cash proceeds realized from sales and calls of securities available-for-sale for the three months ended March 31, 2018 were
$1,006,000
. There were gross gains totaling
$2,000
and
no
gross losses realized on sales or calls during the
three
months ended
March 31, 2019
. There were gross gains totaling
$6,000
and
no
gross losses realized on sales or calls during the
three
months ended
March 31, 2018
.
The following is a summary of the amortized cost, gross unrealized gains and losses and fair value of the held-to- maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
990
|
|
U.S. government-sponsored agencies
|
34,564
|
|
|
33
|
|
|
(453
|
)
|
|
34,144
|
|
Obligations of state and political subdivisions
|
2,031
|
|
|
13
|
|
|
(20
|
)
|
|
2,024
|
|
Mortgage-backed securities
|
23,991
|
|
|
133
|
|
|
(172
|
)
|
|
23,952
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
$
|
61,586
|
|
|
$
|
179
|
|
|
$
|
(655
|
)
|
|
$
|
61,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Amortized
|
|
Gross Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
999
|
|
|
$
|
—
|
|
|
$
|
(14
|
)
|
|
$
|
985
|
|
U.S. government-sponsored agencies
|
35,565
|
|
|
20
|
|
|
(976
|
)
|
|
34,609
|
|
Obligations of state and political subdivisions
|
2,358
|
|
|
14
|
|
|
(27
|
)
|
|
2,345
|
|
Mortgage-backed securities
|
23,386
|
|
|
47
|
|
|
(375
|
)
|
|
23,058
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
$
|
62,308
|
|
|
$
|
81
|
|
|
$
|
(1,392
|
)
|
|
$
|
60,997
|
|
Cash proceeds realized from calls of securities held-to-maturity for the
three
months ended
March 31, 2019
were
$1,105,000
. Cash proceeds realized from calls of securities held-to-maturity for the
three
months ended
March 31, 2018
were
$280,000
. There were
no
gross gains and
no
gross losses realized on calls during the
three
months ended
March 31, 2019
and
March 31, 2018
.
Mortgage-backed securities are a type of asset-backed security secured by a mortgage or collection of mortgages, purchased by government agencies such as the Government National Mortgage Association and government-sponsored agencies such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, which then issue securities that represent claims on the principal and interest payments made by borrowers on the loans in the pool.
The following table presents the amortized cost and fair value of the debt securities portfolio by contractual maturity. As issuers may have the right to call or prepay obligations with or without call or prepayment premiums, the actual maturities may differ from contractual maturities. Securities not due at a single maturity date, such as mortgage-backed securities and asset-backed securities, are shown separately.
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Amortized
Cost
|
|
Fair
Value
|
|
(In thousands)
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
Within one year
|
$
|
1,635
|
|
|
$
|
1,626
|
|
After one year, but within five years
|
11,728
|
|
|
11,610
|
|
After five years, but within ten years
|
20,708
|
|
|
20,465
|
|
After ten years
|
4,226
|
|
|
4,085
|
|
Mortgage-backed securities
|
61,249
|
|
|
60,542
|
|
Asset-backed securities
|
4,201
|
|
|
4,191
|
|
|
|
|
|
Total
|
$
|
103,747
|
|
|
$
|
102,519
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
Within one year
|
$
|
1,655
|
|
|
$
|
1,650
|
|
After one year, but within five years
|
17,065
|
|
|
16,928
|
|
After five years, but within ten years
|
18,389
|
|
|
18,114
|
|
After ten years
|
486
|
|
|
466
|
|
Mortgage-backed securities
|
23,991
|
|
|
23,952
|
|
|
|
|
|
Total
|
$
|
61,586
|
|
|
$
|
61,110
|
|
The following tables summarize the fair value and unrealized losses of those investment securities which reported an unrealized loss at
March 31, 2019
and
December 31, 2018
, and if the unrealized loss position was continuous for the twelve months prior to
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government- sponsored agencies
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,414
|
|
|
$
|
(284
|
)
|
|
$
|
15,414
|
|
|
$
|
(284
|
)
|
Obligations of state and political subdivisions
|
—
|
|
|
—
|
|
|
2,201
|
|
|
(17
|
)
|
|
2,201
|
|
|
(17
|
)
|
Mortgage-backed securities
|
158
|
|
|
—
|
|
|
46,607
|
|
|
(845
|
)
|
|
46,765
|
|
|
(845
|
)
|
Asset-backed securities
|
2,769
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
2,769
|
|
|
(13
|
)
|
Corporate debt
|
—
|
|
|
—
|
|
|
9,101
|
|
|
(251
|
)
|
|
9,101
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
$
|
2,927
|
|
|
$
|
(13
|
)
|
|
$
|
73,323
|
|
|
$
|
(1,397
|
)
|
|
$
|
76,250
|
|
|
$
|
(1,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government- sponsored agencies
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,432
|
|
|
$
|
(498
|
)
|
|
$
|
17,432
|
|
|
$
|
(498
|
)
|
Obligations of state and political subdivisions
|
—
|
|
|
—
|
|
|
3,121
|
|
|
(84
|
)
|
|
3,121
|
|
|
(84
|
)
|
Mortgage-backed securities
|
4,177
|
|
|
(19
|
)
|
|
47,479
|
|
|
(1,545
|
)
|
|
51,656
|
|
|
(1,564
|
)
|
Asset-backed securities
|
2,892
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,892
|
|
|
—
|
|
Corporate debt
|
—
|
|
|
—
|
|
|
8,808
|
|
|
(561
|
)
|
|
8,808
|
|
|
(561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
$
|
7,069
|
|
|
$
|
(19
|
)
|
|
$
|
76,840
|
|
|
$
|
(2,688
|
)
|
|
$
|
83,909
|
|
|
$
|
(2,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
990
|
|
|
$
|
(10
|
)
|
|
$
|
990
|
|
|
$
|
(10
|
)
|
U.S. government- sponsored agencies
|
497
|
|
|
(2
|
)
|
|
25,442
|
|
|
(451
|
)
|
|
25,939
|
|
|
(453
|
)
|
Obligations of state and political subdivisions
|
—
|
|
|
—
|
|
|
466
|
|
|
(20
|
)
|
|
466
|
|
|
(20
|
)
|
Mortgage-backed securities
|
1,460
|
|
|
(3
|
)
|
|
13,778
|
|
|
(169
|
)
|
|
15,238
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
$
|
1,957
|
|
|
$
|
(5
|
)
|
|
$
|
40,676
|
|
|
$
|
(650
|
)
|
|
$
|
42,633
|
|
|
$
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
985
|
|
|
$
|
(14
|
)
|
|
$
|
985
|
|
|
$
|
(14
|
)
|
U.S. government- sponsored agencies
|
2,496
|
|
|
(9
|
)
|
|
24,595
|
|
|
(967
|
)
|
|
27,091
|
|
|
(976
|
)
|
Obligations of state and political subdivisions
|
—
|
|
|
—
|
|
|
461
|
|
|
(27
|
)
|
|
461
|
|
|
(27
|
)
|
Mortgage-backed securities
|
5,885
|
|
|
(67
|
)
|
|
11,081
|
|
|
(308
|
)
|
|
16,966
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
$
|
8,381
|
|
|
$
|
(76
|
)
|
|
$
|
37,122
|
|
|
$
|
(1,316
|
)
|
|
$
|
45,503
|
|
|
$
|
(1,392
|
)
|
Other-Than-Temporary Impairment
At
March 31, 2019
, there were available-for-sale investments comprising
nineteen
U.S. government-sponsored agency securities,
five
obligations of state and political subdivision securities,
seventy-three
mortgage-backed securities, and
nine
corporate debt securities in a continuous loss position for twelve months or longer. At
March 31, 2019
, there were held-to-maturity investments comprising
one
U.S. Treasury security,
twenty-six
U.S. government-sponsored agency securities,
one
obligation of state and political subdivision security, and
thirty-two
mortgage-backed securities in a continuous loss position for twelve months or longer. Management has assessed the securities that were in an unrealized loss position at
March 31, 2019
and
December 31, 2018
and has determined that any decline in fair value below amortized cost primarily relates to changes in interest rates and market spreads and was temporary.
In making this determination management considered the following factors: the period of time the securities were in an unrealized loss position; the percentage decline in comparison to the securities’ amortized cost; any adverse conditions specifically related to the security, an industry or a geographic area; the rating or changes to the rating by a credit rating agency; the financial condition of the issuer and guarantor and any recoveries or additional declines in fair value subsequent to the balance sheet date.
Management does not intend to sell securities in an unrealized loss position and it is not more likely than not that the Corporation will be required to sell these securities before the recovery of their amortized cost bases, which may be at maturity.
Note 3. Loans and Allowance for Loan Losses
At
March 31, 2019
and
December 31, 2018
, respectively, the loan portfolio consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
|
(In thousands)
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
$
|
30,351
|
|
|
$
|
28,790
|
|
Other
|
75,458
|
|
|
64,965
|
|
Commercial real estate
|
504,961
|
|
|
504,522
|
|
Commercial construction
|
11,225
|
|
|
9,787
|
|
Residential real estate
|
81,215
|
|
|
82,491
|
|
Consumer:
|
|
|
|
|
|
Secured by real estate
|
36,919
|
|
|
36,120
|
|
Other
|
476
|
|
|
455
|
|
Government Guaranteed Loans - guaranteed portion
|
6,492
|
|
|
6,559
|
|
Other
|
82
|
|
|
98
|
|
|
|
|
|
Total gross loans
|
747,179
|
|
|
733,787
|
|
|
|
|
|
Less: Deferred loan costs, net
|
458
|
|
|
457
|
|
Allowance for loan losses
|
8,018
|
|
|
7,926
|
|
|
8,476
|
|
|
8,383
|
|
|
|
|
|
Loans, net
|
$
|
738,703
|
|
|
$
|
725,404
|
|
Included in Commercial - Other and Commercial real estate at
March 31, 2019
were
$167,000
and $
$3,589,000
, respectively, of Small Business Administration ("SBA") loans for which the guaranteed portions have been sold.
In addition to the origination of SBA loans, prior to 2017, the Corporation purchased the guaranteed portion of several Government Guaranteed loans. These loans are listed separately in the table above. Due to the guarantee of the principal amount of these loans, no allowance for loan losses is established for these loans.
Excluded from the table above are
$15.5 million
and
$14.3 million
of unpaid principal balances of loans serviced for others at
March 31, 2019
and
December 31, 2018
.
Activity in the allowance for loan losses is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Balance,
beginning
of period
|
|
Provision
charged
to operations
|
|
Loans
charged off
|
|
Recoveries
of loans
charged off
|
|
Balance,
end
of period
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
2,703
|
|
|
$
|
251
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
2,966
|
|
Commercial real estate
|
4,947
|
|
|
(209
|
)
|
|
—
|
|
|
15
|
|
|
4,753
|
|
Commercial construction
|
131
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
150
|
|
Residential real estate
|
65
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
76
|
|
Consumer
|
68
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
61
|
|
Other loans
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Unallocated
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,926
|
|
|
$
|
65
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
8,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Balance,
beginning
of period
|
|
Provision
charged
to operations
|
|
Loans
charged off
|
|
Recoveries
of loans
charged off
|
|
Balance,
end
of period
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
3,058
|
|
|
$
|
(189
|
)
|
|
$
|
(29
|
)
|
|
$
|
25
|
|
|
$
|
2,865
|
|
Commercial real estate
|
5,531
|
|
|
(204
|
)
|
|
—
|
|
|
22
|
|
|
5,349
|
|
Commercial construction
|
33
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
81
|
|
Residential real estate
|
68
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
72
|
|
Consumer
|
64
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
67
|
|
Other loans
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Unallocated
|
7
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
8,762
|
|
|
$
|
(335
|
)
|
|
$
|
(30
|
)
|
|
$
|
48
|
|
|
$
|
8,445
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Commercial
|
|
Commercial
Real Estate
|
|
Commercial
Construction
|
|
Residential
Real Estate
|
|
Consumer
|
|
Government
Guaranteed
|
|
Other
Loans
|
|
Unallocated
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
97
|
|
|
$
|
605
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
2,869
|
|
|
4,148
|
|
|
150
|
|
|
76
|
|
|
61
|
|
|
—
|
|
|
1
|
|
|
11
|
|
|
7,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
$
|
2,966
|
|
|
$
|
4,753
|
|
|
$
|
150
|
|
|
$
|
76
|
|
|
$
|
61
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
$
|
8,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
627
|
|
|
$
|
6,182
|
|
|
$
|
—
|
|
|
$
|
558
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
105,182
|
|
|
498,779
|
|
|
11,225
|
|
|
80,657
|
|
|
37,395
|
|
|
6,492
|
|
|
82
|
|
|
—
|
|
|
739,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loan balance
|
$
|
105,809
|
|
|
$
|
504,961
|
|
|
$
|
11,225
|
|
|
$
|
81,215
|
|
|
$
|
37,395
|
|
|
$
|
6,492
|
|
|
$
|
82
|
|
|
$
|
—
|
|
|
$
|
747,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Commercial
|
|
Commercial
Real Estate
|
|
Commercial
Construction
|
|
Residential
Real Estate
|
|
Consumer
|
|
Government
Guaranteed
|
|
Other
Loans
|
|
Unallocated
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
88
|
|
|
$
|
561
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
2,615
|
|
|
4,386
|
|
|
131
|
|
|
65
|
|
|
68
|
|
|
—
|
|
|
1
|
|
|
11
|
|
|
7,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance
|
$
|
2,703
|
|
|
$
|
4,947
|
|
|
$
|
131
|
|
|
$
|
65
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
$
|
7,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
$
|
633
|
|
|
$
|
6,079
|
|
|
$
|
—
|
|
|
$
|
576
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans collectively evaluated for impairment
|
93,122
|
|
|
498,443
|
|
|
9,787
|
|
|
81,915
|
|
|
36,575
|
|
|
6,559
|
|
|
98
|
|
|
—
|
|
|
726,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending loan balance
|
$
|
93,755
|
|
|
$
|
504,522
|
|
|
$
|
9,787
|
|
|
$
|
82,491
|
|
|
$
|
36,575
|
|
|
$
|
6,559
|
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
733,787
|
|
The following table presents the recorded investment in nonaccrual loans at the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
|
(In thousands)
|
Commercial:
|
|
|
|
Secured by real estate
|
$
|
396
|
|
|
$
|
394
|
|
Commercial real estate
|
822
|
|
|
574
|
|
Residential real estate
|
558
|
|
|
576
|
|
Total nonaccrual loans
|
$
|
1,776
|
|
|
$
|
1,544
|
|
At
March 31, 2019
and
December 31, 2018
, there were
no
loans that were past due 90 days and still accruing.
The following table presents information regarding loans individually evaluated for impairment by class of loan at and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
(In thousands)
|
With no related allowance recorded:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
$
|
421
|
|
|
$
|
414
|
|
|
|
Commercial real estate
|
3,288
|
|
|
2,959
|
|
|
|
Residential Real Estate
|
579
|
|
|
558
|
|
|
|
|
4,288
|
|
|
3,931
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
93
|
|
|
93
|
|
|
$
|
93
|
|
Other
|
120
|
|
|
120
|
|
|
4
|
|
Commercial real estate
|
3,223
|
|
|
3,223
|
|
|
605
|
|
|
3,436
|
|
|
3,436
|
|
|
702
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
514
|
|
|
507
|
|
|
93
|
|
Other
|
120
|
|
|
120
|
|
|
4
|
|
Commercial real estate
|
6,511
|
|
|
6,182
|
|
|
605
|
|
Residential Real Estate
|
579
|
|
|
558
|
|
|
—
|
|
|
$
|
7,724
|
|
|
$
|
7,367
|
|
|
$
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
Unpaid
Principal
Balance
|
|
Recorded
Investment
|
|
Allowance for
Loan Losses
Allocated
|
|
(In thousands)
|
With no related allowance recorded:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
$
|
447
|
|
|
$
|
416
|
|
|
|
Commercial real estate
|
3,329
|
|
|
3,001
|
|
|
|
Residential real estate
|
587
|
|
|
576
|
|
|
|
|
4,363
|
|
|
3,993
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
95
|
|
|
95
|
|
|
$
|
83
|
|
Other
|
122
|
|
|
122
|
|
|
5
|
|
Commercial real estate
|
3,078
|
|
|
3,078
|
|
|
561
|
|
|
3,295
|
|
|
3,295
|
|
|
649
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
Secured by real estate
|
542
|
|
|
511
|
|
|
83
|
|
Other
|
122
|
|
|
122
|
|
|
5
|
|
Commercial real estate
|
6,407
|
|
|
6,079
|
|
|
561
|
|
Residential real estate
|
587
|
|
|
576
|
|
|
—
|
|
|
$
|
7,658
|
|
|
$
|
7,288
|
|
|
$
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
Average Recorded Investment
|
|
Interest Income Recognized
|
|
(In thousands)
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
415
|
|
|
$
|
—
|
|
|
$
|
386
|
|
|
$
|
4
|
|
Commercial real estate
|
2,980
|
|
|
33
|
|
|
3,108
|
|
|
26
|
|
Residential Real Estate
|
567
|
|
|
—
|
|
|
292
|
|
|
—
|
|
Consumer:
|
|
|
|
|
|
|
|
Secured by real estate
|
—
|
|
|
—
|
|
|
54
|
|
|
—
|
|
Total
|
3,962
|
|
|
33
|
|
|
3,840
|
|
|
30
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
Secured by real estate
|
94
|
|
|
1
|
|
|
16
|
|
|
—
|
|
Other
|
121
|
|
|
2
|
|
|
127
|
|
|
2
|
|
Commercial real estate
|
3,151
|
|
|
40
|
|
|
3,108
|
|
|
40
|
|
|
3,366
|
|
|
43
|
|
|
3,251
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
7,328
|
|
|
$
|
76
|
|
|
$
|
7,091
|
|
|
$
|
72
|
|
During the
three months ended
March 31, 2019
and 2018,
no
interest income was recognized on a cash basis.
The following table presents the aging of the recorded investment in past due loans by class of loans as of
March 31, 2019
and
December 31, 2018
. Nonaccrual loans are included in the disclosure by payment status.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater than
90 Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
396
|
|
|
$
|
430
|
|
|
$
|
29,921
|
|
|
$
|
30,351
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,458
|
|
|
75,458
|
|
Commercial real estate
|
255
|
|
|
—
|
|
|
509
|
|
|
764
|
|
|
504,197
|
|
|
504,961
|
|
Commercial construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,225
|
|
|
11,225
|
|
Residential real estate
|
36
|
|
|
649
|
|
|
—
|
|
|
685
|
|
|
80,530
|
|
|
81,215
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,919
|
|
|
36,919
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
476
|
|
|
476
|
|
Government Guaranteed
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,492
|
|
|
6,492
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
291
|
|
|
$
|
683
|
|
|
$
|
905
|
|
|
$
|
1,879
|
|
|
$
|
745,300
|
|
|
$
|
747,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater than
90 Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
394
|
|
|
$
|
394
|
|
|
$
|
28,396
|
|
|
$
|
28,790
|
|
Other
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
64,959
|
|
|
64,965
|
|
Commercial real estate
|
2,155
|
|
|
—
|
|
|
509
|
|
|
2,664
|
|
|
501,858
|
|
|
504,522
|
|
Commercial construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,787
|
|
|
9,787
|
|
Residential real estate
|
112
|
|
|
42
|
|
|
308
|
|
|
462
|
|
|
82,029
|
|
|
82,491
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,120
|
|
|
36,120
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
454
|
|
|
455
|
|
Government Guaranteed
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,559
|
|
|
6,559
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,274
|
|
|
$
|
42
|
|
|
$
|
1,211
|
|
|
$
|
3,527
|
|
|
$
|
730,260
|
|
|
$
|
733,787
|
|
Troubled Debt Restructurings
In order to determine whether a borrower is experiencing financial difficulty necessitating a restructuring, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Corporation’s internal underwriting policy. A loan is considered to be in payment default once it is contractually 90 days past due.
At
March 31, 2019
and
December 31, 2018
, the Corporation had
$6.2 million
and
$6.3 million
, respectively, of loans whose terms have been modified in troubled debt restructurings. Of these loans,
$5.6 million
and
$5.7 million
had demonstrated a reasonable period of performance in accordance with their new terms at
March 31, 2019
and
December 31, 2018
, respectively and are, therefore, accruing loans. The remaining troubled debt restructurings are reported as nonaccrual loans. Specific reserves of
$636,000
and
$649,000
have been recorded for the troubled debt
restructurings at
March 31, 2019
and
December 31, 2018
, respectively, and are included in the table above. As of
March 31, 2019
and
December 31, 2018
, there were
no
additional funds committed to these borrowers.
There were
no
new loans classified as a troubled debt restructuring during the
three
months ended
March 31, 2019
or
March 31, 2018
.
Credit Quality Indicators
The Corporation categorizes certain loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial, commercial real estate and commercial construction loans. This analysis is performed at the time the loan is originated and annually thereafter. The Corporation uses the following definitions for risk ratings.
Special Mention
– A Special Mention asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or the Bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.
Substandard
– Substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful
– A Doubtful loan has all of the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable or improbable. The likelihood of loss is extremely high, but because of certain important and reasonably specific factors, an estimated loss is deferred until a more exact status can be determined.
Loss
– A loan classified Loss is considered uncollectible and of such little value that its continuance as an asset is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of
March 31, 2019
and
December 31, 2018
, and based on the most recent analysis performed at those times, the risk category of loans by class is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
(In thousands)
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
28,875
|
|
|
$
|
320
|
|
|
$
|
1,156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,351
|
|
Other
|
74,053
|
|
|
120
|
|
|
1,285
|
|
|
—
|
|
|
—
|
|
|
75,458
|
|
Commercial real estate
|
495,866
|
|
|
2,129
|
|
|
6,966
|
|
|
—
|
|
|
—
|
|
|
504,961
|
|
Commercial construction
|
11,225
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,225
|
|
Government Guaranteed Loans - guaranteed portion
|
6,492
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
616,511
|
|
|
$
|
2,569
|
|
|
$
|
9,407
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
628,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Loss
|
|
Total
|
|
(In thousands)
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
26,879
|
|
|
$
|
1,234
|
|
|
$
|
677
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,790
|
|
Other
|
63,438
|
|
|
181
|
|
|
1,346
|
|
|
—
|
|
|
—
|
|
|
64,965
|
|
Commercial real estate
|
490,661
|
|
|
7,086
|
|
|
6,775
|
|
|
—
|
|
|
—
|
|
|
504,522
|
|
Commercial construction
|
9,787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,787
|
|
Government Guaranteed Loans - guaranteed portion
|
6,559
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
597,324
|
|
|
$
|
8,501
|
|
|
$
|
8,798
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
614,623
|
|
The Corporation considers the historical and projected performance of the loan portfolio and its impact on the allowance for loans losses. For the residential real estate and consumer loan segments, the Corporation evaluates credit quality primarily based on payment activity and historical loss data. The following table presents the recorded investment in residential real estate and consumer loans based on payment activity as of
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Current
|
|
30+ Days Past Due or
Nonaccrual
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
Residential real estate
|
$
|
79,972
|
|
|
$
|
1,243
|
|
|
$
|
81,215
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Secured by real estate
|
36,919
|
|
|
—
|
|
|
36,919
|
|
Other
|
476
|
|
|
—
|
|
|
476
|
|
|
|
|
|
|
|
Total
|
$
|
117,367
|
|
|
$
|
1,243
|
|
|
$
|
118,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Current
|
|
30+ Days Past Due or
Nonaccrual
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
Residential real estate
|
$
|
81,761
|
|
|
$
|
730
|
|
|
$
|
82,491
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Secured by real estate
|
36,120
|
|
|
—
|
|
|
36,120
|
|
Other
|
454
|
|
|
1
|
|
|
455
|
|
|
|
|
|
|
|
Total
|
$
|
118,335
|
|
|
$
|
731
|
|
|
$
|
119,066
|
|
Note 4. Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
At March 31, 2019
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government - sponsored agencies
|
$
|
21,469
|
|
|
$
|
—
|
|
|
$
|
21,469
|
|
|
$
|
—
|
|
Obligations of state and political subdivisions
|
3,186
|
|
|
—
|
|
|
3,186
|
|
|
—
|
|
Mortgage-backed securities
|
60,542
|
|
|
—
|
|
|
60,542
|
|
|
—
|
|
Asset-backed securities
|
4,191
|
|
|
—
|
|
|
4,191
|
|
|
—
|
|
Corporate debt
|
13,131
|
|
|
—
|
|
|
13,131
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
$
|
102,519
|
|
|
$
|
—
|
|
|
$
|
102,519
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Other equity investments
|
$
|
1,670
|
|
|
$
|
1,610
|
|
|
$
|
60
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
417
|
|
|
$
|
—
|
|
|
$
|
417
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
At December 31, 2018
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government - sponsored agencies
|
$
|
25,749
|
|
|
$
|
—
|
|
|
$
|
25,749
|
|
|
$
|
—
|
|
Obligations of state and political subdivisions
|
3,121
|
|
|
—
|
|
|
3,121
|
|
|
—
|
|
Mortgage-backed securities
|
62,163
|
|
|
—
|
|
|
62,163
|
|
|
—
|
|
Asset-backed securities
|
4,922
|
|
|
—
|
|
|
4,922
|
|
|
—
|
|
Corporate debt
|
12,856
|
|
|
—
|
|
|
12,856
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
108,811
|
|
|
$
|
—
|
|
|
$
|
108,811
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Other equity investments
|
$
|
1,648
|
|
|
$
|
1,588
|
|
|
$
|
60
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
134
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate swap
|
$
|
246
|
|
|
$
|
—
|
|
|
$
|
246
|
|
|
$
|
—
|
|
There were no transfers of assets between Level 1 and Level 2 during the
three
months ended
March 31, 2019
or during the year ended
December 31, 2018
. There were no changes to the valuation techniques for fair value measurements as of
March 31, 2019
and
December 31, 2018
.
The fair values of investment securities are determined by quoted market prices, if available (Level 1). If quoted prices are not available, fair values of investment securities are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Corporation performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Corporation compares the prices received from the pricing service to a secondary pricing source. The Corporation’s internal price verification procedures have not historically resulted in adjustment in the prices obtained from the pricing service.
Other equity investments primarily represent a Community Reinvestment Act (CRA) mutual fund investment.
The interest rate swaps are reported at fair values obtained from brokers who utilize internal models with observable market data inputs to estimate the values of these instruments (Level 2 inputs).
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
At March 31, 2019
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
Total assets
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying
Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
At December 31, 2018
|
|
(In thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
Secured by real estate
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
301
|
|
Residential real estate
|
308
|
|
|
—
|
|
|
—
|
|
|
308
|
|
Total assets
|
$
|
609
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
609
|
|
Collateral-dependent impaired loans measured for impairment using fair value of the collateral had a recorded investment value of
$154,000
, resulting in an increase in the allowance for loan losses of
$66,000
for the three months ended March 31, 2019.
Collateral-dependent impaired loans measured for impairment using the fair value of the collateral had a recorded investment value of
$692,000
, resulting in an increase of the allowance for loan losses of $
83,000
for the year ended
December 31, 2018
.
There was
no
OREO at
March 31, 2019
or
December 31, 2018
.
The Corporation does not record loans at fair value on a recurring basis. However, from time to time, the Corporation records non-recurring fair value adjustments to collateral dependent loans to reflect impairment. The Corporation measures impairment of collateralized loans based on the estimated fair value of the collateral less estimated costs to sell the collateral, incorporating assumptions that experienced parties might use in estimating the value of such collateral (Level 3 inputs). At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Generally, impaired loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. In the appraisal process, the independent appraisers routinely adjust for differences between
the comparable sales and income data available. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. Methods for valuing non-real estate collateral include using an appraisal, the net book value recorded for the collateral on the borrower’s financial statements, or aging reports. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the borrower and borrower’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Appraisals are generally obtained to support the fair value of collateral. Appraisals for collateral-dependent impaired loans are performed by licensed appraisers whose qualifications and licenses have been reviewed and verified by the Corporation. The Corporation utilizes a third party to order appraisals and, once received, reviews the assumptions and approaches utilized in the appraisal as well as the resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.
Real estate appraisals typically incorporate measures such as recent sales prices for comparable properties. Appraisers may make adjustments to the sales price of the comparable properties as deemed appropriate based on the age, condition or general characteristics of the subject property. Management generally applies a
12%
discount to real estate appraised values to cover disposition / selling costs and to reflect the potential price reductions in the market necessary to complete an expedient sale transaction and to factor in the impact of the perception that a transaction being completed by a bank may result in further price reduction pressure.
For the Level 3 assets measured at fair value on a non-recurring basis, the significant unobservable inputs used in the fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
Fair
|
|
|
|
|
|
Weighted
|
Assets
|
|
Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Average
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
88
|
|
|
Comparable real estate sales and / or the income approach.
|
|
Adjustments for differences between comparable sales and income data available.
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated selling costs.
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Fair
|
|
|
|
|
|
Weighted
|
Assets
|
|
Value
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Average
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
609
|
|
|
Comparable real estate sales and / or the income approach.
|
|
Adjustments for differences between comparable sales and income data available.
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated selling costs.
|
|
7%
|
Fair value estimates for the Corporation’s financial instruments are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying
Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
March 31, 2019
|
|
(In thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
13,157
|
|
|
$
|
13,157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available-for-sale
|
102,519
|
|
|
—
|
|
|
102,519
|
|
|
—
|
|
Securities held-to-maturity
|
61,586
|
|
|
—
|
|
|
61,110
|
|
|
—
|
|
Other equity investments
|
1,670
|
|
|
1,610
|
|
|
60
|
|
|
—
|
|
FHLB-NY stock
|
3,922
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Loans, net
|
738,703
|
|
|
—
|
|
|
—
|
|
|
716,689
|
|
Interest rate swap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
783,616
|
|
|
580,351
|
|
|
202,551
|
|
|
—
|
|
FHLB-NY advances
|
63,900
|
|
|
—
|
|
|
63,977
|
|
|
—
|
|
Subordinated Debentures and Subordinated Notes
|
23,398
|
|
|
—
|
|
|
—
|
|
|
23,480
|
|
Interest rate swap
|
417
|
|
|
—
|
|
|
417
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Carrying Value
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
December 31, 2018
|
|
(In thousands)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
16,823
|
|
|
$
|
16,823
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available-for-sale
|
108,811
|
|
|
—
|
|
|
108,811
|
|
|
—
|
|
Securities held-to-maturity
|
62,308
|
|
|
—
|
|
|
60,997
|
|
|
—
|
|
Other equity investments
|
1,648
|
|
|
1,588
|
|
|
60
|
|
|
—
|
|
FHLB-NY stock
|
3,965
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Loans, net
|
725,404
|
|
|
—
|
|
|
—
|
|
|
704,273
|
|
Interest rate swap
|
134
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
782,091
|
|
|
578,460
|
|
|
201,846
|
|
|
—
|
|
FHLB-NY advances
|
65,700
|
|
|
—
|
|
|
65,477
|
|
|
—
|
|
Subordinated Debentures and Subordinated Notes
|
23,382
|
|
|
—
|
|
|
—
|
|
|
23,441
|
|
Interest rate swap
|
246
|
|
|
—
|
|
|
246
|
|
|
—
|
|
The following methods and assumptions were used to estimate the fair value of financial instruments recorded at fair value on a recurring or non-recurring basis not previously described:
Loans, net –
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential and commercial mortgages, commercial and other installment loans. Fair value for loans is based on an exit price model taking into account inputs such as probability of default and loss given default assumptions.
Commitments to extend credit
– The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. At
March 31, 2019
and
December 31, 2018
, the fair value of such commitments were not material.
Limitations
The preceding fair value estimates were made at
March 31, 2019
and
December 31, 2018
based on pertinent market data and relevant information concerning the financial instruments. These estimates do not include any premiums or discounts that could result from an offer to sell at one time the Corporation's entire holdings of a particular financial instrument or category thereof. Since no market exists for a substantial portion of the Corporation's financial instruments, fair value estimates were necessarily based on judgments with respect to future expected loss experience, current economic conditions, risk assessments of various financial instruments, and other factors. Given the subjective nature of these estimates, the uncertainties surrounding them and the matters of significant judgment that must be applied, these fair value estimates cannot be calculated with precision. Modifications in such assumptions could meaningfully alter these estimates.
Since these fair value estimates were made solely for on- and off-balance sheet financial instruments at
March 31, 2019
and
December 31, 2018
, no attempt was made to estimate the value of anticipated future business. Furthermore, certain tax implications related to the realization of unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into the estimates.
Note 5. Earnings Per Share
The following reconciles the income available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
|
(Dollars in thousands)
|
|
|
|
|
Net income
|
$
|
1,647
|
|
|
$
|
1,808
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
8,687,969
|
|
|
8,658,506
|
|
Effect of dilutive securities - stock options
|
N/A
|
|
|
N/A
|
|
Weighted average common shares outstanding - diluted
|
8,687,969
|
|
|
8,658,506
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.19
|
|
|
$
|
0.21
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.19
|
|
|
$
|
0.21
|
|
There were
no
stock options to purchase shares of common stock for the
three
months ended
March 31, 2019
and
2018
.
Note 6. Accumulated Other Comprehensive Income
The components of other comprehensive income, both gross and net of tax, are presented for the periods below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
Gross
|
|
Tax
Effect
|
|
Net
|
|
Gross
|
|
Tax
Effect
|
|
Net
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains (losses) on securities available-for-sale
|
$
|
1,344
|
|
|
$
|
(382
|
)
|
|
$
|
962
|
|
|
$
|
(1,344
|
)
|
|
$
|
351
|
|
|
$
|
(993
|
)
|
Reclassification adjustment for gains in net income
|
(2
|
)
|
|
1
|
|
|
(1
|
)
|
|
(6
|
)
|
|
2
|
|
|
(4
|
)
|
Accretion of loss on securities reclassified to held-to-maturity
|
3
|
|
|
(1
|
)
|
|
2
|
|
|
12
|
|
|
(3
|
)
|
|
9
|
|
Change in fair value of interest rate swap
|
(308
|
)
|
|
89
|
|
|
(219
|
)
|
|
220
|
|
|
(62
|
)
|
|
158
|
|
Reclassification adjustment for interest rate swap interest expense in net income
|
3
|
|
|
(1
|
)
|
|
2
|
|
|
12
|
|
|
(3
|
)
|
|
9
|
|
Total other comprehensive income (loss)
|
$
|
1,040
|
|
|
$
|
(294
|
)
|
|
$
|
746
|
|
|
$
|
(1,106
|
)
|
|
$
|
285
|
|
|
$
|
(821
|
)
|
The following tables present the after-tax changes in the balances of each component of accumulated other comprehensive income (loss) for the
three
months ended
March 31, 2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Components of Accumulated
Other Comprehensive Income (Loss)
|
|
Total
|
|
Unrealized Gains / (Losses) on
Available-for-Sale
Securities
|
|
Loss on Securities
Reclassified from
Available-for-Sale
to Held-to-Maturity
|
|
Unrealized
Gains / (Losses) on
Derivatives
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
$
|
(1,821
|
)
|
|
$
|
(38
|
)
|
|
$
|
(77
|
)
|
|
$
|
(1,936
|
)
|
Other comprehensive income (loss) before reclassifications
|
962
|
|
|
2
|
|
|
(219
|
)
|
|
745
|
|
Amounts reclassified from other comprehensive income (loss)
|
(1
|
)
|
|
—
|
|
|
2
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
961
|
|
|
2
|
|
|
(217
|
)
|
|
746
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
$
|
(860
|
)
|
|
$
|
(36
|
)
|
|
$
|
(294
|
)
|
|
$
|
(1,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Components of Accumulated
Other Comprehensive Income (Loss)
|
|
Total
|
|
Unrealized Gains / (Losses) on
Available-for-Sale
Securities
|
|
Loss on Securities
Reclassified from
Available-for-Sale
to Held-to-Maturity
|
|
Unrealized
Gains / (Losses) on
Derivatives
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
$
|
(1,303
|
)
|
|
$
|
(60
|
)
|
|
$
|
(21
|
)
|
|
$
|
(1,384
|
)
|
Other comprehensive income (loss) before reclassifications
|
(993
|
)
|
|
9
|
|
|
158
|
|
|
(826
|
)
|
Amounts reclassified from other comprehensive income (loss)
|
(4
|
)
|
|
—
|
|
|
9
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
(997
|
)
|
|
9
|
|
|
167
|
|
|
(821
|
)
|
|
|
|
|
|
|
|
|
Reclassification due to the adoption of ASU No. 2016-01
|
163
|
|
|
—
|
|
|
—
|
|
|
163
|
|
Balance at March 31, 2018
|
$
|
(2,137
|
)
|
|
$
|
(51
|
)
|
|
$
|
146
|
|
|
$
|
(2,042
|
)
|
The following tables present amounts reclassified from each component of accumulated other comprehensive income on a gross and net of tax basis for the
three
months ended
March 31, 2019
and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Income
|
Components of Accumulated Other
|
|
March 31,
|
|
Statement
|
Comprehensive Income (Loss)
|
|
2019
|
|
2018
|
|
Line Item
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities available-for-sale, before tax
|
|
$
|
2
|
|
|
$
|
6
|
|
|
Gains on securities transactions, net
|
Tax effect
|
|
(1
|
)
|
|
(2
|
)
|
|
|
Total, net of tax
|
|
1
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on derivatives before tax
|
|
(3
|
)
|
|
(12
|
)
|
|
Interest expense on derivatives
|
Tax effect
|
|
1
|
|
|
3
|
|
|
|
Total, net of tax
|
|
(2
|
)
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Total reclassifications, net of tax
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
|
Note 7. Leases
The Corporation leases
eight
branch offices. In addition, the Corporation has
12
leases for equipment, which are primarily copiers, and
one
automobile lease.
Four
of the branch office leases have options to renew. The exercise of lease renewal options is at our sole discretion; therefore, are not included in the right of use (ROU) asset nor the Lease Liability as they are not reasonably certain of exercise. As a practical expedient, the ROU asset and Lease Liability exclude short-term leases.
As the leases do not provide an implicit rate, use of an incremental borrowing rate was based on the information available at the lease commencement date in determining the present value of the lease payments. The Corporation’s weighted average incremental borrowing rate used in the calculation of the ROU asset and Lease Liability was estimated at
3
%.
The following table presents a maturity analysis of the operating lease liability at
March 31, 2019
, in thousands:
|
|
|
|
|
|
Maturities of
Lease Liabilities
|
|
(In thousands)
|
|
|
Nine months ended December 31, 2019
|
$
|
529
|
|
Year ended December 31, 2020
|
646
|
|
Year ended December 31, 2021
|
489
|
|
Year ended December 31, 2022
|
474
|
|
Thereafter
|
1,079
|
|
Lease Liability March 31, 2019
|
$
|
3,217
|
|
The weighted-average remaining lease term is
5.5 years
.
Total lease costs for the three months ended March 31, 2019 was
$240,000
consisting of
$199,000
related to fixed rent expense,
$32,000
related to variable rent expense and
$19,000
related to short-term leases offset by
$9,000
of sublease income. Variable lease expense consists primarily of expense paid to maintain common areas. Lease costs included in Occupancy expense totaled
$213,000
and another
$27,000
was included in Equipment expense.
Rent paid under operating leases was
$193,000
for the three months ended
March 31, 2019
.
The following table presents future minimum rental payments as of
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
Expires
March 31,
|
|
Minimum
Rent
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
2020
|
|
|
$
|
773
|
|
|
|
2021
|
|
|
639
|
|
|
|
2022
|
|
|
527
|
|
|
|
2023
|
|
|
470
|
|
|
|
2024
|
|
|
383
|
|
|
|
Thereafter
|
|
|
584
|
|
|
|
|
|
$
|
3,376
|
|
|