|
|
Three Months Ended June 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Amount Reclassified
|
|
|
Amount Reclassified
|
|
|
|
|
|
from Accumulated
|
|
|
from Accumulated
|
|
|
Affected Line Item in
|
|
|
Other
|
|
|
Other
|
|
|
the Statement Where
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Net Income is
|
Details about other comprehensive income
|
|
Income (a)
|
|
|
Income (a)
|
|
|
Presented
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70
|
|
|
$
|
161
|
|
|
Gain on sale of securities available for sale
|
|
|
|
(24
|
)
|
|
|
(55
|
)
|
|
Income taxes
|
|
|
$
|
46
|
|
|
$
|
106
|
|
|
Net of tax
|
(a) Amounts in parentheses indicate debits to net income
|
|
Nine Months Ended June 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
Amount Reclassified
|
|
|
Amount Reclassified
|
|
|
|
|
|
from Accumulated
|
|
|
from Accumulated
|
|
|
Affected Line Item in
|
|
|
Other
|
|
|
Other
|
|
|
the Statement Where
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Net Income is
|
Details about other comprehensive income
|
|
Income (a)
|
|
|
Income (a)
|
|
|
Presented
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70
|
|
|
$
|
161
|
|
|
Gain on sale of securities available for sale
|
|
|
|
(24
|
)
|
|
|
(55
|
)
|
|
Income taxes
|
|
|
$
|
46
|
|
|
$
|
106
|
|
|
Net of tax
|
(a) Amounts in parentheses indicate debits to net income
|
4.
|
INVESTMENT AND MORTGAGE-BACKED SECURITIES
|
The amortized cost and fair value of investment and
mortgage-backed securities, with gross unrealized gains and losses, are as follows:
|
|
June 30, 2017
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
20,989
|
|
|
$
|
-
|
|
|
$
|
(369
|
)
|
|
$
|
20,620
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
126,912
|
|
|
|
152
|
|
|
|
(1,349
|
)
|
|
|
125,715
|
|
Corporate bonds
|
|
|
37,073
|
|
|
|
271
|
|
|
|
(299
|
)
|
|
|
37,045
|
|
Total debt securities available for sale
|
|
|
184,974
|
|
|
|
423
|
|
|
|
(2,017
|
)
|
|
|
183,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC preferred stock
|
|
|
6
|
|
|
|
53
|
|
|
|
-
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
184,980
|
|
|
$
|
476
|
|
|
$
|
(2,017
|
)
|
|
$
|
183,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
33,500
|
|
|
$
|
236
|
|
|
$
|
(1,735
|
)
|
|
$
|
32,001
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
7,387
|
|
|
|
347
|
|
|
|
(29
|
)
|
|
|
7,705
|
|
Municipal bonds
|
|
|
18,767
|
|
|
|
184
|
|
|
|
(87
|
)
|
|
|
18,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
59,654
|
|
|
$
|
767
|
|
|
$
|
(1,851
|
)
|
|
$
|
58,570
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
20,988
|
|
|
$
|
36
|
|
|
$
|
-
|
|
|
$
|
21,024
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
90,817
|
|
|
|
860
|
|
|
|
(102
|
)
|
|
|
91,575
|
|
Corporate bonds
|
|
|
25,411
|
|
|
|
661
|
|
|
|
(19
|
)
|
|
|
26,053
|
|
Total debt securities available for sale
|
|
|
137,216
|
|
|
|
1,557
|
|
|
|
(121
|
)
|
|
|
138,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC preferred stock
|
|
|
6
|
|
|
|
36
|
|
|
|
-
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
137,222
|
|
|
$
|
1,593
|
|
|
$
|
(121
|
)
|
|
$
|
138,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
33,499
|
|
|
$
|
399
|
|
|
$
|
(129
|
)
|
|
$
|
33,769
|
|
Mortgage-backed securities - U.S. government
agencies
|
|
|
6,472
|
|
|
|
459
|
|
|
|
-
|
|
|
|
6,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
39,971
|
|
|
$
|
858
|
|
|
$
|
(129
|
)
|
|
$
|
40,700
|
|
The following table shows the gross unrealized losses
and related fair values of the Company’s investments and mortgage-backed securities, aggregated by investment category and
length of time that individual securities had been in a continuous loss position at June 30, 2017:
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(369
|
)
|
|
$
|
20,620
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(369
|
)
|
|
$
|
20,620
|
|
Mortgage-backed securities - agency
|
|
|
(1,129
|
)
|
|
|
81,547
|
|
|
|
(220
|
)
|
|
|
11,013
|
|
|
|
(1,349
|
)
|
|
|
92,560
|
|
Corporate bonds
|
|
|
(299
|
)
|
|
|
15,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(299
|
)
|
|
|
15,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(1,797
|
)
|
|
$
|
118,154
|
|
|
$
|
(220
|
)
|
|
$
|
11,013
|
|
|
$
|
(2,017
|
)
|
|
$
|
129,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(1,735
|
)
|
|
$
|
28,765
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,735
|
)
|
|
$
|
28,765
|
|
Mortgage-backed securities - agency
|
|
|
(29
|
)
|
|
|
1,216
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(29
|
)
|
|
|
1,216
|
|
Municipal bonds
|
|
|
(87
|
)
|
|
|
5,836
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
5,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
(1,851
|
)
|
|
$
|
35,817
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,851
|
)
|
|
$
|
35,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,648
|
)
|
|
$
|
153,971
|
|
|
$
|
(220
|
)
|
|
$
|
11,013
|
|
|
$
|
(3,868
|
)
|
|
$
|
164,984
|
|
The following table shows the gross unrealized losses
and related fair values of the Company’s investment securities, aggregated by investment category and length of time that
individual securities had been in a continuous loss position at September 30, 2016:
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - agency
|
|
$
|
(50
|
)
|
|
$
|
16,498
|
|
|
$
|
(52
|
)
|
|
$
|
6,718
|
|
|
$
|
(102
|
)
|
|
$
|
23,216
|
|
Corporate bonds
|
|
|
(19
|
)
|
|
|
3,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
3,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(69
|
)
|
|
$
|
20,453
|
|
|
$
|
(52
|
)
|
|
$
|
6,718
|
|
|
$
|
(121
|
)
|
|
$
|
27,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(129
|
)
|
|
$
|
20,371
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(129
|
)
|
|
$
|
20,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
(129
|
)
|
|
$
|
20,371
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(129
|
)
|
|
$
|
20,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(198
|
)
|
|
$
|
40,824
|
|
|
$
|
(52
|
)
|
|
$
|
6,718
|
|
|
$
|
(250
|
)
|
|
$
|
47,542
|
|
Management evaluates securities
for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market
concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors,
the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other
facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation
of the type of security, the length of time and extent to which the fair value of the security has been less than its cost, and
the near-term prospects of the issuer.
The Company assesses whether a
credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2)
it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect
to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where
impairment in value was deemed to be other than temporary between the component representing credit loss and the component representing
loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a
charge to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected,
discounted at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security. The Company
uses the cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity
of defaults, estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a
discount rate equal to the effective yield of the security. The difference between the present value of the expected cash
flows and the amortized book value is considered a credit loss. The fair value of the security is determined using the same
expected cash flows; the discount rate is a rate the Company determines from open market and other sources as appropriate for
the particular security. The difference between the fair value and the security’s remaining amortized cost is recognized
in other comprehensive income (loss).
For both the three and nine months ended June 30, 2017
and 2016, the Company did not record any credit losses on investment securities through earnings.
U.S. Government and Agency
Obligations -
At June 30, 2017, there were 14 securities in a gross unrealized loss position for less than 12 months. These
securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full
faith and credit of the United States through a government agency and are currently rated AAA by at least one bond credit rating
agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017.
Mortgage-Backed Securities
–
At June 30, 2017, there were 35 mortgage-backed securities in a gross unrealized loss position for less than 12 months,
while there were nine securities in a gross unrealized loss position for more than 12 months at such date. These securities represent
asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of
the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result,
the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2017.
Corporate Bonds
–
At June 30, 2017, there were 15 securities in a gross unrealized loss for less than 12 months. These securities are backed by
publicly traded companies and have an investment grade rating by one or more of the three following rating agencies (S&P,
Moody’s or Fitch). As a result, the Company does not consider these investments to be other-than-temporarily impaired at
June 30, 2017.
Municipal Bonds
–
At June 30, 2017, there were nine securities in a gross unrealized loss for less than 12 months. These securities are backed by
local municipalities/school districts located in the Commonwealth of Pennsylvania and have an investment grade rating from one
or more of the three following rating agencies (S&P, Moody’s or Fitch). As a result, the Company does not consider these
investments to be other-than-temporarily impaired at June 30, 2017.
The amortized cost and fair value
of debt securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The maturity table below excludes
mortgage-backed securities because the contractual maturities of such securities are not indicative of actual maturities due to
significant prepayments.
|
|
June 30, 2017
|
|
|
|
Held to Maturity
|
|
|
Available for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Due after one through five years
|
|
$
|
2,867
|
|
|
$
|
2,794
|
|
|
$
|
4,048
|
|
|
$
|
4,066
|
|
Due after five through ten years
|
|
|
20,583
|
|
|
|
20,661
|
|
|
|
18,748
|
|
|
|
18,872
|
|
Due after ten years
|
|
|
28,817
|
|
|
|
27,410
|
|
|
|
35,266
|
|
|
|
34,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,267
|
|
|
$
|
50,865
|
|
|
$
|
58,062
|
|
|
$
|
57,665
|
|
During both the three and
nine month periods ended June 30, 2017, the Company sold two mortgage-back securities with an aggregate amortized cost of
$5.1 million at an recognized aggregate gain of $18,000 (pre-tax) and a corporate bond with an amortized cost of $5.2 million
for a $52,000 (pre-tax) gain. During both three and nine month periods ended June 30, 2016, the Company sold five
mortgage-back securities with an aggregate amortized cost of $11.0 million at a recognized aggregate gain of $153,000
(pre-tax). Also, during the same periods the Company had an aggregate of $11.0 million of agency securities called at the
stated par value which was higher than the aggregated amortized cost and recorded a gain of $8,000.
During the both three and nine month periods ended
June 30, 2017 and 2016, the Company did not pledge any investment securities as collateral for any of its FHLB advances.
Loans receivable consist of the following:
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
354,338
|
|
|
$
|
233,531
|
|
Multi-family residential
|
|
|
16,913
|
|
|
|
12,478
|
|
Commercial real estate
|
|
|
129,846
|
|
|
|
79,859
|
|
Construction and land development
|
|
|
93,671
|
|
|
|
21,839
|
|
Commercial business
|
|
|
490
|
|
|
|
99
|
|
Leases
|
|
|
4,922
|
|
|
|
3,286
|
|
Consumer
|
|
|
1,995
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
602,175
|
|
|
|
351,891
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portion of loans-in-process
|
|
|
(50,792
|
)
|
|
|
(5,371
|
)
|
Deferred loan fees and (costs)
|
|
|
(2,903
|
)
|
|
|
1,697
|
|
Allowance for loan losses
|
|
|
(4,058
|
)
|
|
|
(3,269
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
544,422
|
|
|
$
|
344,948
|
|
The following table summarizes by loan segment the
balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment
at June 30, 2017:
|
|
One- to-four
family
residential
|
|
|
Multi-family
residential
|
|
|
Commercial
real
estate
|
|
|
Construction
and land
development
|
|
|
Commercial
Business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
evaluated for impairment
|
|
|
1,242
|
|
|
|
158
|
|
|
|
1,224
|
|
|
|
1,011
|
|
|
|
4
|
|
|
|
27
|
|
|
|
24
|
|
|
|
368
|
|
|
|
4,058
|
|
Total ending allowance balance
|
|
$
|
1,242
|
|
|
$
|
158
|
|
|
$
|
1,224
|
|
|
$
|
1,011
|
|
|
$
|
4
|
|
|
$
|
27
|
|
|
$
|
24
|
|
|
$
|
368
|
|
|
$
|
4,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
6,679
|
|
|
$
|
323
|
|
|
$
|
2,377
|
|
|
$
|
8,713
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
18,092
|
|
Collectively evaluated for
impairment
|
|
|
347,659
|
|
|
|
16,590
|
|
|
|
127,469
|
|
|
|
84,958
|
|
|
|
490
|
|
|
|
4,922
|
|
|
|
1,995
|
|
|
|
|
|
|
|
584,083
|
|
Total loans
|
|
$
|
354,338
|
|
|
$
|
16,913
|
|
|
$
|
129,846
|
|
|
$
|
93,671
|
|
|
$
|
490
|
|
|
$
|
4,922
|
|
|
$
|
1,995
|
|
|
|
|
|
|
$
|
602,175
|
|
The following table summarizes by loan segment the
balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment
at September 30, 2016:
|
|
One- to-four
family
residential
|
|
|
Multi-family
residential
|
|
|
Commercial
real
estate
|
|
|
Construction
and land
development
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
evaluated for impairment
|
|
|
1,627
|
|
|
|
137
|
|
|
|
859
|
|
|
|
316
|
|
|
|
1
|
|
|
|
21
|
|
|
|
10
|
|
|
|
298
|
|
|
|
3,269
|
|
Total ending allowance
balance
|
|
$
|
1,627
|
|
|
$
|
137
|
|
|
$
|
859
|
|
|
$
|
316
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
$
|
10
|
|
|
$
|
298
|
|
|
$
|
3,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
5,553
|
|
|
$
|
335
|
|
|
$
|
3,154
|
|
|
$
|
10,288
|
|
|
$
|
99
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
19,429
|
|
Collectively evaluated
for impairment
|
|
|
227,978
|
|
|
|
12,143
|
|
|
|
76,705
|
|
|
|
11,551
|
|
|
|
-
|
|
|
|
3,286
|
|
|
|
799
|
|
|
|
|
|
|
|
332,462
|
|
Total loans
|
|
$
|
233,531
|
|
|
$
|
12,478
|
|
|
$
|
79,859
|
|
|
$
|
21,839
|
|
|
$
|
99
|
|
|
$
|
3,286
|
|
|
$
|
799
|
|
|
|
|
|
|
$
|
351,891
|
|
The loan portfolio is segmented
at a level that allows management to monitor both risk and performance. Management evaluates for potential impairment all construction,
multi-family, commercial real estate and commercial business loans, all loans and leases more than 90 days delinquent as to principal
and/or interest. Loans are considered to be impaired when, based on current information and events, it is probable that the Company
will be unable to collect in full the scheduled payments of principal or interest when due according to the contractual terms
of the loan agreement.
Once the determination is made that a loan is impaired,
the determination of whether a specific allocation of the allowance is necessary is generally measured by comparing the recorded
investment in the loan to the fair value of the loan using one of the following three methods: (a) the present value of the expected
future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c)
the fair value of the collateral less selling costs. Management primarily utilizes the fair value of collateral method as a practically
expedient alternative. On collateral method evaluations, any portion of the loan deemed uncollectible is charged-off against the
loan loss allowance.
The following table presents impaired loans by class
as of June 30, 2017, segregated by those for which a specific allowance was required and those for which a specific allowance
was not required.
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,679
|
|
|
$
|
6,679
|
|
|
$
|
6,908
|
|
Multi-family residential
|
|
|
-
|
|
|
|
-
|
|
|
|
323
|
|
|
|
323
|
|
|
|
323
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
2,377
|
|
|
|
2,377
|
|
|
|
2,377
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
8,713
|
|
|
|
8,713
|
|
|
|
10,532
|
|
Total impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,092
|
|
|
$
|
18,092
|
|
|
$
|
20,140
|
|
The following table presents impaired loans by class
as of September 30, 2016, segregated by those for which a specific allowance was required and those for which a specific allowance
was not required.
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,553
|
|
|
$
|
5,553
|
|
|
$
|
5,869
|
|
Multi-family residential
|
|
|
-
|
|
|
|
-
|
|
|
|
335
|
|
|
|
335
|
|
|
|
335
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
3,154
|
|
|
|
3,154
|
|
|
|
3,154
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
10,288
|
|
|
|
10,288
|
|
|
|
10,288
|
|
Commercial loans
|
|
|
-
|
|
|
|
-
|
|
|
|
99
|
|
|
|
99
|
|
|
|
99
|
|
Total impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,429
|
|
|
$
|
19,429
|
|
|
$
|
19,745
|
|
The following tables present the average recorded investment
in impaired loans and related interest income recognized for the periods indicated:
|
|
Three Months Ended June 30, 2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
5,965
|
|
|
$
|
12
|
|
|
$
|
34
|
|
Multi-family residential
|
|
|
326
|
|
|
|
6
|
|
|
|
-
|
|
Commercial real estate
|
|
|
2,801
|
|
|
|
6
|
|
|
|
-
|
|
Construction and land development
|
|
|
9,607
|
|
|
|
-
|
|
|
|
-
|
|
Total impaired loans
|
|
$
|
18,699
|
|
|
$
|
24
|
|
|
$
|
34
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
5,052
|
|
|
$
|
14
|
|
|
$
|
30
|
|
Multi-family residential
|
|
|
341
|
|
|
|
6
|
|
|
|
-
|
|
Commercial real estate
|
|
|
3,595
|
|
|
|
35
|
|
|
|
-
|
|
Construction and land development
|
|
|
9,808
|
|
|
|
-
|
|
|
|
-
|
|
Total impaired loans
|
|
$
|
18,796
|
|
|
$
|
55
|
|
|
$
|
30
|
|
|
|
Nine Months Ended June 30, 2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
5,280
|
|
|
$
|
59
|
|
|
$
|
91
|
|
Multi-family residential
|
|
|
329
|
|
|
|
17
|
|
|
|
-
|
|
Commercial real estate
|
|
|
2,938
|
|
|
|
41
|
|
|
|
12
|
|
Construction and land development
|
|
|
10,399
|
|
|
|
-
|
|
|
|
-
|
|
Total impaired loans
|
|
$
|
18,946
|
|
|
$
|
117
|
|
|
$
|
103
|
|
|
|
Nine Months Ended June 30, 2016
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
4,978
|
|
|
$
|
89
|
|
|
$
|
78
|
|
Multi-family residential
|
|
|
346
|
|
|
|
18
|
|
|
|
-
|
|
Commercial real estate
|
|
|
3,667
|
|
|
|
74
|
|
|
|
12
|
|
Construction and land development
|
|
|
9,432
|
|
|
|
-
|
|
|
|
62
|
|
Total impaired loans
|
|
$
|
18,423
|
|
|
$
|
181
|
|
|
$
|
152
|
|
Federal regulations and our loan policy require
that the Company utilize an internal asset classification system as a means of reporting problem and potential problem assets.
The Company has incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of
its credit monitoring system. Management currently classifies problem and potential problem assets as “special mention”,
“substandard,” “doubtful” or “loss” assets. An asset is considered “substandard”
if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.
“Substandard” assets include those characterized by the “distinct possibility” that the insured institution
will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all
of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present
make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly
questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and
of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to warrant classification in one of the three aforementioned
categories but possess weaknesses are required to be designated “special mention.”
The following tables present the classes of
the loan portfolio in which a formal risk rating system is utilized summarized by the aggregate “Pass” and the criticized
category of “special mention”, and the classified categories of “substandard”, “doubtful”
and “loss” within the Company’s risk rating system as applied to the loan portfolio. The Company had no loans
classified as “doubtful” or “loss” at either of the dates presented.
|
|
June 30, 2017
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Total
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
1,645
|
|
|
$
|
1,951
|
|
|
$
|
3,596
|
|
Multi-family residential
|
|
|
16,590
|
|
|
|
-
|
|
|
|
323
|
|
|
|
16,913
|
|
Commercial real estate
|
|
|
126,656
|
|
|
|
1,458
|
|
|
|
1,732
|
|
|
|
129,846
|
|
Construction and land development
|
|
|
84,958
|
|
|
|
-
|
|
|
|
8,713
|
|
|
|
93,671
|
|
Commercial business
|
|
|
490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
490
|
|
Total loans
|
|
$
|
228,694
|
|
|
$
|
3,103
|
|
|
$
|
12,719
|
|
|
$
|
244,516
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Total
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
1,681
|
|
|
$
|
1,212
|
|
|
$
|
2,893
|
|
Multi-family residential
|
|
|
12,144
|
|
|
|
-
|
|
|
|
334
|
|
|
|
12,478
|
|
Commercial real estate
|
|
|
76,185
|
|
|
|
943
|
|
|
|
2,731
|
|
|
|
79,859
|
|
Construction and land development
|
|
|
11,551
|
|
|
|
-
|
|
|
|
10,288
|
|
|
|
21,839
|
|
Commercial business
|
|
|
99
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99
|
|
Total loans
|
|
$
|
99,979
|
|
|
$
|
2,624
|
|
|
$
|
14,565
|
|
|
$
|
117,168
|
|
The Company evaluates the classification of one-to-four
family residential, leases and consumer loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed
conditions exist that may affect a particular single-family residential or consumer loan, the loan is downgraded following the
above definitions of special mention, substandard, doubtful and loss.
The following tables represent loans in which a formal
risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency
status. Non-performing loans that would be included in the tables are those loans greater than 90 days past due as to principal
and/or interest that do not have a designated risk rating.
|
|
June 30, 2017
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Performing
|
|
|
Performing
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
344,967
|
|
|
$
|
5,775
|
|
|
$
|
350,742
|
|
Leases
|
|
|
4,922
|
|
|
|
-
|
|
|
|
4,922
|
|
Consumer
|
|
|
1,995
|
|
|
|
-
|
|
|
|
1,995
|
|
Total residential and consumer loans
|
|
$
|
351,884
|
|
|
$
|
5,775
|
|
|
$
|
357,659
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Performing
|
|
|
Performing
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
226,394
|
|
|
$
|
4,244
|
|
|
$
|
230,638
|
|
Leases
|
|
|
3,286
|
|
|
|
-
|
|
|
|
3,286
|
|
Consumer
|
|
|
799
|
|
|
|
-
|
|
|
|
799
|
|
Total residential and consumer loans
|
|
$
|
230,479
|
|
|
$
|
4,244
|
|
|
$
|
234,723
|
|
Management further monitors the performance
and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded
payment is due or overdue, as the case may be. The following table presents the loan categories of the loan portfolio summarized
by the aging categories of performing and delinquent loans and nonaccrual loans:
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days+
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 Days +
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Total
|
|
|
Non-
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
and Accruing
|
|
|
and Accruing
|
|
|
Loans
|
|
|
Accrual
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
349,359
|
|
|
$
|
1,910
|
|
|
$
|
3,069
|
|
|
$
|
-
|
|
|
$
|
1,910
|
|
|
$
|
354,338
|
|
|
$
|
5,775
|
|
Multi-family residential
|
|
|
16,913
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,913
|
|
|
|
|
|
Commercial real estate
|
|
|
128,035
|
|
|
|
465
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
465
|
|
|
|
129,846
|
|
|
|
1,603
|
|
Construction and land development
|
|
|
84,958
|
|
|
|
-
|
|
|
|
8,714
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,671
|
|
|
|
8,714
|
|
Commercial business
|
|
|
490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
490
|
|
|
|
-
|
|
Leases
|
|
|
4,922
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,922
|
|
|
|
-
|
|
Consumer
|
|
|
1,936
|
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
|
|
1,995
|
|
|
|
-
|
|
Total loans
|
|
$
|
586,613
|
|
|
$
|
2,434
|
|
|
$
|
13,129
|
|
|
$
|
-
|
|
|
$
|
2,434
|
|
|
$
|
602,175
|
|
|
$
|
16,092
|
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days+
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 Days +
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Total
|
|
|
Non-
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
and Accruing
|
|
|
and Accruing
|
|
|
Loans
|
|
|
Accrual
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
228,904
|
|
|
$
|
1,860
|
|
|
$
|
2,767
|
|
|
$
|
-
|
|
|
$
|
1,860
|
|
|
$
|
233,531
|
|
|
$
|
4,244
|
|
Multi-family residential
|
|
|
12,478
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,478
|
|
|
|
-
|
|
Commercial real estate
|
|
|
78,513
|
|
|
|
-
|
|
|
|
1,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,859
|
|
|
|
1,346
|
|
Construction and land development
|
|
|
11,551
|
|
|
|
-
|
|
|
|
10,288
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,839
|
|
|
|
10,288
|
|
Commercial business
|
|
|
99
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99
|
|
|
|
-
|
|
Leases
|
|
|
3,286
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,286
|
|
|
|
-
|
|
Consumer
|
|
|
799
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
799
|
|
|
|
-
|
|
Total loans
|
|
$
|
335,630
|
|
|
$
|
1,860
|
|
|
$
|
14,401
|
|
|
$
|
-
|
|
|
$
|
1,860
|
|
|
$
|
351,891
|
|
|
$
|
15,878
|
|
The allowance for loan losses
is established through a provision for loan losses charged to expense. The Company maintains the allowance at a level believed
to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date.
Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent losses and to assess
the overall collection probability for the loan portfolio in view of these inherent losses. For each primary type of loan, a loss
factor is established reflecting an estimate of the known and inherent losses in such loan type contained in the portfolio using
both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes, among other things,
an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience,
total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the Company’s loans,
the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance, the number of loans
requiring heightened management oversight, local economic conditions and industry experience.
Commercial real estate loans entail
significant additional credit risks compared to owner-occupied one-to-four family residential mortgage loans, as they generally
involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience
on loans secured by income-producing properties typically depends on the successful operation of the related real estate project
and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be subject to a greater
extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans
typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent
on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development
and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment of land acquisition,
development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing
upon completion of all improvements. These events may adversely affect the sale of the properties, potentially reducing both the
borrower’s ability to make required payments as well as reducing the value of the collateral properties. Such lending is
additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company potentially will
be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of value proves to be
inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount. If the Company
is forced to foreclose on a project prior to completion, there is no assurance that the Company would be able to recover the entire
unpaid portion of the loan.
The following tables summarize
the primary segments of the allowance for loan losses. Activity in the allowance is presented for the both three and nine month
periods ended June 30, 2017 and 2016:
|
|
Three Months
Ended June 30, 2017
|
|
|
|
One- to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Commercial
Business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at March 31, 2017
|
|
$
|
1,350
|
|
|
$
|
122
|
|
|
$
|
862
|
|
|
$
|
1,035
|
|
|
$
|
-
|
|
|
$
|
28
|
|
|
$
|
135
|
|
|
$
|
364
|
|
|
$
|
3,896
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
132
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132
|
|
Provision
|
|
|
(241
|
)
|
|
|
36
|
|
|
|
362
|
|
|
|
(24
|
)
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(111
|
)
|
|
|
5
|
|
|
|
30
|
|
ALLL balance at June 30, 2017
|
|
$
|
1,241
|
|
|
$
|
158
|
|
|
$
|
1,224
|
|
|
$
|
1,011
|
|
|
$
|
4
|
|
|
$
|
27
|
|
|
$
|
24
|
|
|
$
|
369
|
|
|
$
|
4,058
|
|
|
|
Nine Months
Ended June 30, 2017
|
|
|
|
One- to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at September 30, 2016
|
|
$
|
1,627
|
|
|
$
|
137
|
|
|
$
|
859
|
|
|
$
|
316
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
$
|
10
|
|
|
$
|
298
|
|
|
$
|
3,269
|
|
Charge-offs
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,819
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(1,948
|
)
|
Recoveries
|
|
|
157
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
Provision
|
|
|
(430
|
)
|
|
|
21
|
|
|
|
365
|
|
|
|
2,514
|
|
|
|
3
|
|
|
|
6
|
|
|
|
30
|
|
|
|
71
|
|
|
|
2,580
|
|
ALLL balance at June 30, 2017
|
|
$
|
1,241
|
|
|
$
|
158
|
|
|
$
|
1,224
|
|
|
$
|
1,011
|
|
|
$
|
4
|
|
|
$
|
27
|
|
|
$
|
24
|
|
|
$
|
369
|
|
|
$
|
4,058
|
|
|
|
Three Months Ended June 30, 2016
|
|
|
|
One- to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at March 31, 2016
|
|
$
|
1,511
|
|
|
$
|
43
|
|
|
$
|
428
|
|
|
$
|
773
|
|
|
$
|
7
|
|
|
$
|
276
|
|
|
$
|
3,038
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recoveries
|
|
|
81
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81
|
|
Provision
|
|
|
(147
|
)
|
|
|
19
|
|
|
|
236
|
|
|
|
4
|
|
|
|
2
|
|
|
|
36
|
|
|
|
150
|
|
ALLL balance at June 30, 2016
|
|
$
|
1,445
|
|
|
$
|
62
|
|
|
$
|
664
|
|
|
$
|
777
|
|
|
$
|
9
|
|
|
$
|
312
|
|
|
$
|
3,269
|
|
|
|
Nine Months
Ended June 30, 2016
|
|
|
|
One- to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at September 30, 2015
|
|
$
|
1,635
|
|
|
$
|
66
|
|
|
$
|
231
|
|
|
$
|
724
|
|
|
$
|
5
|
|
|
$
|
269
|
|
|
$
|
2,930
|
|
Charge-offs
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
Recoveries
|
|
|
93
|
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125
|
|
Provision
|
|
|
(272
|
)
|
|
|
(4
|
)
|
|
|
401
|
|
|
|
53
|
|
|
|
4
|
|
|
|
43
|
|
|
|
225
|
|
ALLL balance at June 30, 2016
|
|
$
|
1,445
|
|
|
$
|
62
|
|
|
$
|
664
|
|
|
$
|
777
|
|
|
$
|
9
|
|
|
$
|
312
|
|
|
$
|
3,269
|
|
The Company recorded
a provision for loan losses in the amount of $30,000 and $2.6 million, respectively, for the three and nine months ended
June 30, 2017. The level of the provision for loan losses for the nine months ended June 30, 2017 was primarily due to a
$1.9 million charge-off related to a borrower (discussed below) whose primary project financed currently by the Bank
involves the proposed development of 169 residential lots. The Bank and the borrower are in litigation and no resolution of
the situation has been arrived at as of June 30, 2017 hereof in part due to the bankruptcy filing by the borrower effected
in June 2017. In light of the status of both the litigation as well as the progress of construction of the project, the
Company recorded a $1.9 million non-cash charge-off during the quarter ended March 31, 2017. The remaining portion of the
provision recorded during the nine-months ended June 30, 2017 was related to an increase in the outstanding balance of loans.
For both the three and nine month period ended June 30, 2017, the provision allocation was effected due to the increased
balance of commercial real estate loans which generally have a slightly higher level of inherent risk, compared to
single-family residential loans. The loans acquired from Polonia Bancorp initially did not have any impact on the allowance
for loan losses, because they were acquired at their fair value. Any write-downs to fair value were reflected in the one-time
merger-related charge. In the event that the credit quality of any loans acquired from Polonia Bancorp credit should
deteriorate in the future, additional provisions may be required.
At June 30, 2017, the Company had nine loans
aggregating $6.1 million that were classified as troubled debt restructurings (“TDRs”). Three of such loans aggregating
$4.9 million were designated non-performing as of June 30, 2017; one of such loans in the amount of $1.4 million has continued
to make payments in accordance with the restructured terms, but management continues to have concerns over the borrower’s
ability to make future payments and as a result has determined to not return the loan to performing status. The remaining two
TDRs classified non-accrual totaling $3.5 million are a part of one of the Bank’s largest borrowing relationships totaling
$8.9 million (after taking into account the $1.9 million write-down recognized during the quarter ending March 31, 2017). The
primary project of the borrower is the subject of litigation between the Bank and the borrower and as a result, the project is
currently not proceeding. The borrower has recently filed for bankruptcy under Chapter 11. The Company has removed the underlying
litigation noted above between the borrower from state court to the federal bankruptcy court. The remaining six TDRs have performed
in accordance with the terms of their revised agreements and have been placed on accruing status. As of June 30, 2017, the Company
had reviewed $18.1 million of loans for possible impairment of which $12.7 million was classified substandard compared to $19.4
million reviewed for possible impairment and $14.6 million of which was classified substandard as of September 30, 2016.
Deposits consist of the following major classifications:
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in Thousands)
|
|
Money market deposit accounts
|
|
$
|
81,211
|
|
|
|
13.2
|
%
|
|
$
|
55,552
|
|
|
|
14.3
|
%
|
Interest-bearing checking accounts
|
|
|
54,574
|
|
|
|
8.9
|
|
|
|
34,984
|
|
|
|
9.3
|
|
Non interest-bearing checking accounts
|
|
|
9,569
|
|
|
|
1.6
|
|
|
|
3,804
|
|
|
|
0.7
|
|
Passbook, club and statement savings
|
|
|
104,446
|
|
|
|
17.0
|
|
|
|
70,924
|
|
|
|
18.2
|
|
Certificates maturing in six months or less
|
|
|
123,656
|
|
|
|
20.1
|
|
|
|
97,418
|
|
|
|
25.0
|
|
Certificates maturing in more than six months
|
|
|
241,390
|
|
|
|
39.2
|
|
|
|
126,519
|
|
|
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
614,846
|
|
|
|
100.0
|
%
|
|
$
|
389,201
|
|
|
|
100.0
|
%
|
|
|
Certificates of $250,000 and over
totaled $24.6 million as of June 30, 2017 and $17.0 million as of September 30, 2016.
|
|
7.
|
ADVANCES FROM FEDERAL HOME LOAN BANK
|
Short-Term
The following table reflects the outstanding balances
and related information for short-term borrowings (less than one year) from the Federal Home Loan Bank of Pittsburgh, (“FHLB”).
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2017
|
|
|
|
(Dollars in Thousands)
|
|
Balance at period-end
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Average balance outstanding
|
|
|
20,000
|
|
|
|
21,667
|
|
Maximum month-end balance
|
|
|
20,000
|
|
|
|
35,000
|
|
Weight-average rate at period end
|
|
|
1.25
|
%
|
|
|
1.25
|
%
|
Weight-average rate during the period
|
|
|
1.12
|
%
|
|
|
0.80
|
%
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2016
|
|
|
|
(Dollars in Thousands)
|
|
Balance at period-end
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Average balance outstanding
|
|
|
20,000
|
|
|
|
20,000
|
|
Maximum month-end balance
|
|
|
20,000
|
|
|
|
20,000
|
|
Weight-average rate at period end
|
|
|
0.56
|
%
|
|
|
0.56
|
%
|
Weight-average rate during the period
|
|
|
0.56
|
%
|
|
|
0.56
|
%
|
As of June 30, 2017, $20.0 million of the outstanding
balance is related to two $10.0 million 30 day FHLB advances associated with an interest rate swap contract with a weighted average
effective cost of 117 basis points.
Average balances outstanding during the periods presented
represent daily average balance and interest rates represent interest expense divided by the related average balance.
The Bank maintains borrowing facilities with the FHLB
and Federal Reserve Bank of Philadelphia and the interest rate will be based on market rates that are available on the date of
execution.
Long-Term
Pursuant to collateral agreement with the FHLB, advances
are secured by a blanket pledge of qualifying loans held by the Bank and qualifying fixed-income securities and FHLB stock. The
long-term advances outstanding as of June 30, 2017 are as follows:
Type
|
|
Maturity Date
|
|
Amount
|
|
|
Coupon
|
|
|
Call Date
|
|
|
(Dollars in Thousands)
|
Fixed Rate - Advances
|
|
17-Nov-17
|
|
$
|
10,000
|
|
|
|
1.20
|
%
|
|
Not Applicable
|
Fixed Rate - Amortizing
|
|
1-Dec-17
|
|
|
1,009
|
|
|
|
1.16
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
4-Dec-17
|
|
|
2,000
|
|
|
|
1.15
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
19-Mar-18
|
|
|
5,045
|
|
|
|
2.53
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
19-Mar-18
|
|
|
5,031
|
|
|
|
2.13
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
20-Jun-18
|
|
|
3,015
|
|
|
|
1.86
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
25-Jun-18
|
|
|
3,022
|
|
|
|
2.09
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
27-Aug-18
|
|
|
7,223
|
|
|
|
4.15
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
15-Nov-18
|
|
|
3,017
|
|
|
|
1.89
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
16-Nov-18
|
|
|
7,500
|
|
|
|
1.40
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
26-Nov-18
|
|
|
2,010
|
|
|
|
1.81
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
3-Dec-18
|
|
|
3,000
|
|
|
|
1.54
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
16-Aug-19
|
|
|
3,063
|
|
|
|
2.66
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
9-Oct-19
|
|
|
2,038
|
|
|
|
2.53
|
%
|
|
Not Applicable
|
Fixed Rate - Amortizing
|
|
18-Nov-19
|
|
|
3,363
|
|
|
|
1.53
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
26-Nov-19
|
|
|
3,047
|
|
|
|
2.35
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
22-Jun-20
|
|
|
3,068
|
|
|
|
2.60
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
24-Jun-20
|
|
|
2,059
|
|
|
|
2.85
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
27-Jul-20
|
|
|
249
|
|
|
|
1.38
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
17-Aug-20
|
|
|
2,073
|
|
|
|
3.06
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
9-Oct-20
|
|
|
2,066
|
|
|
|
2.92
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
27-Jul-21
|
|
|
249
|
|
|
|
1.52
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
28-Jul-21
|
|
|
249
|
|
|
|
1.48
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
29-Jul-21
|
|
|
249
|
|
|
|
1.42
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
19-Aug-21
|
|
|
249
|
|
|
|
1.55
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
7-Oct-21
|
|
|
2,095
|
|
|
|
3.19
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
12-Oct-21
|
|
|
2,089
|
|
|
|
3.23
|
%
|
|
Not Applicable
|
Fixed Rate - Advances
|
|
6-Jun-22
|
|
|
10,000
|
|
|
|
2.05
|
%
|
|
Not Applicable
|
|
|
|
|
$
|
88,078
|
|
|
|
2.19
|
%
|
|
(a)
|
(a) Weighted average coupon rate.
The long-term advances outstanding as of September
30, 2016 are as follows:
Type
|
|
Maturity Date
|
|
Amount
|
|
|
Coupon
|
|
|
Call Date
|
|
|
(Dollars in Thousands)
|
Fixed Rate -Advance
|
|
17-Nov-17
|
|
$
|
10,000
|
|
|
|
1.20
|
%
|
|
Not Applicable
|
Fixed Rate -Amortizing
|
|
1-Dec-17
|
|
|
2,511
|
|
|
|
1.16
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
4-Dec-17
|
|
|
2,000
|
|
|
|
1.15
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
16-Nov-18
|
|
|
7,500
|
|
|
|
1.40
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
3-Dec-18
|
|
|
3,000
|
|
|
|
1.54
|
%
|
|
Not Applicable
|
Fixed Rate -Amortizing
|
|
18-Nov-19
|
|
|
4,382
|
|
|
|
1.53
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
27-Jul-20
|
|
|
249
|
|
|
|
1.38
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
27-Jul-21
|
|
|
249
|
|
|
|
1.52
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
28-Jul-21
|
|
|
249
|
|
|
|
1.48
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
29-Jul-21
|
|
|
249
|
|
|
|
1.42
|
%
|
|
Not Applicable
|
Fixed Rate -Advance
|
|
19-Aug-21
|
|
|
249
|
|
|
|
1.55
|
%
|
|
Not Applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,638
|
|
|
|
1.34
|
%
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Weighted average coupon rate.
|
The Company has contracted with a third party to participate
in pay-fixed interest rate swap contracts. The amount of swaps outstanding at June 30, 2017 is being utilized to hedge $20. million
in floating-rate debt consisting solely of FHLB advances.
Below is a summary of the interest rate swap agreements
and the terms there of as of June 30, 2017.
|
|
June 30, 2017
|
|
|
|
Notional
|
|
|
Pay
|
|
|
Receive
|
|
Maturity
|
|
Unrealized
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Rate
|
|
Date
|
|
Gain
|
|
|
|
(Dollars in Thousands)
|
|
Interest rate swap contract
|
|
$
|
10,000
|
|
|
|
1.15
|
%
|
|
1 Month Libor
|
|
6-Apr-21
|
|
$
|
214
|
|
Interest rate swap contract
|
|
|
10,000
|
|
|
|
1.18
|
%
|
|
1 Month Libor
|
|
13-Jun-21
|
|
|
221
|
|
Interest rate swap contract
|
|
|
1,100
|
|
|
|
4.10
|
%
|
|
1 Month Libor +276 bp
|
|
1-Aug-26
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
499
|
|
All three interest rate swaps are carried at fair value
in accordance with FASB ASC 815 "Derivatives and Hedging."
Below is a summary of the interest rate swap agreements
and the terms as of September 30, 2016. They are the same swap agreements that were in force as of June 30, 2017.
|
|
September 30, 2016
|
|
|
|
Notinal
Amount
|
|
|
Pay
Rate
|
|
|
Receive
Rate
|
|
Maturity
Date
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
(Dollar in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
10,000
|
|
|
|
1.15
|
%
|
|
1 Month Libor
|
|
6-Apr-21
|
|
$
|
(92
|
)
|
Interest rate swap contract
|
|
|
10,000
|
|
|
|
1.18
|
%
|
|
1 Month Libor
|
|
13-Jun-21
|
|
|
(103
|
)
|
Interest rate swap contract
|
|
|
1,100
|
|
|
|
4.10
|
%
|
|
1 Month Libor +276 bp
|
|
1-Aug-26
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(202
|
)
|
All three interest swaps are carried at fair value
in accordance with FASB ASC 815 “Derivatives and Hedging.”
Items that gave rise to significant
portions of deferred income taxes are as follows:
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
(Dollars
in Thousands)
|
|
Allowance for loan losses
|
|
$
|
1,647
|
|
|
$
|
1,289
|
|
Nonaccrual interest
|
|
|
286
|
|
|
|
163
|
|
Accrued vacation
|
|
|
12
|
|
|
|
13
|
|
Capital loss carryforward
|
|
|
387
|
|
|
|
378
|
|
Split dollar life insurance
|
|
|
18
|
|
|
|
18
|
|
Post-retirement benefits
|
|
|
97
|
|
|
|
96
|
|
Other real estate owned
|
|
|
3
|
|
|
|
-
|
|
Unrealized losses on available for sale securities
|
|
|
524
|
|
|
|
-
|
|
Goodwill
|
|
|
2,729
|
|
|
|
-
|
|
Purchase accounting (Polonia Bancorp)
|
|
|
935
|
|
|
|
-
|
|
Unrealized losses on interest rate swaps
|
|
|
-
|
|
|
|
69
|
|
Employee benefit plans
|
|
|
327
|
|
|
|
434
|
|
Total deferred tax assets
|
|
|
6,965
|
|
|
|
2,460
|
|
Valuation allowance
|
|
|
(387
|
)
|
|
|
(378
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
|
6,578
|
|
|
|
2,082
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property
|
|
|
393
|
|
|
|
423
|
|
Unrealized gains on available for sale securities
|
|
|
-
|
|
|
|
500
|
|
Section 481(a) Adjustment
|
|
|
-
|
|
|
|
12
|
|
Unrealized gains on interest rate swaps
|
|
|
170
|
|
|
|
-
|
|
Deferred loan fees
|
|
|
534
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
1,097
|
|
|
|
1,513
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
5,481
|
|
|
$
|
569
|
|
The Company establishes a valuation
allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be fully realized
through a carry back to taxable income in prior years or future reversals of existing taxable temporary differences, and/or to
a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the
Bank and the subsequent impairment charge on the assets acquired through the redemption in kind are considered capital losses
and can only be utilized to the extent of capital gains recognized over a five year period, resulting in the establishment of
a valuation allowance for the carryforward period. The valuation allowance totaled $387,000 at June 30, 2017 and $378,000 at September
30, 2016.
There is currently no liability
for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties
related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Operations as a component
of income tax expense. The Company’s federal and state income tax returns for taxable years through September 30, 2014 have
been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
|
10.
|
STOCK COMPENSATION
PLANS
|
As of December 31, 2016,
the Boards of Directors of the Company and the Bank voted to terminate the Bank’s employee stock ownership
plan (“ESOP”) effective December 31, 2016. The Company has submitted the proper notices with the Internal
Revenue Service and is awaiting receipt of a determination letter in connection with the termination of the ESOP before the
final allocation is made to the individual participants. The Bank maintained the ESOP for substantially for the benefit all
its full-time employees. The ESOP purchased 427,057 shares of common stock for an aggregate cost of approximately $4.5
million in fiscal 2005 in connection with the Bank’s mutual holding company reorganization. The ESOP purchased in
connection with the second-step conversion of the Bank an additional 255,564 shares during December 2013 and an additional
30,100 shares at the beginning of January 2014, of the Company’s common stock for an aggregate cost of approximately
$3.1 million. The shares were purchased with the proceeds of two loans from the Company. Shares of the Company’s common
stock purchased by the ESOP are held in a suspense account until released for allocation to participants as the loans are
repaid. Shares are allocated to each eligible participant based on the ratio of each such participant’s compensation,
as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from
the suspense account, the Company recognizes compensation expense equal to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that the fair value of the ESOP shares upon release
differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. As of
June 30, 2017, the ESOP held 394,156 shares of which a total of 243,734 shares were allocated to participants, 303,115 shares
were used to payoff the remaining $5.2 million balance the two loans used to fund the ESOP plan and released an additional
35,517 shares as of December 31, 2016. For the nine months ended June 30, 2017 and 2016, the Company recognized $139,000
(which was recorded during the first quarter of the current period) and $384,000, respectively, in compensation expense
related to the ESOP. In connection with the termination of the ESOP, the ESOP was required to repay the outstanding
indebtness the collateral held in the suspense account. Approximately 115,000 unallocated shares will be allocated to
eligible participants upon approval by the Internal Revenue Service.
The Company maintains the 2008
Recognition and Retention Plan (“2008 RRP”) which is administered by a committee of the Board of Directors of the
Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company.
In order to fund the grant of shares under the RRP, the 2008 RRP purchased 213,528 shares of the Company’s common stock
in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The
Company made sufficient contributions to the 2008 RRP to fund these purchases. As of June 30, 2017, all the shares had been awarded
as part of the 2008 RRP. Shares subject to awards under the 2008 RRP generally vest at the rate of 20% per year over five years.
During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP,
a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded
during February 2015 of which 53,462 shares have been forfeited as of June 30, 2017. In August 2016, the Company granted 7,473
shares under the 2008 RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted 17,128 shares under the 2014
SIP.
Compensation expense related to
the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which
totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and nine months ended
June 30, 2017, an aggregate of $149,000 and $430,000, respectively, was recognized in compensation expense for the grants pursuant
to the 2008 RRP and the grants pursuant to the 2014 SIP. An income tax benefit of $51,000 and $146,000, was recognized for the
three and nine months ended June 30, 2017, respectively. During the three and nine months ended June 30, 2016, $87,000 and $329,000
was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. An income
tax benefit of $30,000 and $112,000 was recognized for the three and nine months ended June 30, 2016. At June 30, 2017, approximately
$1.2 million in additional compensation expense for shares awarded related to the 2008 RRP and 2014 SIP remained unrecognized.
The weighted average period over which this expense will be recognized is approximately 3.1 years.
A summary of the Company’s
non-vested stock award activity for the nine months ended June 30, 2017 and 2016 is presented in the following tables:
|
|
Nine Months Ended
June 30, 2017
|
|
|
|
Number of
Shares (1)
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
|
|
|
|
|
|
Nonvested stock awards at October 1, 2016
|
|
|
172,788
|
|
|
$
|
12.03
|
|
Granted
|
|
|
17,128
|
|
|
|
17.43
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(43,755
|
)
|
|
|
11.59
|
|
Nonvested stock awards at the June 30, 2017
|
|
|
146,161
|
|
|
$
|
12.78
|
|
|
|
Nine Months Ended
June 30, 2016
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
|
|
|
|
|
|
Nonvested stock awards at October 1, 2015
|
|
|
241,428
|
|
|
$
|
11.74
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(30,180
|
)
|
|
|
11.55
|
|
Vested
|
|
|
(55,279
|
)
|
|
|
11.59
|
|
Nonvested stock awards at the June 30, 2016
|
|
|
155,969
|
|
|
$
|
11.83
|
|
The Company maintains the 2008
Stock Option Plan (the “2008 Option Plan”) which authorizes the grant of stock options to officers, employees and
directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the
common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and
are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares of common stock were approved
for future issuance pursuant to the 2008 Option Plan. As of June 30, 2017, all of the options had been awarded under the 2008
Option Plan. As of June 30, 2017, 467,758 options were vested under the 2008 Option Plan. The 2014 SIP reserved up to 714,145
shares for issuance pursuant to options. Options to purchase 587,112 shares were awarded during February 2015, 608,737 shares
pursuant to the 2014 SIP and the remainder pursuant to the 2008 Option Plan. During August 2016, the Company granted 18,866 shares
under the 2008 Option Plan and 8,634 shares under the 2014 SIP. In March 2017, the Company granted 22,828 shares under the 2014
SIP. In May 2017, the Company granted 25,000 shares under the 2014 SIP.
A summary of the status of the
Company’s stock options under the 2008 Option Plan and the 2014 SIP for the nine months ended June 30, 2017 and 2016 are
presented below:
|
|
Nine Months Ended
June 30, 2017
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2016
|
|
|
921,909
|
|
|
$
|
11.70
|
|
Granted
|
|
|
47,828
|
|
|
|
17.48
|
|
Exercised
|
|
|
(40,757
|
)
|
|
|
11.48
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2017
|
|
|
928,980
|
|
|
$
|
11.85
|
|
Exercisable at June 30, 2017
|
|
|
552,435
|
|
|
$
|
11.43
|
|
|
|
Nine Months Ended
June 30, 2016
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2015
|
|
|
1,074,430
|
|
|
$
|
11.92
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(89,358
|
)
|
|
|
11.61
|
|
Forfeited
|
|
|
(80,476
|
)
|
|
|
11.52
|
|
Outstanding at June 30, 2016
|
|
|
904,596
|
|
|
$
|
11.99
|
|
Exercisable at June 30, 2016
|
|
|
489,679
|
|
|
$
|
11.45
|
|
The weighted average remaining contractual term was
approximately 4.5 years for options outstanding as of June 30, 2017.
The estimated fair value of options
granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during
fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options
granted during fiscal 2016, and $3.18 for options granted during fiscal 2017. The fair value for grants made in fiscal 2015 was
estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value
of $12.23, expected term of seven years, volatility rate of 38.16%, interest rate of 1.62% and a yield of 0.98%. The fair value
for grants made in fiscal 2016 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions:
an exercise and fair value of $14.42, expected term of seven years, volatility of 13.82%, interest rate of 1.36% and a yield of
0.80%. The fair value for grants made in March and May 2017 was estimated on the date of grant using the Black-Scholes pricing
model with the following assumptions: an exercise and fair value of $17.43, expected term of seven years, volatility of 14.4%,
interest rate of 2.22% and a yield of 0.69%.
During the three and nine months
ended June 30, 2017, $139,000 and $397,000, respectively, was recognized in compensation expense for options granted pursuant
to the 2008 Option Plan and the 2014 SIP. A tax benefit of $17,000 and $49,000 was recognized for the three and nine months ended
June 30, 2017, respectively. During the three and nine months ended June 30, 2016, $106,000 and $322,000, respectively, was recognized
in compensation expense for options granted pursuant to the 2008 Option Plan and the 2014 SIP. A tax benefit of $36,000 and $44,000,
respectively, was recognized for the three and nine months ended June 30, 2016.
At June 30, 2017, there was approximately
$1.5 million in additional compensation expense to be recognized for awarded options which remained outstanding and unvested at
such date. The weighted average period over which this expense will be recognized is approximately 3.2 years.
|
11.
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
At June 30, 2017, the Company
had $34.7 million in outstanding commitments to originate fixed-rate and variable-rate loans with market interest rates ranging
from 4.00% to 5.50%. At September 30, 2016, the Company had $9.9 million in outstanding commitments to originate fixed-rate
loans with market interest rates ranging from 3.75% to 5.0%. The aggregate undisbursed portion of loans-in-process amounted to
$50.8 million at June 30, 2017 and $5.4 million at September 30, 2016.
The Company also had commitments
under unused lines of credit of $8.9 million as of June 30, 2017 and $3.3 million as of September 30, 2016 and letters of credit
outstanding of $1.5 million as of June 30, 2017 and $1.9 million as of September 30, 2016.
Among the Company’s contingent
liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation
interests. At June 30, 2017, the exposure, which represents a portion of credit risk associated with the interests sold, amounted
to $1.8 million related to loans sold to the FHLB. This exposure is for the life of the related loans and payables, on our proportionate
share, as actual losses are incurred. These loans are seasoned loans and remain performing.
The Company is involved in various
legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation
counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash
flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is
a party will not be decided adversely to the Company's interests and not have a material adverse effect on the financial condition
and operations of the Company.
|
12.
|
FAIR VALUE MEASUREMENT
|
The fair value estimates presented
herein are based on pertinent information available to management as of June 30, 2017 and September 30, 2016, respectively. Although
management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
Generally accepted accounting
principles used in the United States establish a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value.
The three broad levels of hierarchy are as follows:
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2
|
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 for substantially
the full term of the assets or liabilities.
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing
models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair
value requires significant management judgment or estimation.
|
Those assets as of June 30, 2017 which are to be measured
at fair value on a recurring basis are as follows:
|
|
Category Used for Fair
Value Measurement
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
-
|
|
|
$
|
20,620
|
|
|
$
|
-
|
|
|
$
|
20,620
|
|
Mortgage-backed securities - U.S. Government agencies
|
|
|
-
|
|
|
|
125,715
|
|
|
|
-
|
|
|
|
125,715
|
|
Corporate bonds
|
|
|
-
|
|
|
|
37,045
|
|
|
|
-
|
|
|
|
37,045
|
|
FHLMC preferred stock
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
Interest rate swap contracts
|
|
|
-
|
|
|
|
499
|
|
|
|
-
|
|
|
|
499
|
|
Total
|
|
$
|
59
|
|
|
$
|
183,879
|
|
|
$
|
-
|
|
|
$
|
183,938
|
|
Those assets as of September 30, 2016 which are measured
at fair value on a recurring basis are as follows:
|
|
Category Used for Fair
Value Measurement
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
-
|
|
|
$
|
21,024
|
|
|
$
|
-
|
|
|
$
|
21,024
|
|
Mortgage-backed securities - U.S. Government agencies
|
|
|
-
|
|
|
|
91,575
|
|
|
|
-
|
|
|
|
91,575
|
|
Corporate bonds
|
|
|
-
|
|
|
|
26,053
|
|
|
|
-
|
|
|
|
26,053
|
|
FHLMC preferred stock
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
Total
|
|
$
|
42
|
|
|
$
|
138,652
|
|
|
$
|
-
|
|
|
$
|
138,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
$
|
-
|
|
|
$
|
202
|
|
|
$
|
-
|
|
|
$
|
202
|
|
Total
|
|
$
|
-
|
|
|
$
|
202
|
|
|
$
|
-
|
|
|
$
|
202
|
|
Certain assets are measured at
fair value on a nonrecurring 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 Company measures impaired
loans and real estate owned at fair value on a non-recurring basis.
Impaired Loans
The Company considers loans to
be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest)
in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value
of the collateral which is based on appraisals and would be categorized as Level 2 measurement. In some cases, adjustments
are made to the appraised values for various factors including the age of the appraisal, age of the comparable included in the
appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore,
the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written
down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had
a fair value in excess of $18.0 million as of June 30, 2017 and $19.4 million as of September 30, 2016
Real Estate Owned
Once an asset is determined to
be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed
assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals,
less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values
for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the
market and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement
has been categorized as a Level 3 measurement.
Summary of Non-Recurring Fair
Value Measurements
|
|
At June 30, 2017
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,092
|
|
|
$
|
18,092
|
|
Real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,284
|
|
|
$
|
18,284
|
|
|
|
At September 30, 2016
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,429
|
|
|
$
|
19,429
|
|
Real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
581
|
|
|
|
581
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,010
|
|
|
$
|
20,010
|
|
The following table provides information describing the valuation
processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:
|
|
At June 30, 2017
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Valuation
|
|
|
|
Range/
|
|
|
Fair Value
|
|
|
Technique
|
|
Unobservable Input
|
|
Weighted Ave.
|
Impaired loans
|
|
$
|
18,092
|
|
|
Property appraisals (1) (3)
|
|
Management discount for selling costs, property type and market volatility
(2)
|
|
6% to 10% discount/10%
|
Real estate owned
|
|
$
|
581
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
10% discount
|
|
|
At September 30, 2016
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Valuation
|
|
|
|
Range/
|
|
|
Fair Value
|
|
|
Technique
|
|
Unobservable Input
|
|
Weighted Ave.
|
Impaired loans
|
|
$
|
19,429
|
|
|
Property appraisals (1) (3)
|
|
Management discount for selling costs, property type and market volatility
(2)
|
|
6% to 46% discount/10%
|
Real estate owned
|
|
$
|
581
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
10% discount
|
|
(1)
|
Fair value is generally
determined through independent appraisals of the underlying collateral, which generally
includes various Level 3 inputs, which are not identifiable.
|
|
(2)
|
Appraisals may be
adjusted by management for qualitative factors such as economic conditions and estimated
liquidation expenses. The range and weighted average of liquidation expenses and other
appraisal adjustments are presented as a percent of the appraisal.
|
|
(3)
|
Includes qualitative
adjustments by management and estimated liquidation expenses.
|
The fair value of financial instruments
has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,927
|
|
|
$
|
22,927
|
|
|
$
|
22,927
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificate of deposits
|
|
|
1,853
|
|
|
|
1,853
|
|
|
|
1,853
|
|
|
|
-
|
|
|
|
-
|
|
Investment and mortgage-backed securities available
for sale
|
|
|
183,439
|
|
|
|
183,439
|
|
|
|
59
|
|
|
|
183,380
|
|
|
|
-
|
|
Investment and mortgage-backed securities held to
maturity
|
|
|
59,654
|
|
|
|
58,570
|
|
|
|
-
|
|
|
|
58,570
|
|
|
|
-
|
|
Loans receivable, net
|
|
|
544,422
|
|
|
|
548,697
|
|
|
|
-
|
|
|
|
-
|
|
|
|
548,697
|
|
Accrued interest receivable
|
|
|
3,089
|
|
|
|
3,089
|
|
|
|
3,089
|
|
|
|
-
|
|
|
|
-
|
|
Other real estate owned
|
|
|
192
|
|
|
|
192
|
|
|
|
192
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
5,767
|
|
|
|
5,767
|
|
|
|
5,767
|
|
|
|
-
|
|
|
|
-
|
|
Bank owned life insurance
|
|
|
27,877
|
|
|
|
27,877
|
|
|
|
27,877
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap contracts
|
|
|
499
|
|
|
|
499
|
|
|
|
-
|
|
|
|
499
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
|
64,143
|
|
|
|
64,143
|
|
|
|
64,143
|
|
|
|
-
|
|
|
|
-
|
|
Money market deposit accounts
|
|
|
81,211
|
|
|
|
81,211
|
|
|
|
81,211
|
|
|
|
-
|
|
|
|
-
|
|
Passbook, club and statement savings accounts
|
|
|
104,446
|
|
|
|
104,446
|
|
|
|
104,446
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposit
|
|
|
365,046
|
|
|
|
360,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,527
|
|
Accrued interest payable
|
|
|
1,339
|
|
|
|
1,339
|
|
|
|
1,339
|
|
|
|
-
|
|
|
|
-
|
|
Advances from FHLB -short-term
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Advances from FHLB -long-term
|
|
|
88,078
|
|
|
|
87,372
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,372
|
|
Advances from borrowers for taxes and insurance
|
|
|
3,982
|
|
|
|
3,982
|
|
|
|
3,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in Thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,440
|
|
|
$
|
12,440
|
|
|
$
|
12,440
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificate of deposits
|
|
|
1,853
|
|
|
|
1,853
|
|
|
|
1,853
|
|
|
|
-
|
|
|
|
-
|
|
Investment and mortgage-backed securities available
for sale
|
|
|
138,694
|
|
|
|
138,694
|
|
|
|
42
|
|
|
|
138,652
|
|
|
|
-
|
|
Investment and mortgage-backed securities held to
maturity
|
|
|
39,971
|
|
|
|
40,700
|
|
|
|
-
|
|
|
|
40,700
|
|
|
|
-
|
|
Loans receivable, net
|
|
|
344,948
|
|
|
|
344,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
344,100
|
|
Accrued interest receivable
|
|
|
1,928
|
|
|
|
1,928
|
|
|
|
1,928
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
2,463
|
|
|
|
2,463
|
|
|
|
2,463
|
|
|
|
-
|
|
|
|
-
|
|
Bank owned life insurance
|
|
|
13,055
|
|
|
|
13,055
|
|
|
|
13,055
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
|
38,788
|
|
|
|
38,788
|
|
|
|
38,788
|
|
|
|
-
|
|
|
|
-
|
|
Money market deposit accounts
|
|
|
55,552
|
|
|
|
55,552
|
|
|
|
55,552
|
|
|
|
-
|
|
|
|
-
|
|
Passbook, club and statement savings accounts
|
|
|
70,924
|
|
|
|
70,924
|
|
|
|
70,924
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposit
|
|
|
223,937
|
|
|
|
225,383
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225,383
|
|
Accrued interest payable
|
|
|
1,403
|
|
|
|
1,403
|
|
|
|
1,403
|
|
|
|
-
|
|
|
|
-
|
|
Advances from FHLB -short-term
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Advances from FHLB -long-term
|
|
|
30,638
|
|
|
|
30,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,222
|
|
Advances from borrowers for taxes and insurance
|
|
|
1,748
|
|
|
|
1,748
|
|
|
|
1,748
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap contracts
|
|
|
202
|
|
|
|
202
|
|
|
|
-
|
|
|
|
202
|
|
|
|
-
|
|
Cash and Cash Equivalents
-
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Investments and Mortgage-Backed
Securities
-
The fair value of investment securities and mortgage-backed securities is based on quoted market prices,
dealer quotes, and prices obtained from independent pricing services.
Loans Receivable
-
The fair value of loans is estimated based on present value using the current market rates at which similar loans would
be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying value that fair value is
compared to is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment
involved in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.
Accrued Interest Receivable
–
For accrued interest receivable, the carrying amount is a reasonable estimate of fair value.
Federal Home Loan Bank (FHLB)
Stock
-
Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a
readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates the
carrying amount.
Bank Owned Life Insurance
-
The fair value of bank owned life insurance is based on the cash surrender value obtained from an independent
advisor that is derivable from observable market inputs.
Checking Accounts, Money
Market Deposit Accounts, Passbook Accounts, Club Accounts, Statement Savings Accounts, and Certificates of Deposit
-
The fair value of passbook accounts, club accounts, statement savings accounts, checking accounts, and money market deposit
accounts is the amount reported in the financial statements. The fair value of certificates of deposit is based on market rates
currently offered for deposits of similar remaining maturity.
Short-term Advances from
Federal Home Loan Bank
-
The fair value of advances from FHLB is the amount payable on demand at the reporting
date.
Long-term Advances from Federal Home Loan Bank
-
The fair value of advances from FHLB is the amount payable on demand at the reporting date.
Accrued Interest Payable
–
For accrued interest payable, the carrying amount is a reasonable estimate of fair value.
Interest rate swaps –
The fair values of the interest rate swap contracts are based upon the estimated amount the Company would receive or pay,
as applicable, to terminate the contracts.
Advances from borrowers
for taxes and insurance –
For advances from borrowers for taxes and insurance, the carrying amount is a reasonable
estimate of fair value.
Commitments to Extend Credit
and Letters of Credit -
The majority of the Bank’s commitments to extend credit and letters of credit carry current
market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally unassignable
by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair value approximates the
recorded deferred fee amounts, which are not significant.
|
13.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The Company’s goodwill and
intangible assets are related to the acquisition of Polonia Bancorp on January 1, 2017.
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
October 1,
|
|
|
Additions/
|
|
|
|
|
|
June 30,
|
|
|
Amortization
|
|
|
2016
|
|
|
Adjustments
|
|
|
Amortization
|
|
|
2017
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
7,163
|
|
|
$
|
-
|
|
|
$
|
7,163
|
|
|
|
Core deposit intangible
|
|
|
-
|
|
|
|
822
|
|
|
|
(75
|
)
|
|
|
747
|
|
|
10 years
|
|
|
$
|
-
|
|
|
$
|
7,985
|
|
|
$
|
(75
|
)
|
|
$
|
7,910
|
|
|
|
As of June 30, 2017, the current fiscal year
and the future fiscal periods amortization expense for the core deposit intangible is:
(In thousands)
|
|
|
|
|
2017
|
|
$
|
37
|
|
2018
|
|
|
138
|
|
2019
|
|
|
123
|
|
2020
|
|
|
108
|
|
Thereafter
|
|
|
341
|
|
|
14.
|
BUSINESS
COMBINATIONS
|
On January 1, 2017, the previously announced proposed acquisition
(the “Merger”) of Polonia Bancorp pursuant to the Agreement of Plan of Merger by and between Polonia Bancorp and the
Company, dated as of June 2, 2016 (the “ Merger Agreement”) was completed. The shareholders of Polonia Bancorp had
the option to receive $11.09 per share in cash or 0.7460 of a share of the Company common stock for each share of Polonia Bancorp
common stock held thereby, subject to allocation provisions to assure that, in the aggregate, Polonia Bancorp shareholders received
total merger consideration that consisted of 50% stock and 50% cash. As a result of Polonia Bancorp shareholder stock and cash
elections and the related proration provisions of the Merger Agreement, the Company issued 1,274,197 shares of its common stock
and approximately $18.9 million was paid in cash for the Merger.
In connection with the Merger, the consideration paid and the estimated
fair value of identifiable assets and liabilities assumed as of the date of the Merger are summarized in the following table:
(dollars in thousands)
|
|
|
|
Consideration paid:
|
|
|
|
|
Common stock issued (1,274,197 shares) at a fair value per share of $17.12 per
share.
|
|
$
|
21,814
|
|
Cash for common stock exchanged
|
|
|
18,944
|
|
Cash in lieu of fractional shares
|
|
|
1
|
|
|
|
|
40,759
|
|
Assets acquired:
|
|
|
|
|
Cash and due from banks
|
|
|
47,901
|
|
Investments available for sale
|
|
|
42,164
|
|
Loans
|
|
|
160,157
|
|
Premises and equipment
|
|
|
6,902
|
|
Deferred taxes
|
|
|
3,921
|
|
Bank-owned life insurance
|
|
|
4,316
|
|
Core deposit intangible
|
|
|
822
|
|
Other assets
|
|
|
5,802
|
|
Total assets
|
|
|
271,985
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Deposits
|
|
|
172,243
|
|
FHLB advances, short-term
|
|
|
7,000
|
|
FHLB advances, long-term
|
|
|
50,232
|
|
Other liabilities
|
|
|
8,914
|
|
Total liabilities
|
|
|
238,389
|
|
Net assets acquired
|
|
|
33,596
|
|
Goodwill resulting from the acquisition
|
|
$
|
7,163
|
|
The following table summarizes the estimated
fair value of the assets acquired and the liabilities assumed as of the date of acquisition of Polonia Bancorp. The core deposit
intangible will be amortized over a 10 years using an accelerated method. Goodwill will not be amortized, but instead will be
evaluated for impairment.
(Dollars in thousands, except per share data)
|
|
|
|
Purchase Consideration
|
|
|
|
|
|
|
|
|
|
Polonia Common Stock:
|
|
|
|
|
Total shares of common stock outstanding
|
|
|
3,416,311
|
|
Common stock issued cap
|
|
|
1,708,155
|
|
Shares redeemed for cash cap
|
|
|
1,708,156
|
|
|
|
|
|
|
Prudential common stock issued (conversion rate 0.7460)
|
|
|
1,274,197
|
|
Prudential closing price at December 31, 2016
|
|
$
|
17.12
|
|
|
|
|
|
|
Cash-out rate paid per share for Polonia Bancorp common stock
|
|
$
|
11.09
|
|
|
|
|
|
|
Purchase consideration assigned
to Polonia Bancorp shares exchanged for Company Common Stock
|
|
$
|
21,814
|
|
Cash Paid to Polonia for Polonia Bancorp shares
|
|
$
|
18,944
|
|
Cash Paid for fractional shares
|
|
$
|
1
|
|
|
|
$
|
40,759
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
|
|
|
|
|
|
|
Polonia Bancorp stockholders' equity
|
|
|
35,412
|
|
Core deposit intangible assets
|
|
|
822
|
|
Estimated adjustments to reflect assets acquired at fair value:
|
|
|
|
|
Investment securities
|
|
|
(781
|
)
|
Portfolio loans
|
|
|
(4,643
|
)
|
Allowance for loan and lease losses
|
|
|
1,002
|
|
Premises
|
|
|
3,049
|
|
Other Assets
|
|
|
(73
|
)
|
Deferred Taxes
|
|
|
934
|
|
Total fair value adjustment to assets acquired
|
|
|
310
|
|
Estimated adjustments to reflect liabilities assumed at fair value:
|
|
|
|
|
Time deposits
|
|
|
894
|
|
Borrowings
|
|
|
1,232
|
|
Total fair value adjustment to liabilities assumed
|
|
|
2,126
|
|
Total net assets acquired
|
|
|
33,596
|
|
Goodwill resulting from merger
|
|
|
7,163
|
|
Pro Forma Income Statements
The following pro forma income statements for the three and nine
months ended June 30, 2017 and 2016 presents pro forma results of operations of the combined institution (Polonia Bancorp and
the Company) had the merger occurred on April 1, 2017 and 2016. The pro forma income statement adjustments are limited to the
effects of fair value mark amortization and accretion and intangible asset amortization. No cost savings or additional merger
expenses have been included in the pro forma results of operations for the three and nine months ended June 30, 2017 and 2016.
|
|
Unaudited
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
(Dollars in thousands, except per share data)
|
|
|
2017
|
|
|
|
2016
|
|
Net interest income
|
|
|
6,053
|
|
|
|
5,681
|
|
Provision for loan and leases losses
|
|
|
30
|
|
|
|
150
|
|
Net interest income after provision for loan and lease losses
|
|
|
6,023
|
|
|
|
5,531
|
|
Non-interest income
|
|
|
625
|
|
|
|
721
|
|
Non-interest expenses
|
|
|
3,500
|
|
|
|
5,156
|
|
Income before income taxes
|
|
|
3,148
|
|
|
|
1,096
|
|
Income tax expense
|
|
|
1,031
|
|
|
|
318
|
|
Net income
|
|
|
2,117
|
|
|
|
778
|
|
Per share data
|
|
|
|
|
|
|
|
|
Weighed average basic shares outstanding
|
|
|
8,652,699
|
|
|
|
8,655,077
|
|
Dilutive shares
|
|
|
656,370
|
|
|
|
270,973
|
|
Adjusted weighted-average dilutive shares
|
|
|
9,309,069
|
|
|
|
8,926,050
|
|
Basic earnings per common share
|
|
$
|
0.25
|
|
|
$
|
0.09
|
|
Dilutive earnings per common share
|
|
$
|
0.25
|
|
|
$
|
0.09
|
|
|
(a)
|
Weighted-average basis shares outstanding for both periods
reflected are the Company’s weighted-average shares plus the 1,274,197, shares
that were issued as consideration for the Merger. The dilutive shares reflect the Company’s
estimated diluted shares for the period.
|
|
|
Unaudited
|
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
(Dollars in thousands, except per share data)
|
|
|
2017
|
|
|
|
2016
|
|
Net interest income
|
|
|
14,998
|
|
|
|
17,648
|
|
Provision for loan and leases losses
|
|
|
2,580
|
|
|
|
225
|
|
Net interest income after provision for loan and lease losses
|
|
|
12,418
|
|
|
|
17,423
|
|
Non-interest income
|
|
|
1,500
|
|
|
|
2,134
|
|
Non-interest expenses
|
|
|
12,981
|
|
|
|
17,582
|
|
Income before income taxes
|
|
|
937
|
|
|
|
1,975
|
|
Income tax expense
|
|
|
230
|
|
|
|
704
|
|
Net income
|
|
|
707
|
|
|
|
1,271
|
|
Per share data
|
|
|
|
|
|
|
|
|
Weighed average basic shares outstanding
|
|
|
8,202,850
|
|
|
|
8,655,077
|
|
Dilutive shares
|
|
|
570,792
|
|
|
|
246,791
|
|
Adjusted weighted-average dilutive shares
|
|
|
8,773,642
|
|
|
|
8,901,868
|
|
Basic earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
Dilutive earnings per common share
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
|
(a)
|
Weighted-average basis shares outstanding for both periods
reflected are the Company’s weighted-average shares plus the 1,274,197, shares
that were issued as consideration for the merger. The dilutive shares reflect the Company’s
estimated diluted shares for the period
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in
conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report
on Form 10-K for the year ended September 30, 2016 (the “Form 10-K”).
Overview.
Prudential Bancorp,
Inc. (the “Company”) was formed by Prudential Bancorp, Inc. of Pennsylvania to become the successor holding company
for Prudential Bank (the “Bank”) as a result of the second-step conversion of the Bank completed in October 2013.
The Company’s results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary
of the Company. The Company’s results of operations depend to a large extent on net interest income, which primarily is
the difference between the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid
on deposits and borrowings. Results of operations are also affected by our provisions for loan losses, non-interest income (which
includes impairment charges) and non-interest expense. Non-interest expense principally consists of salaries and employee benefits,
office occupancy expense, depreciation, data processing expense, payroll taxes and other expense. Our results of operations are
also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially
impact our financial condition and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation
(the “FDIC”) and the Pennsylvania Department of Banking and Securities (the “Department”). The Bank’s
main office is in Philadelphia, Pennsylvania (which includes a financial center), with ten additional financial centers located
in Philadelphia, Montgomery and Delaware Counties in Pennsylvania. The Bank’s primary business consists of attracting deposits
from the general public and using those funds together with borrowings to originate loans and to invest primarily in U.S. Government
and agency securities and mortgage-backed securities. In November 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation,
as a subsidiary of the Bank. In March 2006, all mortgage-backed securities then owned by the Company’s predecessor were
transferred to PSB Delaware, Inc. PSB Delaware, Inc.’s activities are included as part of the consolidated financial statements.
Critical Accounting Policies.
In
reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting
policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our unaudited consolidated
financial statements included in Item 1 hereof as well as in Note 2 to our audited consolidated financial statements included
in the Form 10-K. The accounting and financial reporting policies of the Company conform to accounting principles generally accepted
in the United States of America (“U.S. GAAP”) and to general practices within the banking industry. Accordingly, the
financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon the
information available. These estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent
assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during
the periods presented. The following accounting policies comprise those that management believes are the most critical to aid
in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions
that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition
for the period or in future periods. Effective January 1, 2017, the Company completed its acquisition of Polonia Bancorp, Inc.
(“Polonia Bancorp”) and its wholly owned subsidiary, Polonia Bank, pursuant to the terms of an Agreement and Plan
of Merger dated June 2, 2016.
Allowance for Loan Losses
. The allowance
for loan losses is established through a provision for loan losses charged to expense. Losses are charged against the allowance
for loan losses when management believes that the collectability in full of the principal of a loan is unlikely. Subsequent recoveries
are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide
for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both
probable and reasonable to estimate. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable
value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and
classified loans.
Management monitors its allowance for loan
losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions
and other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance
methodology and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In
this context, a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting
the loan portfolio. Included in these qualitative factors are:
|
·
|
Levels of past
due, classified, criticized and non-accrual loans, troubled debt restructurings and loan
modifications;
|
|
·
|
Nature and
volume of loans;
|
|
·
|
Changes in
lending policies and procedures, underwriting standards, collections, charge-offs and
recoveries and for commercial loans, the level of loans being approved with exceptions
to the Company’s lending policy;
|
|
·
|
Experience,
ability and depth of management and staff;
|
|
·
|
National and
local economic and business conditions, including various market segments;
|
|
·
|
Quality of
the Company’s loan review system and the degree of Board oversight;
|
|
·
|
Concentrations
of credit and changes in levels of such concentrations; and
|
|
·
|
Effect of external
factors on the level of estimated credit losses in the current portfolio.
|
In determining the allowance for loan losses,
management has established a general pooled allowance. Values assigned to the qualitative factors and those developed from historic
loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (the general pooled allowance)
and those for criticized and classified loans. The amount of the specific allowance is determined through an individual loan analysis
of commercial real estate loans, construction and land development loans and multi-family loans that have a risk rating of “substandard”
and/or non-performing. Under most circumstances, if a specific impairment is warranted then that portion of the loan will be immediately
charged-off. Loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss
experience and the qualitative factors described above. In determining the appropriate level of the general pooled allowance,
management makes estimates based on internal risk ratings, which take into account such factors as debt service coverage, loan-to-value
ratios and external factors. Estimates are periodically measured against actual loss experience.
This evaluation is inherently subjective as
it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows
on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical
loss experience. All of these estimates may be susceptible to significant change.
While management uses the best information
available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic
and other conditions or changes in accounting guidance. In addition, the Department and the FDIC, as an integral part of their
examination processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition
of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their
examination. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance
for loan losses may be required that would adversely affect earnings in future periods.
Investment and mortgage-backed securities
available for sale.
Where quoted prices are available in an active market, securities are classified within Level 1
of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities
with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain
cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level
3 of the valuation hierarchy. There were no securities with a Level 3 classification as of June 30, 2017 or September 30, 2016.
Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable,
and the continuing performance of the securities. In addition, the Company also considers the likelihood that the security will
be required to be sold because of regulatory concerns, our internal intent not to dispose of the security prior to maturity and
whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered,
management evaluates other facts and circumstances that may be indicative of an “other-than-temporary” impairment
condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which
the fair value has been less than cost, and near-term prospects of the issuer.
In addition, certain 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 Company
measures impaired loans and real estate owned, along with both available-for-sale (“AFS”) and held-to-maturity
(“HTM”) securities that have deteriorated fair values or declines in credit rating that fall below investment
grade, at fair value on a non-recurring basis.
Valuation techniques and models utilized for
measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.
Income Taxes.
The Company accounts
for income taxes in accordance with U.S. GAAP. The Company records deferred income taxes that reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting
tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business
factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount
and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.
In evaluating our ability to recover deferred
tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of
future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal
of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us
to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business.
Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred
tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have
a significant impact on our future earnings.
U.S. GAAP prescribes
a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The Company
recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in
the consolidated income statement. Assessment of uncertain tax positions requires careful consideration of the technical
merits of a position based on management's analysis of tax regulations and interpretations. Significant judgment may be
involved in the assessment of the tax position.
Forward-looking Statements
. This Quarterly
Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business
performance, conditions relating to the Company, or other effects of the merger of the Company and Polonia Bancorp. These forward-looking
statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various
factors (some of which are beyond the Company’s control). The words “may,” “could,” “should,”
“would,” “will,” “believe,” “anticipate,” “estimate,” “expect,”
“intend,” “plan” and similar expressions are intended to identify forward-looking statements.
In addition to factors previously disclosed
in the reports filed by the Company with the Securities and Exchange Commission (“SEC”) and those identified elsewhere
in this Form 10-Q, the following factors, among others, could cause actual results to differ materially from forward looking statements
or historical performance: difficulties and delays in integrating the Polonia Bancorp business or fully realizing anticipated
cost savings and other benefits of the merger; business disruptions following the merger; the strength of the United States economy
in general and the strength of the local economies in which the Company conducts its operations; general economic conditions;
legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in tax policies, rates and
regulations of federal, state and local tax authorities; changes in interest rates, deposit flows, the cost of funds, demand for
loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan,
investment and mortgage-backed securities portfolios; changes in accounting principles, policies or guidelines and other economic,
competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and
fees; and the success of the Company at managing the risks involved in the foregoing.
The Company does not undertake to update any
forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company to reflect
events or circumstances occurring after the date of this Form 10-Q.
For a complete discussion of the assumptions,
risks and uncertainties related to our business, you are encouraged to review the Company’s filings with the SEC, including
the “Risk Factors” section in its most recent Annual Report on Form 10-K, as supplemented by its quarterly or other
reports subsequently filed with the SEC.
Market Overview.
The economy has shown signs of
improvement during the six months of calendar 2017 and we still view the current environment as challenging. During the six
months of 2017, the stock market has reached record highs and the unemployment rate fall below 5.0% along with an increase in
demand for commercial real estate within the Company’s lending area. Since December 2015, the Federal Reserve
Bank increased the discount rate 75 basis points. The prime rate used by most banks was impacted by a similar increase during
that time frame.
The Company continues to focus on the credit
quality of its customers, closely monitoring the financial status of borrowers throughout the Company’s markets, gathering
information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis
required to maintain adequate reserves for loan losses.
Despite the current market and economic conditions,
the Company continues to maintain capital well in excess of regulatory requirements.
The following discussion provides further
details on the financial condition of the Company at June 30, 2017 and September 30, 2016, and the results of operations for the
three and nine months ended June 30, 2017 and 2016.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2017 AND SEPTEMBER
30, 2016
At June 30, 2017, the Company had total assets
of $870.7 million, as compared to $559.5 million at September 30, 2016, an increase of $311.2 million or 55.6%. The substantial
majority of the growth was attributable to the acquisition of Polonia Bancorp. In addition to the acquisition, the Company experienced
growth in the balance of net loans receivable of $35.9 million or 10.4% not related to the acquisition when compared to the $344.9
million balance of net loans receivable as of September 30, 2016.
Total liabilities increased by $291.0 million
to $736.5 million at June 30, 2017 from $445.5 million at September 30, 2016. As with the asset growth, the bulk of the liability
growth resulted from the acquisition of Polonia Bancorp. In addition to the deposits assumed, the Company assumed $56.0 million
in FHLB advances in addition to the $64.8 million of such borrowings the Company already held. In addition to the deposit growth
resulting from the acquisition, the Company experienced growth in deposits of $54.4 million or 14.0% when compared the balance
outstanding at June 30, 2017 to the $389.2 million balance as of September 30, 2016.
Total stockholders’ equity increased
by $20.2 million to $134.2 million at June 30, 2017 from $114.0 million at September 30, 2016. This increase was primarily due
to the issuance of common stock to the stockholders of Polonia Bancorp in connection with the acquisition. Another item that impacted
stockholders’ equity was the termination of the Bank’s employee stock ownership plan (“ESOP”) effective
as of December 31, 2016. A portion of the shares of common stock held in the ESOP’s suspense account was used to satisfy
the ESOP’s indebtedness in full. In addition, stockholders’ equity was affected by a $1.5 million decline in the fair
value of the Company’s available-for-sale portfolio.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED JUNE 30, 2017 AND 2016
Net income.
The Company reported net
income of $2.1 million, or $0.25 per basic and diluted share, for the quarter ended June 30, 2017 as compared to net income of
$777,000, or $0.10 per basic and diluted share, for the same quarter in fiscal 2016. The increase in the current period reflected
the beneficial effects resulting from the acquisition of Polonia Bancorp completed on January 1, 2017, that was spearheaded by
our new management team, combined with the results of the implementation by our new management team of strategies to improve earnings
by increasing earning assets while simultaneously controlling operating expenses. For the nine months ended June 30, 2017, the
Company recognized net income of $707,000, or $0.08 per basic and diluted share, as compared to net income of $1.7 million, or
$0.23 per basic and diluted share, for the same period in fiscal 2016. The nine-month period in 2017 included a one-time $2.7
million pre-tax expense related to the Polonia Bancorp acquisition as well as a $1.9 million non-cash pre-tax charge-off associated
with a large lending relationship.
Net interest income.
For the three
months ended June 30, 2017, net interest income increased to $6.1 million as compared to $3.7 million for the same period in fiscal
2016. The increase reflected a $3.0 million, or 66.1%, increase in interest income, partially offset by an increase of $553,000,
or 67.1%, in interest paid on deposits and borrowings. For the nine months ended June 30, 2017, net interest income increased
to $15.0 million as compared to $10.4 million for the same period in fiscal 2016. The increase reflected a $5.7 million, or 44.3%,
increase in interest income, partially offset by an increase of $1.1 million, or 45.9%, in interest paid on deposits and borrowings.
The increase in net interest income in both periods in fiscal 2017 was primarily due to the increase in the weighted average balance
of earning assets reflecting in large part the addition of earning assets acquired as of January 1, 2017 upon completion of the
Polonia Bancorp acquisition. In addition, during the third quarter of fiscal 2017 the average outstanding balance of loans increased
$20.1 million while the average balance of investment securities increased $21.6 million, with such growth primarily funded with
an increase in deposits.
For the three and nine months ended June 30,
2017, the net interest margin was 2.99% and 2.83%, respectively, compared to 2.78% and 2.74% for the same periods in fiscal 2016.
The margin improvements reflected in large part the increase in the weighted average balances of interest-earning assets noted
above as well, to a lesser degree, the increase in the weighted average yield on earning assets which reflected primarily the
effects of purchase accounting fair value adjustments
on the assets acquired from Polonia Bancorp.
Average balances, net interest income,
and yields earned and rates paid.
The following table shows for the periods indicated the total dollar amount of interest
earned from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing
liabilities and the resulting costs, expressed both in dollars and rates, the interest rate spread and the net interest margin.
Average yields and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis.
All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly
from what the daily averages would be.
|
|
Three Months
|
|
|
|
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate (1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
123,709
|
|
|
$
|
611
|
|
|
|
1.98
|
%
|
|
$
|
51,070
|
|
|
$
|
529
|
|
|
|
2.91
|
%
|
Mortgage-backed securities
|
|
|
132,867
|
|
|
|
1,106
|
|
|
|
3.34
|
|
|
|
129,557
|
|
|
|
673
|
|
|
|
2.62
|
|
Loans receivable(2)
|
|
|
531,130
|
|
|
|
5,647
|
|
|
|
4.26
|
|
|
|
334,410
|
|
|
|
3,263
|
|
|
|
3.96
|
|
Other interest-earning assets
|
|
|
24,192
|
|
|
|
66
|
|
|
|
1.09
|
|
|
|
12,450
|
|
|
|
9
|
|
|
|
0.29
|
|
Total interest-earning assets
|
|
|
811,898
|
|
|
|
7,430
|
|
|
|
3.67
|
|
|
|
527,487
|
|
|
|
4,474
|
|
|
|
3.44
|
|
Cash and non interest-bearing balances
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
Other non interest-earning assets
|
|
|
52,538
|
|
|
|
|
|
|
|
|
|
|
|
20,950
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
866,828
|
|
|
|
|
|
|
|
|
|
|
$
|
550,218
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
106,801
|
|
|
|
11
|
|
|
|
0.04
|
|
|
$
|
73,031
|
|
|
|
18
|
|
|
|
0.10
|
|
Money market deposit and NOW accounts
|
|
|
146,843
|
|
|
|
38
|
|
|
|
0.10
|
|
|
|
91,884
|
|
|
|
34
|
|
|
|
0.15
|
|
Certificates of deposit
|
|
|
362,960
|
|
|
|
952
|
|
|
|
1.05
|
|
|
|
218,857
|
|
|
|
629
|
|
|
|
1.17
|
|
Total deposits
|
|
|
616,604
|
|
|
|
1,001
|
|
|
|
0.65
|
|
|
|
383,772
|
|
|
|
681
|
|
|
|
0.72
|
|
Advances from FHLB
|
|
|
102,786
|
|
|
|
375
|
|
|
|
1.46
|
|
|
|
44,200
|
|
|
|
142
|
|
|
|
1.30
|
|
Advances from borrowers for taxes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
insurance
|
|
|
3,253
|
|
|
|
1
|
|
|
|
0.12
|
|
|
|
2,131
|
|
|
|
1
|
|
|
|
0.19
|
|
Total interest-bearing liabilities
|
|
|
722,643
|
|
|
|
1,377
|
|
|
|
0.76
|
|
|
|
430,103
|
|
|
|
824
|
|
|
|
0.78
|
|
Non interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-bearing demand accounts
|
|
|
9,300
|
|
|
|
|
|
|
|
|
|
|
|
2,795
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
1,752
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
734,327
|
|
|
|
|
|
|
|
|
|
|
|
434,650
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
132,501
|
|
|
|
|
|
|
|
|
|
|
|
115,568
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders'
equity
|
|
$
|
866,828
|
|
|
|
|
|
|
|
|
|
|
$
|
550,218
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
89,255
|
|
|
|
|
|
|
|
|
|
|
$
|
97,384
|
|
|
|
|
|
|
|
|
|
Net interest income; interest rate spread
|
|
|
|
|
|
$
|
6,053
|
|
|
|
2.67
|
%
|
|
|
|
|
|
$
|
3,650
|
|
|
|
2.66
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
112.35
|
%
|
|
|
|
|
|
|
|
|
|
|
122.64
|
%
|
|
|
|
|
|
(1)
|
Yields and rates
for the three month periods are annualized.
|
|
(2)
|
Includes non-accrual
loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process
and the allowance for loan losses.
|
|
(3)
|
Equals net interest
income divided by average interest-earning assets.
|
|
|
Nine Months
|
|
|
|
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate (1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
$
|
107,488
|
|
|
$
|
2,263
|
|
|
|
2.81
|
%
|
|
$
|
60,356
|
|
|
$
|
1,517
|
|
|
|
2.69
|
%
|
Mortgage-backed securities
|
|
|
118,085
|
|
|
|
2,179
|
|
|
|
2.47
|
|
|
|
111,126
|
|
|
|
1,868
|
|
|
|
2.59
|
|
Loans receivable(2)
|
|
|
462,793
|
|
|
|
14,062
|
|
|
|
4.06
|
|
|
|
323,830
|
|
|
|
9,489
|
|
|
|
3.90
|
|
Other interest-earning assets
|
|
|
21,217
|
|
|
|
102
|
|
|
|
0.64
|
|
|
|
10,511
|
|
|
|
22
|
|
|
|
0.28
|
|
Total interest-earning assets
|
|
|
709,583
|
|
|
|
18,606
|
|
|
|
3.51
|
|
|
|
505,823
|
|
|
|
12,896
|
|
|
|
3.40
|
|
Cash and non interest-bearing balances
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
1,887
|
|
|
|
|
|
|
|
|
|
Other non interest-earning assets
|
|
|
42,797
|
|
|
|
|
|
|
|
|
|
|
|
19,929
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
754,760
|
|
|
|
|
|
|
|
|
|
|
$
|
527,639
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
95,614
|
|
|
|
36
|
|
|
|
0.05
|
|
|
$
|
72,786
|
|
|
|
65
|
|
|
|
0.12
|
|
Money market deposit and NOW accounts
|
|
|
166,923
|
|
|
|
148
|
|
|
|
0.12
|
|
|
|
93,339
|
|
|
|
129
|
|
|
|
0.19
|
|
Certificates of deposit
|
|
|
262,450
|
|
|
|
2,502
|
|
|
|
1.27
|
|
|
|
203,440
|
|
|
|
1,981
|
|
|
|
1.27
|
|
Total deposits
|
|
|
524,987
|
|
|
|
2,686
|
|
|
|
0.68
|
|
|
|
369,565
|
|
|
|
2,175
|
|
|
|
0.78
|
|
Advances from FHLB
|
|
|
89,870
|
|
|
|
918
|
|
|
|
1.37
|
|
|
|
23,306
|
|
|
|
296
|
|
|
|
1.30
|
|
Advances from borrowers for taxes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
insurance
|
|
|
2,607
|
|
|
|
4
|
|
|
|
0.21
|
|
|
|
1,892
|
|
|
|
2
|
|
|
|
0.14
|
|
Total interest-bearing liabilities
|
|
|
617,464
|
|
|
|
3,608
|
|
|
|
0.78
|
|
|
|
394,763
|
|
|
|
2,473
|
|
|
|
0.81
|
|
Non interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-bearing demand accounts
|
|
|
7,709
|
|
|
|
|
|
|
|
|
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,606
|
|
|
|
|
|
|
|
|
|
|
|
3,219
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
628,779
|
|
|
|
|
|
|
|
|
|
|
|
400,671
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
125,981
|
|
|
|
|
|
|
|
|
|
|
|
115,861
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders'
equity
|
|
$
|
754,760
|
|
|
|
|
|
|
|
|
|
|
$
|
516,532
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
92,119
|
|
|
|
|
|
|
|
|
|
|
$
|
111,060
|
|
|
|
|
|
|
|
|
|
Net interest income; interest rate spread
|
|
|
|
|
|
$
|
14,998
|
|
|
|
2.73
|
%
|
|
|
|
|
|
$
|
10,423
|
|
|
|
2.58
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.83
|
%
|
|
|
|
|
|
|
|
|
|
|
2.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
114.92
|
%
|
|
|
|
|
|
|
|
|
|
|
125.44
|
%
|
|
|
|
|
|
(1)
|
Yields and rates
for the nine months periods are annualized.
|
|
(2)
|
Includes non-accrual
loans. Calculated net of unamortized deferred fees, undisbursed portion of loans-in-process
and the allowance for loan losses.
|
|
(3)
|
Equals net interest
income divided by average interest-earning assets.
|
Provision for loan losses.
The
Company recorded a provision for loan losses in the amount of $30,000 and $2.6 million, respectively, for the three and nine
months ended June 30, 2017. The provision for loan losses for the nine months ended June 30, 2017 was primarily due to a $1.9
million charge-off related to the borrower discussed below whose primary project financed currently by the Bank involves the
proposed development of 169 residential lots. As noted below, the Bank and the borrower are in litigation and no resolution
of the situation has been arrived at as of the date hereof in part due to the bankruptcy filing by the borrower effected in
June 2017. In light of the status of both the litigation as well as the progress of construction of the project, the Company
recorded a $1.9 million non-cash charge-off during the quarter ended March 31, 2017. The remaining portion of the provision
recorded during the nine-months ended June 30, 2017 was related to an increase in the outstanding balance of loans. The loans
acquired from Polonia Bancorp initially did not have any impact on the allowance for loan losses, because they were acquired
at their fair value recorded in the quarter ended March 31, 2017. Any write-downs to fair value were reflected in the
one-time merger-related charge recorded in the quarter ended March 31, 2017. In the event that the credit quality of any
loans acquired from Polonia Bancorp should deteriorate in the future, additional provisions to the allowance may be
required.
The allowance for loan losses totaled $4.1
million, or 0.7% of total loans and 25.2% of total non-performing loans (which included loans acquired from Polonia Bancorp at
their fair-value) at June 30, 2017 as compared to $3.3 million, or 1.0% of total loans and 20.6% of total non-performing loans
at September 30, 2016. The Company believes that the allowance for loan losses at June 30, 2017 was sufficient to cover all inherent
and known losses associated with the loan portfolio at such date.
The Company’s methodology for
assessing the adequacy of the allowance establishes both specific and general pooled allocations of the
allowance. Loans are assigned ratings, either individually for larger credits or in homogeneous pools, based on an
internally developed grading system. The resulting determinations are reviewed and approved by senior management
(see the discussion in “Critical Accounting Policies - Allowance for Loan Losses” “Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in PART I hereof).
At June 30, 2017, the Company’s
non-performing assets totaled $16.1 million or 1.9% of total assets as compared to $15.9 million or 2.8% of total assets at
September 30, 2016. Non-performing assets at June 30, 2017 included five construction loans aggregating $8.7 million, 33
one-to-four family residential loans aggregating $4.4 million, one single-family residential investment property loan in the
amount $1.4 million and five commercial real estate loans aggregating $1.6 million. Non-performing assets also included at
June 30, 2017 one real estate owned property consisting of a single-family residential property with a carrying value of
$192,000.
At June 30, 2017, the Company had nine loans aggregating $6.1 million that were classified as troubled debt
restructurings (“TDRs”). Three of such loans aggregating $4.9 million were designated non-performing as of June
30, 2017 and on non-accrual status; one of such loans in the amount of $1.4 million has continued to make payments in
accordance with the restructured loan terms, but management continues to have concerns over the borrower’s ability to
make future payments and as a result has determined to not return the loan to performing status. The remaining two TDRs
classified non-accrual totaling $3.5 million are a part of one of the Bank’s largest borrowing relationships totaling
$8.9 million (after taking into account the $1.9 million write-down recognized during the quarter ending March 31, 2017). The
primary project of the borrower is the subject of litigation between the Bank and the borrower and as a result, the project
currently is not proceeding. The borrower has recently filed for bankruptcy under Chapter 11of the federal bankruptcy code.
The Company has removed the underlying litigation noted above between the borrower from state court to the federal bankruptcy
court in which the bankruptcy proceeding is being heard (further discussed in Item 1, Legal Proceedings, in PART II hereof). The
remaining six TDRs have performed in accordance with the terms of their revised agreements and have been placed on accruing
status. As of June 30, 2017, the Company had reviewed $18.1 million of loans for possible impairment of which $12.7 million
was classified substandard compared to $19.4 million reviewed for possible impairment and $14.6 million of which was
classified substandard as of September 30, 2016. The Company did not have any assets classified doubtful or loss as of either
June 30, 2017 or September 30, 2016.
At June 30, 2017, the Company had $2.4 million
of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of 13 one-to-four family residential loans
totaling $1.9 million, one commercial real estate loan in the amount of $465,000, and one consumer loan in the amount of $60,000.
At June 30, 2017, we also had a total of ten
loans aggregating $3.1 million that had been designated “special mention”. These loans consist of three one-to-four
family residential loans totaling $1.6 million and six commercial real estate loans totaling $1.5 million. At September 30, 2016,
we had a total of five loans aggregating $2.6 million designated as “special mention”, consisting of three one-to-four
family residential loans totaling $1.7 million and two commercial real estate loans totaling $943,000.
The following table shows the amounts of non-performing assets
(defined as non-accruing loans, accruing loans 90 days or more past due as to principal and/or interest and real estate owned)
as of June 30, 2017 and September 30, 2016. At neither date did the Company have any accruing loans 90 days or more past due that
were accruing.
|
|
June 30,
2017
|
|
|
September 30,
2016
|
|
|
|
(Dollars in Thousands)
|
|
Non-accruing loans:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
5,775
|
|
|
$
|
4,244
|
|
Commercial real estate
|
|
|
1,603
|
|
|
|
1,346
|
|
Construction and land development
|
|
|
8,714
|
|
|
|
10,288
|
|
Total non-accruing loans
|
|
|
16,092
|
|
|
|
15,878
|
|
Real estate owned, net: (1)
|
|
|
192
|
|
|
|
581
|
|
Total non-performing assets
|
|
$
|
16,384
|
|
|
$
|
16,459
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percentage of loans, net
|
|
|
2.96
|
%
|
|
|
4.56
|
%
|
Total non-performing loans as a percentage of total assets
|
|
|
1.85
|
%
|
|
|
2.84
|
%
|
Total non-performing assets as a percentage of total assets
|
|
|
1.87
|
%
|
|
|
2.94
|
%
|
|
(1)
|
Real estate owned balances are shown net of related loss allowances
and consist solely of real property.
|
Non-interest income
. Non-interest income
amounted to $625,000 and $1.5 million, respectively, for the three and nine month periods ended June 30, 2017, compared to $400,000
and $883,000, respectively, for the comparable periods in fiscal 2016. The increase experienced in both of the 2017 periods was
primarily attributable to the addition of five full-service financial centers, along with the related customer deposit base (increased
ATM fees and account service charges and transaction fees), acquired from Polonia Bancorp along with an increased return on bank
owned life insurance (“BOLI”) as a result of the increase in the amount of BOLI due to the purchase of an additional
$10.0 million of BOLI in the quarter ended December 31, 2016.
Non-interest expense.
For the three
and nine months periods ended June 30, 2017, non-interest expense increased $685,000 or 24.3% and $4.5 million or 52.6%, respectively,
compared to the same periods in the prior fiscal year. The primary reason for the increase for both three and nine months periods
ended June 30, 2017 was the additional expense resulting from the Polonia Bancorp acquisition which added five additional financial
centers to our branch network as well as additional personnel. In addition, during the nine-month period ended June 30, 2017,
the Company recorded a one-time merger related charge of approximately $2.7 million, pre-tax.
Income tax expense
. For the three-month
period ended June 30, 2017, the Company recorded income tax expense of $1.0 million resulting in an effective tax rate of 32.8%,
compared to $308,000 and an effective tax rate of 28.4% for the same period in 2016. For the nine-month period ended June 30,
2017, the Company recorded income tax expense of $230,000 resulting in an effective tax rate of 24.6%, compared to $836,000 and
an effective tax rate of 32.5% for the same period in 2016. The effective tax rate for the nine-month period ended June 30, 2017
was lower due to the net loss recognized during the second quarter of fiscal 2017 primarily as a result of the one-time merger-related
costs incurred in connection with the acquisition of Polonia Bancorp combined with the $1.9 million write-down related to the
large borrowing relationship discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity, represented
by cash and cash equivalents, is a product of its operating, investing and financing activities. Our primary sources of funds
are deposits, scheduled principal and interest payments on loans, loan prepayments and the maturity of loans, mortgage-backed
securities and other investments, and other funds provided from operations. While scheduled payments from the amortization of
loans and mortgage-backed securities and maturing investment securities are relatively predictable sources of funds, deposit flows
and loan and securities prepayments can be greatly influenced by market rates of interest, economic conditions and competition.
We also maintain excess funds in short-term, interest-earning assets that provide additional liquidity. At June 30, 2017, our
cash and cash equivalents amounted to $22.9 million. In addition, our available-for-sale investment securities amounted to an
aggregate of $183.4 million at such date.
We use our liquidity to fund existing and
future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning
assets, and to meet operating expenses. At June 30, 2017, the Company had $34.7 million in outstanding commitments to originate
fixed and variable-rate loans, not including loans in process. The Company also had commitments under unused lines of credit of
$8.9 million and letters of credit outstanding of $1.5 million at June 30, 2017. Certificates of deposit as of June 30, 2017 that
are maturing in six months or less totaled $123.7 million. Based upon historical experience, we anticipate that a significant
portion of the maturing certificates of deposit will be redeposited with us.
In addition to cash flows from loan and securities
payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available
to fund liquidity needs should the need arise. Our borrowings consist solely of advances from the Federal Home Loan Bank of Pittsburgh
(“FHLB”), of which we are a member. Under terms of the collateral agreement with the FHLB, we pledge residential mortgage
loans as well as our stock in the FHLB as collateral for such advances. At June 30, 2017, we had $108.1 million in outstanding
FHLB advances and had the ability to obtain an additional $266.8 million in FHLB advances. Additional borrowing capacity with
the FHLB could be obtained with the pledging of certain investment securities. The Bank has also obtained approval to borrow from
the Federal Reserve Bank of Philadelphia discount window.
We anticipate that we will continue to have
sufficient funds and alternative funding sources to meet our current commitments.
The following table summarizes the Company’s
and Bank’s regulatory capital ratios as of June 30, 2017 and September 30, 2016 and compares them to current regulatory
guidelines. The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is
deemed to be a small bank holding company.
|
|
|
|
|
|
|
|
To Be
|
|
|
|
|
|
|
|
|
|
Well Capitalized
|
|
|
|
|
|
|
Required for
|
|
|
Under Prompt
|
|
|
|
|
|
|
Capital Adequacy
|
|
|
Corrective Action
|
|
|
|
Actual Ratio
|
|
|
Purposes
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
14.76
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
13.44
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
24.60
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
22.40
|
%
|
|
|
5.1
|
%(a)
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
24.60
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
22.40
|
%
|
|
|
6.6
|
%(a)
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
25.44
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
23.24
|
%
|
|
|
8.6
|
%(a)
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
20.41
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
18.15
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
38.57
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
34.36
|
%
|
|
|
4.5
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
38.57
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
34.36
|
%
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
39.70
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
35.49
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
|
(a)
|
Includes intial
phase-in of capital conservation buffer.
|
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements, accompanying notes,
and related financial data of the Company presented herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially
all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation
to a larger extent than interest rates. In the current interest rate environment, liquidity and the maturity structure of the
Company's assets and liabilities are critical to the maintenance of acceptable performance levels.
How We Manage Market Risk
. Market risk
is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk
which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages
interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to
manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate
risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level
of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives,
and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates
while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating
strategies. We have established an Asset/Liability Committee which is comprised of our Chief Operating Officer, Chief Financial
Officer, Chief Lending Officer, Chief Credit Officer, Chief Risk Officer and Controller. The Asset/Liability Committee meets on
a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent
and direction of shifts in interest rates are uncertainties that could have a negative impact on future earnings.
In recent years, as a part of our
asset/liability management strategy we primarily have reduced our investment in longer term fixed-rate callable agency bonds,
increased our origination of short duration or variable rate construction and development and commercial real
estate loans as well as our portfolio of step-up callable agency bonds and agency issued collateralized mortgage-backed
securities (“CMOs”) with short effective lives. In addition, we implemented two interest rate swaps to reduce our
funding costs for a five-year period. However, notwithstanding the foregoing steps, we remain subject to a significant level
of interest rate risk in a low interest rate environment due to the high proportion of our loan portfolio that consists of
fixed-rate loans as well as our decision in prior periods to invest a significant amount of our assets in long-term,
fixed-rate investment and mortgage-backed securities.
Gap Analysis.
The matching of assets
and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive”
and by monitoring the Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would
tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.
The following table sets forth the amounts
of our interest-earning assets and interest-bearing liabilities outstanding at June 30, 2017, which we expect, based upon certain
assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below,
the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with
the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation
of the projected repricing of assets and liabilities at June 30, 2017, on the basis of contractual maturities, anticipated prepayments,
and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table
reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments
of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual
prepayment rates for variable-rate and fixed-rate single-family and multi-family residential and commercial mortgage loans are
assumed to range from 5.8% to 31.6%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.5% to
17.9%. For savings accounts, checking accounts and money markets, the decay rates vary on an annual basis over a ten year period.
|
|
|
|
|
More than
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
3 Months
|
|
|
3 Months
|
|
|
1 Year
|
|
|
3 Years
|
|
|
More than
|
|
|
Total
|
|
|
|
or Less
|
|
|
to 1 Year
|
|
|
to 3 Years
|
|
|
to 5 Years
|
|
|
5 Years
|
|
|
Amount
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and mortgage-backed securities(2)
|
|
$
|
9,712
|
|
|
$
|
14,869
|
|
|
$
|
39,038
|
|
|
$
|
33,834
|
|
|
$
|
150,640
|
|
|
$
|
248,093
|
|
Loans receivable(3)
|
|
|
70,442
|
|
|
|
68,607
|
|
|
|
145,745
|
|
|
|
97,366
|
|
|
|
162,262
|
|
|
|
544,422
|
|
Other interest-earning assets(4)
|
|
|
29,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,355
|
|
|
|
-
|
|
|
|
30,592
|
|
Total interest-earning assets
|
|
$
|
109,391
|
|
|
$
|
83,476
|
|
|
$
|
184,783
|
|
|
$
|
132,555
|
|
|
$
|
312,902
|
|
|
$
|
823,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
2,919
|
|
|
$
|
9,106
|
|
|
$
|
14,961
|
|
|
$
|
14,429
|
|
|
$
|
63,031
|
|
|
$
|
104,446
|
|
Money market deposit and NOW accounts
|
|
|
4,815
|
|
|
|
13,600
|
|
|
|
22,950
|
|
|
|
21,189
|
|
|
|
82,801
|
|
|
|
145,355
|
|
Certificates of deposit
|
|
|
58,162
|
|
|
|
147,356
|
|
|
|
117,675
|
|
|
|
41,853
|
|
|
|
-
|
|
|
|
365,046
|
|
Advances from FHLB
|
|
|
935
|
|
|
|
30,365
|
|
|
|
37,533
|
|
|
|
39,245
|
|
|
|
-
|
|
|
|
108,078
|
|
Advances from borrowers for
taxes and insurance
|
|
|
3,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,982
|
|
Total interest-bearing liabilities
|
|
$
|
70,813
|
|
|
$
|
200,427
|
|
|
$
|
193,119
|
|
|
$
|
116,716
|
|
|
$
|
145,832
|
|
|
$
|
726,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets less interest-bearing
liabilities
|
|
$
|
38,578
|
|
|
($
|
116,951
|
)
|
|
($
|
8,336
|
)
|
|
$
|
15,839
|
|
|
$
|
167,070
|
|
|
$
|
96,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate sensitivity gap (5)
|
|
$
|
38,578
|
|
|
($
|
78,373
|
)
|
|
($
|
86,709
|
)
|
|
($
|
70,870
|
)
|
|
$
|
96,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-rate gap as a percentage of
total assets at June 30, 2017
|
|
|
4.43
|
%
|
|
|
-9.00
|
%
|
|
|
-9.96
|
%
|
|
|
-8.14
|
%
|
|
|
11.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest-earning assets as a percentage
of cumulative interest- bearing liabilities at June 30, 2017
|
|
|
154.48
|
%
|
|
|
71.11
|
%
|
|
|
81.33
|
%
|
|
|
87.80
|
%
|
|
|
113.23
|
%
|
|
|
|
|
|
(1)
|
Interest-earning
assets are included in the period in which the balances are expected to be redeployed
and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and
contractual maturities.
|
|
(2)
|
For purposes of
the gap analysis, investment securities are reflected at amortized cost.
|
|
(3)
|
For purposes of
the gap analysis, loans receivable includes non-performing loans and is gross of the
allowance for loan losses and unamortized deferred loan fees, but net of the undisbursed
portion of loans-in-process.
|
|
(5)
|
Cumulative interest-rate
sensitivity gap represents the difference between interest-earning assets and interest-bearing
liabilities.
|
Certain shortcomings are inherent in the method
of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on
other types may lag behind changes in market rates. Additionally, certain assets, such as variable-rate loans, have features which
restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change
in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating
the table. Finally, the ability of many borrowers to service their variable-rate loans may be adversely affected in the event
of an interest rate increase.
Net Portfolio Value Analysis.
Our interest
rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net
portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. The “Sensitivity Measure” is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The following
table sets forth our NPV as of June 30, 2017 and reflects the changes to NPV as a result of immediate and sustained changes in
interest rates as indicated.
Change in
|
|
|
|
|
|
|
|
|
|
|
NPV as % of Portfolio
|
|
Interest Rates
|
|
Net Portfolio Value
|
|
|
Value of Assets
|
|
In Basis Points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Rate Shock)
|
|
Amount
|
|
|
$ Change
|
|
|
% Change
|
|
|
NPV Ratio
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
$
|
112,487
|
|
|
$
|
(54,348
|
)
|
|
|
(32.58
|
)%
|
|
|
14.61
|
%
|
|
|
(4.53
|
)%
|
200
|
|
|
129,495
|
|
|
|
(37,340
|
)
|
|
|
(22.38
|
)%
|
|
|
16.15
|
%
|
|
|
(2.99
|
)%
|
100
|
|
|
148,402
|
|
|
|
(18,433
|
)
|
|
|
(11.05
|
)%
|
|
|
17.74
|
%
|
|
|
(1.40
|
)%
|
Static
|
|
|
166,835
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19.14
|
%
|
|
|
-
|
|
(100)
|
|
|
172,954
|
|
|
|
6,119
|
|
|
|
3.67
|
%
|
|
|
19.31
|
%
|
|
|
0.17
|
%
|
(200)
|
|
|
169,927
|
|
|
|
3,092
|
|
|
|
1.85
|
%
|
|
|
18.69
|
%
|
|
|
(0.45
|
)%
|
(300)
|
|
|
174,683
|
|
|
|
7,848
|
|
|
|
4.70
|
%
|
|
|
18.91
|
%
|
|
|
(0.23
|
)%
|
At September 30, 2016, the Company’s
NPV was $129.7 million or 23.2% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s
“post shock” NPV would be $102.1 million or 20.0% of the market value of assets.
As is the case with the GAP Table, certain
shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV requires
the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes
in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at
a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in
market interest rates on net interest income and will differ from actual results.