Notes to Unaudited Consolidated Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION and RECENT ACCOUNTING PRONOUNCEMENTS
Organization
HV Bancorp, Inc., a Pennsylvania Corporation (the “Company”) is the holding company of Huntingdon Valley Bank (the “Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On January 11, 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. A total of 2,182,125 shares of common stock were sold to depositors at $10.00 per share through which the Company received gross offering proceeds of approximately $21.8 million. Offering costs from the sale of the common stock totaled $1.4 million, resulting in net proceeds of $20.4 million. Shares of the Company began trading on the Nasdaq Capital Market on January 12, 2017. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Bank”).
The Bank is a stock savings bank organized under the laws of the Commonwealth of Pennsylvania and is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (“PADOB”). The Bank was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties of Pennsylvania) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.
The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of June 30, 2018 have been derived from the audited consolidated financial statements.
These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission on September 27, 2018
. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity. The results of operations for the three months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending June 30, 2019 or any other period.
The Company has evaluated subsequent events through the date of issuance of the financial statements included herein.
Principles of Consolidation
The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. In January 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. All significant intercompany transactions and balances have been eliminated in consolidation.
6
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Financial Condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairments of securities (“OTTI”), interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale and the valuation of deferred tax assets.
Recent Accounting Pronouncements
The Company qualifies under the Jumpstart Our Business Startups Act (the “JOBS Act”) as an emerging growth company. As an emerging growth company, the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements until such pronouncements are made applicable to private companies.
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02,
Leases
.
The new leases standard applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.
The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606.
Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The new leases standard addresses other considerations including identification of a lease, separating lease and non-lease components of a contract, sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of lease payments. It also contains comprehensive implementation guidance with practical examples.
The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments are effective for all other entities (including emerging growth entities as further described above) for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. Specific transition requirements apply. The Company’s leases are operating leases and ASU 2016-02 will require us to add them to our balance sheet. The Company’s operating leases are predominantly related to real estate.
7
In
July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic 842, Leases
, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For e
ntities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements w
ill be the same as the effective date and transition requirements in Topic 842.
This Update is not expected to have a significant impact on the Company’s consolidated financial statements.
In June 2016,
the FASB issued Accounting Standards Update (ASU) 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.
The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.
The ASU is effective for public business entities for fiscal years after December 15, 2019, including interim periods within those fiscal years. The amendments are effective for all other entities (including emerging growth companies as further described above for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In anticipation of the ASU, the Company has entered into a contract with a third party, compiled data for the modeling and is working on developing an estimate using historically and qualitative data based on the requirements of ASU 2016-13.
In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
, to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820,
Fair Value Measurement
, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15,
Derivatives and Hedging—Embedded Derivatives
, or 825-10,
Financial Instruments—Overall
. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the
8
liability should be remeasured into the functional currency of the reporting en
tity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. A
n insurance entity subject to the guidance in Topic 944,
Financial Services— Insurance
, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity sho
uld apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendm
ents until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01.
For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long
as they have adopted Update 2016-01.
This Update is not expected to have a significant impact on the Company’s consolidated financial statements
.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements
. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
This Update is not expected to have a significant impact on the Company’s consolidated financial statements
.
Adoption of New Accounting Standards
.
In May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers.”
The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Subsequent to the issuance of ASU 2014-09, the FASB issued targeted updates to clarify specific implementation issues including ASU No. 2016-08, “
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
,” ASU No. 2016-10, “
Identifying Performance Obligations and Licensing
,” ASU No. 2016-12, “
Narrow-Scope Improvements and Practical Expedients
,” and ASU No. 2016-20 “
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
.” For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the new guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. Based on this assessment, the Company concluded that ASU 2014-09 did not materially change the method in which the Company currently recognizes revenue for these revenue
9
streams. The Company also completed its evaluation of certain
costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on its evaluation, the Company determined that the classification of certain debit and credit card relate
d costs should change (i.e., costs previously recorded as expense is now recorded as contra-revenue, and vice versa). These classification changes resulted in immaterial changes to both revenue and expense. The Company also determined that certain costs re
lated to ATMs should be recorded as an expense rather than a reduction of revenue. This change did not have a material effect to noninterest income or expense. The Company adopted ASU 2014-09 and its related amendments on its required effective date of Jul
y 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Consistent with the modified retrospectiv
e approach, the Company did not adjust prior period amounts for the debit and credit card costs and the ATM costs reclassifications noted above. See Note 10
Revenue Recognition
for more information.
In January 2016, the FASB issued ASU No. 2016-01,
“Recognition and Measurement of Financial Assets and Financial Liabilities.”
This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on July 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with (5) above, the Company measured the fair value of its loan portfolio as of September 30, 2018 using an exit price notion (see Note 5 Fair Value of Assets and Liabilities).
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any
10
adjustmen
ts should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective
transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.
The Company adopted this
standard on July 1, 2018 with no material impact on our consolidated financial statements
.
In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
, to clarify certain aspects of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method in accordance with Topic 820,
Fair Value Measurement
, through an irrevocable election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities. (4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied, regardless of whether the fair value option was elected under either Subtopic 815-15,
Derivatives and Hedging—Embedded Derivatives
, or 825-10,
Financial Instruments—Overall
. (5) Financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance in Topic 944,
Financial Services— Insurance
, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities for which the measurement alternative is elected. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted Update 2016-01. The Company adopted this standard on July 1, 2018 with no material impact on our consolidated financial statements.
11
2.
INVESTMENT
SECURITIES
Investment securities available-for-sale was comprised of the following:
|
|
September 30, 2018
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
U.S. Governmental securities
|
|
$
|
961
|
|
|
$
|
—
|
|
|
$
|
(46
|
)
|
|
$
|
915
|
|
Corporate notes
|
|
|
5,803
|
|
|
|
—
|
|
|
|
(99
|
)
|
|
|
5,704
|
|
Collateralized mortgage obligations - agency
residential
|
|
|
13,799
|
|
|
|
—
|
|
|
|
(595
|
)
|
|
|
13,204
|
|
Mortgage-backed securities - agency
residential
|
|
|
3,827
|
|
|
|
—
|
|
|
|
(216
|
)
|
|
|
3,611
|
|
Municipal securities
|
|
|
1,402
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
1,381
|
|
Bank CDs
|
|
|
4,492
|
|
|
|
—
|
|
|
|
(64
|
)
|
|
|
4,428
|
|
|
|
$
|
30,284
|
|
|
$
|
—
|
|
|
$
|
(1,041
|
)
|
|
$
|
29,243
|
|
Investment securities held-to-maturity was comprised of the following:
|
|
September 30, 2018
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Corporate notes
|
|
$
|
2,517
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
2,512
|
|
Municipal securities
|
|
|
11,381
|
|
|
|
25
|
|
|
|
(271
|
)
|
|
|
11,135
|
|
|
|
$
|
13,898
|
|
|
$
|
25
|
|
|
$
|
(276
|
)
|
|
$
|
13,647
|
|
Investment securities available-for-sale was comprised of the following:
|
|
June 30, 2018
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
U.S. Governmental securities
|
|
$
|
1,007
|
|
|
$
|
—
|
|
|
$
|
(40
|
)
|
|
$
|
967
|
|
Corporate notes
|
|
|
5,805
|
|
|
|
5
|
|
|
|
(102
|
)
|
|
|
5,708
|
|
Collateralized mortgage obligations - agency
residential
|
|
|
14,297
|
|
|
|
—
|
|
|
|
(503
|
)
|
|
|
13,794
|
|
Mortgage-backed securities - agency
residential
|
|
|
3,964
|
|
|
|
—
|
|
|
|
(186
|
)
|
|
|
3,778
|
|
Municipal securities
|
|
|
1,701
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
1,680
|
|
Bank CDs
|
|
|
4,992
|
|
|
|
—
|
|
|
|
(72
|
)
|
|
|
4,920
|
|
|
|
$
|
31,766
|
|
|
$
|
5
|
|
|
$
|
(924
|
)
|
|
$
|
30,847
|
|
Investment securities held-to-maturity was comprised of the following:
|
|
June 30, 2018
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Corporate notes
|
|
$
|
2,519
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
2,516
|
|
Municipal securities
|
|
|
11,386
|
|
|
|
34
|
|
|
|
(189
|
)
|
|
|
11,231
|
|
|
|
$
|
13,905
|
|
|
$
|
34
|
|
|
$
|
(192
|
)
|
|
$
|
13,747
|
|
12
The scheduled maturities of securities available-for-sale and held-to-maturity at
September 30
, 2018 were as follows:
|
|
September 30, 2018
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
2,993
|
|
|
$
|
2,975
|
|
|
$
|
605
|
|
|
$
|
604
|
|
Due from one to five years
|
|
|
7,205
|
|
|
|
7,087
|
|
|
|
3,040
|
|
|
|
3,014
|
|
Due from after five to ten years
|
|
|
1,502
|
|
|
|
1,453
|
|
|
|
7,237
|
|
|
|
7,095
|
|
Due after ten years
|
|
|
18,584
|
|
|
|
17,728
|
|
|
|
3,016
|
|
|
|
2,934
|
|
|
|
$
|
30,284
|
|
|
$
|
29,243
|
|
|
$
|
13,898
|
|
|
$
|
13,647
|
|
Securities with a fair value of $9.1 million and $7.8 million at September 30, 2018 and June 30, 2018, respectively, were pledged to secure public deposits and for other purposes as required by law.
There were no proceeds from the sale of available-for-sale securities for the three months ended September 30, 2018. There were no gross realized gains or losses on such sales for the three months ended September 30, 2018.
Proceeds from the sale of available-for-sale securities for the three months ended September 30, 2017 were $11.2 million. Gross realized gains on such sales were approximately $39,000 and gross realized losses on such sales were $5,000 for the three months ended September 30, 2017.
The following tables summarize the unrealized loss positions of securities available-for-sale and held-to-maturity as of September 30, 2018 and June 30, 2018:
|
|
September 30, 2018
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities
|
|
$
|
388
|
|
|
$
|
(15
|
)
|
|
$
|
527
|
|
|
$
|
(31
|
)
|
|
$
|
915
|
|
|
$
|
(46
|
)
|
Corporate notes
|
|
|
1,810
|
|
|
|
(41
|
)
|
|
|
3,894
|
|
|
|
(58
|
)
|
|
|
5,704
|
|
|
|
(99
|
)
|
Collateralized mortgage obligations
|
|
|
8,515
|
|
|
|
(279
|
)
|
|
|
4,689
|
|
|
|
(316
|
)
|
|
|
13,204
|
|
|
|
(595
|
)
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
3,609
|
|
|
|
(216
|
)
|
|
|
3,609
|
|
|
|
(216
|
)
|
Municipal securities
|
|
|
298
|
|
|
|
(2
|
)
|
|
|
1,083
|
|
|
|
(19
|
)
|
|
|
1,381
|
|
|
|
(21
|
)
|
Bank CDs
|
|
|
2,467
|
|
|
|
(27
|
)
|
|
|
1,961
|
|
|
|
(37
|
)
|
|
|
4,428
|
|
|
|
(64
|
)
|
|
|
$
|
13,478
|
|
|
$
|
(364
|
)
|
|
$
|
15,763
|
|
|
$
|
(677
|
)
|
|
$
|
29,241
|
|
|
$
|
(1,041
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes
|
|
$
|
512
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
512
|
|
|
$
|
(5
|
)
|
Municipal securities
|
|
|
6,787
|
|
|
|
(162
|
)
|
|
|
2,820
|
|
|
|
(109
|
)
|
|
|
9,607
|
|
|
|
(271
|
)
|
|
|
$
|
7,299
|
|
|
$
|
(167
|
)
|
|
$
|
2,820
|
|
|
$
|
(109
|
)
|
|
$
|
10,119
|
|
|
$
|
(276
|
)
|
13
|
|
June 30, 2018
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
(Dollars in thousands)
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities
|
|
$
|
414
|
|
|
$
|
(11
|
)
|
|
$
|
553
|
|
|
$
|
(29
|
)
|
|
$
|
967
|
|
|
$
|
(40
|
)
|
Corporate notes
|
|
|
2,308
|
|
|
|
(45
|
)
|
|
|
2,895
|
|
|
|
(57
|
)
|
|
|
5,203
|
|
|
|
(102
|
)
|
Collateralized mortgage obligations
|
|
|
8,798
|
|
|
|
(216
|
)
|
|
|
4,996
|
|
|
|
(287
|
)
|
|
|
13,794
|
|
|
|
(503
|
)
|
Mortgage-backed securities
|
|
|
—
|
|
|
|
—
|
|
|
|
3,774
|
|
|
|
(186
|
)
|
|
|
3,774
|
|
|
|
(186
|
)
|
Municipal securities
|
|
|
299
|
|
|
|
(1
|
)
|
|
|
1,082
|
|
|
|
(20
|
)
|
|
|
1,381
|
|
|
|
(21
|
)
|
Bank CDs
|
|
|
2,457
|
|
|
|
(35
|
)
|
|
|
2,212
|
|
|
|
(37
|
)
|
|
|
4,669
|
|
|
|
(72
|
)
|
|
|
$
|
14,276
|
|
|
$
|
(308
|
)
|
|
$
|
15,512
|
|
|
$
|
(616
|
)
|
|
$
|
29,788
|
|
|
$
|
(924
|
)
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes
|
|
$
|
516
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
516
|
|
|
$
|
(3
|
)
|
Municipal securities
|
|
|
5,542
|
|
|
|
(100
|
)
|
|
|
3,375
|
|
|
|
(89
|
)
|
|
|
8,917
|
|
|
|
(189
|
)
|
|
|
$
|
6,058
|
|
|
$
|
(103
|
)
|
|
$
|
3,375
|
|
|
$
|
(89
|
)
|
|
$
|
9,433
|
|
|
$
|
(192
|
)
|
At September 30, 2018 and June 30, 2018, the investment portfolio included three U.S. Government securities, respectively, with total fair values of $915,000 and $1.0 million, respectively. Of these securities, three were in an unrealized loss position as of September 30, 2018 and June 30, 2018, respectively. These securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of September 30, 2018 and June 30, 2018, management found no evidence of other-than-temporary (“OTTI”) on any of the U.S. Governmental securities in an unrealized loss position held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At September 30, 2018 and June 30, 2018, the investment portfolio included fifteen corporate notes with total fair values of $8.2 million at the end of each of period, respectively. Of these securities, thirteen and twelve were in an unrealized loss position as of September 30, 2018 and June 30, 2018. At the time of purchase and as of September 30, 2018 and June 30, 2018, these bonds in an unrealized loss position continue to maintain investment grade ratings. As of September 30, 2018 and June 30, 2018, management found no evidence of OTTI on any of the corporate notes held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At September 30, 2018 and June 30, 2018, the investment portfolio included forty-one collateralized mortgage obligations (“CMOs”) with total fair values of $13.2 million and $13.8 million, respectively. Of these securities, forty-one were in an unrealized loss position as of September 30, 2018 and June 30, 2018, respectively. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2018 and June 30, 2018, management found no evidence of OTTI on any of the CMOs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At September 30, 2018 and June 30, 2018, the investment portfolio included fifteen mortgage backed securities (“MBS”) with a total fair value of $3.6 million and $3.8 million, respectively. Of these securities, thirteen and twelve were in an unrealized loss position as of September 30, 2018 and June 30, 2018, respectively. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2018 and June 30, 2018, management found no evidence of OTTI on any of the MBS held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
14
At
September 30, 2018 and June 30, 2018
, the investment portfolio included
twenty-seven
and
twenty-eight
municipal securities with a total
fair value of $
12.5
million and
$12.9
million, respectively. Of these securities,
twenty-three
and
twenty-one
were in an unrealized loss position as of
September 30, 2018 and June 30, 2018
, respectively. The Company’s municipal portfolio issuers are locate
d in Pennsylvania and at the time of purchase, and as of
September 30, 2018 and June 30, 2018
, continue to maintain investment grade ratings. As of
September 30, 2018 and June 30, 2018
, management found no evidence of OTTI on any of the municipal securitie
s held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At September 30, 2018 and June 30, 2018, the investment portfolio included eighteen and twenty Bank Certificate of Deposits (“CDs”) with a total fair value of $4.4 million and $4.9 million, respectively. Of these securities, eighteen and nineteen were in an unrealized loss position as of September 30, 2018 and June 30, 2018, respectively. The Bank CDs
are fully insured by the FDIC. As of September 30, 2018 and June 30, 2018, management found no evidence of OTTI on any of the Bank CDs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
3. EQUITY SECURITIES
During September 2018, the Company purchased an equity security for $500,000. The Company determined that the equity investment did not have a readily determinable fair value measure and is carrying the equity investment at cost, less impairment, adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The following table presents the carrying amount of the Company’s equity investment at September 30, 2018:
|
|
2018
|
|
(dollars in thousands)
|
|
Year-to-date
|
|
|
Life-to-date
|
|
Amortized cost
|
|
$
|
500
|
|
|
$
|
500
|
|
Impairment
|
|
|
—
|
|
|
|
—
|
|
Observable price changes
|
|
|
—
|
|
|
|
—
|
|
Carrying value
|
|
$
|
500
|
|
|
$
|
500
|
|
At September 30, 2018, the Company performed a qualitative assessment considering impairment indictors to evaluate whether the investment was impaired and determined the investment was not impaired.
15
4
. L
OANS
R
ECEIVABLE
Loans receivable were comprised of the following:
|
|
September 30,
|
|
|
June 30,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2018
|
|
Residential:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
195,753
|
|
|
$
|
182,234
|
|
Home equity and HELOCs
|
|
|
4,230
|
|
|
|
4,921
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,438
|
|
|
|
10,804
|
|
Commercial business
|
|
|
3,729
|
|
|
|
4,059
|
|
Construction
|
|
|
3,230
|
|
|
|
2,907
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
7,013
|
|
|
|
7,047
|
|
Other
|
|
|
3
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
224,396
|
|
|
|
212,003
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Unearned discounts, origination and commitment
fees and costs
|
|
|
1,712
|
|
|
|
1,564
|
|
Allowance for loan losses
|
|
|
(931
|
)
|
|
|
(871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225,177
|
|
|
$
|
212,696
|
|
In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean Nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At September 30, 2018, the balance of the private education loans was $7.0 million. The private student loans are made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. Recourse includes a fully paid insurance wrap for the life of the loan provided by an insurance company who is required to repurchase loans delinquent over 180 days. However, in June 2018, the Company was informed that the insurance company was declared insolvent by state insurance regulators and adopted a plan of liquidation. The default claims will continue to be filed with the insurance company’s liquidator if accounts reach the 180
th
day of delinquency. At September 30, 2018, there were no delinquent loans which required filing a claim. Any future claims that may be submitted would be subject to the available liquidated assets at that time. As such, there is no assurance that the future claims will be paid in part or in full.
Overdraft deposits are reclassified as other consumer and are included in the total loans on the statements of financial condition. Overdrafts were $3,000 and $31,000 at September 30, 2018 and June 30, 2018, respectively.
16
The following table
s
summarize the activity in the allowance for loan losses by loan class for the three months ended
September 30
, 2018 and 2017.
Allowance for Loan Losses
|
|
For the three months ended September 30, 2018
|
|
(Dollars in thousands)
|
|
Beginning
Balance
|
|
|
Charge-
offs
|
|
|
Recoveries
|
|
|
(Credit)
Provisions
|
|
|
Ending
Balance
|
|
|
Ending
Balance:
Individually
Evaluated
for
Impairment
|
|
|
Ending
Balance:
Collectively
Evaluated
for
Impairments
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
651
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
43
|
|
|
$
|
695
|
|
|
$
|
—
|
|
|
$
|
695
|
|
Home equity and HELOCs
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
41
|
|
|
|
—
|
|
|
|
41
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
65
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
61
|
|
|
|
—
|
|
|
|
61
|
|
Commercial business
|
|
|
65
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
61
|
|
|
|
14
|
|
|
|
47
|
|
Construction
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
16
|
|
|
|
—
|
|
|
|
16
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
57
|
|
|
|
—
|
|
|
|
57
|
|
Other
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
871
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
59
|
|
|
$
|
931
|
|
|
$
|
14
|
|
|
$
|
917
|
|
Allowance for Loan Losses
|
|
For the three months ended September 30, 2017
|
|
(Dollars in thousands)
|
|
Beginning
Balance
|
|
|
Charge-
offs
|
|
|
Recoveries
|
|
|
(Credit)
Provisions
|
|
|
Ending
Balance
|
|
|
Ending
Balance:
Individually
Evaluated
for
Impairment
|
|
|
Ending
Balance:
Collectively
Evaluated
for
Impairments
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
399
|
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
(23
|
)
|
|
$
|
420
|
|
|
$
|
—
|
|
|
$
|
420
|
|
Home equity and HELOCs
|
|
|
38
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
39
|
|
|
|
—
|
|
|
|
39
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
89
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
18
|
|
|
|
85
|
|
|
|
—
|
|
|
|
85
|
|
Commercial business
|
|
|
58
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
68
|
|
|
|
13
|
|
|
|
55
|
|
Construction
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
593
|
|
|
$
|
(22
|
)
|
|
$
|
45
|
|
|
$
|
(1
|
)
|
|
$
|
615
|
|
|
$
|
13
|
|
|
$
|
602
|
|
17
The Company maintains a general allowance for loan losses based on evaluating known
and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience,
and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared. The Company
allocated increased allowance for loan loss provisions to the
residential one-to-four family for the three months ended September 30, 2018 comp
ared to the same period in 2017
, due primarily to the significant increase in the loan balance.
In November 2017, the Bank entered into a loan purchase agreement for a portfol
io of private medical education loans.
The Company
allocated increased allowance for loan loss provisions to the medical education loans for the three months ended September 30, 2018 primarily as a result of the increase in quantitative factors impacted by
increased past due loan balances.
The following tables summarize information in regards to the recorded investment in loans receivable by loan class as of September 30, 2018 and June 30, 2018:
September 30, 2018
|
|
Loans Receivable
|
|
(Dollars in thousands)
|
|
Ending
Balance
|
|
|
Ending
Balance:
Individually
Evaluated
for
Impairment
|
|
|
Ending
Balance:
Collectively
Evaluated
for
Impairment
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
195,753
|
|
|
$
|
1,321
|
|
|
$
|
194,432
|
|
Home equity and HELOCs
|
|
|
4,230
|
|
|
|
105
|
|
|
|
4,125
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,438
|
|
|
|
394
|
|
|
|
10,044
|
|
Commercial business
|
|
|
3,729
|
|
|
|
147
|
|
|
|
3,582
|
|
Construction
|
|
|
3,230
|
|
|
|
—
|
|
|
|
3,230
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
7,013
|
|
|
|
—
|
|
|
|
7,013
|
|
Other
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,396
|
|
|
$
|
1,967
|
|
|
$
|
222,429
|
|
June 30, 2018
|
|
Loans Receivable
|
|
(Dollars in thousands)
|
|
Ending
Balance
|
|
|
Ending
Balance:
Individually
Evaluated
for
Impairment
|
|
|
Ending
Balance:
Collectively
Evaluated
for
Impairment
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
182,234
|
|
|
$
|
1,429
|
|
|
$
|
180,805
|
|
Home equity and HELOCs
|
|
|
4,921
|
|
|
|
105
|
|
|
|
4,816
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,804
|
|
|
|
398
|
|
|
|
10,406
|
|
Commercial business
|
|
|
4,059
|
|
|
|
153
|
|
|
|
3,906
|
|
Construction
|
|
|
2,907
|
|
|
|
—
|
|
|
|
2,907
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
7,047
|
|
|
|
—
|
|
|
|
7,047
|
|
Other
|
|
|
31
|
|
|
|
—
|
|
|
|
31
|
|
|
|
$
|
212,003
|
|
|
$
|
2,085
|
|
|
$
|
209,918
|
|
18
The following table summarizes information in regard to impaired loans by loan portfolio class as of September 30, 2018 and June 30, 2018:
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
1,321
|
|
|
$
|
1,478
|
|
|
$
|
—
|
|
|
$
|
1,429
|
|
|
$
|
1,592
|
|
|
$
|
—
|
|
Home equity and HELOCs
|
|
|
105
|
|
|
|
106
|
|
|
|
—
|
|
|
|
105
|
|
|
|
106
|
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
394
|
|
|
|
394
|
|
|
|
—
|
|
|
|
398
|
|
|
|
398
|
|
|
|
—
|
|
|
|
|
1,820
|
|
|
|
1,978
|
|
|
|
—
|
|
|
|
1,932
|
|
|
|
2,096
|
|
|
|
—
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
147
|
|
|
|
149
|
|
|
|
14
|
|
|
|
153
|
|
|
|
154
|
|
|
|
14
|
|
|
|
|
147
|
|
|
|
149
|
|
|
|
14
|
|
|
|
153
|
|
|
|
154
|
|
|
|
14
|
|
|
|
$
|
1,967
|
|
|
$
|
2,127
|
|
|
$
|
14
|
|
|
$
|
2,085
|
|
|
$
|
2,250
|
|
|
$
|
14
|
|
The following table presents additional information regarding the impaired loans for the three months ended September 30, 2018 and September 30, 2017:
|
|
Three Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
(Dollars in thousands)
|
|
Average
Record
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Record
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
1,427
|
|
|
$
|
—
|
|
|
$
|
1,207
|
|
|
$
|
2
|
|
Home equity and HELOCs
|
|
|
122
|
|
|
|
—
|
|
|
|
191
|
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
418
|
|
|
|
11
|
|
|
|
501
|
|
|
|
6
|
|
|
|
|
1,967
|
|
|
|
11
|
|
|
|
1,899
|
|
|
|
8
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and HELOCs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial business
|
|
|
158
|
|
|
|
2
|
|
|
|
171
|
|
|
|
2
|
|
|
|
|
158
|
|
|
|
2
|
|
|
|
171
|
|
|
|
2
|
|
|
|
$
|
2,125
|
|
|
$
|
13
|
|
|
$
|
2,070
|
|
|
$
|
10
|
|
If these loans were performing under the original contractual rate, interest income on such loans would have increased approximately $21,000 and $22,000 for the three months ended September 30, 2018 and 2017, respectively.
19
The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2018 and June 30, 2018:
|
|
September 30,
|
|
|
June 30,
|
|
(Dollars in thousands)
|
|
2018
|
|
|
2018
|
|
Residential:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
1,403
|
|
|
$
|
1,429
|
|
Home equity and HELOCs
|
|
|
105
|
|
|
|
105
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,508
|
|
|
$
|
1,534
|
|
Credit quality risk ratings include regulatory classifications of Special Mention, Substandard, Doubtful and Loss. Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.
The following tables summarize the aggregate Pass and criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of September 30, 2018 and June 30, 2018:
|
|
September 30, 2018
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
193,741
|
|
|
$
|
—
|
|
|
$
|
2,012
|
|
|
$
|
—
|
|
|
$
|
195,753
|
|
Home equity and HELOCs
|
|
|
4,125
|
|
|
|
—
|
|
|
|
105
|
|
|
|
—
|
|
|
|
4,230
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
9,830
|
|
|
|
214
|
|
|
|
394
|
|
|
|
—
|
|
|
|
10,438
|
|
Commercial business
|
|
|
3,458
|
|
|
|
—
|
|
|
|
271
|
|
|
|
—
|
|
|
|
3,729
|
|
Construction
|
|
|
3,230
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,230
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
7,013
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,013
|
|
Other
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
$
|
221,400
|
|
|
$
|
214
|
|
|
$
|
2,782
|
|
|
$
|
—
|
|
|
$
|
224,396
|
|
20
|
|
June 30, 2018
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
180,248
|
|
|
$
|
—
|
|
|
$
|
1,986
|
|
|
$
|
—
|
|
|
$
|
182,234
|
|
Home equity and HELOCs
|
|
|
4,816
|
|
|
|
—
|
|
|
|
105
|
|
|
|
—
|
|
|
|
4,921
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
10,190
|
|
|
|
216
|
|
|
|
398
|
|
|
|
—
|
|
|
|
10,804
|
|
Commercial business
|
|
|
3,773
|
|
|
|
—
|
|
|
|
286
|
|
|
|
—
|
|
|
|
4,059
|
|
Construction
|
|
|
2,907
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,907
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
7,047
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,047
|
|
Other
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
$
|
209,012
|
|
|
$
|
216
|
|
|
$
|
2,775
|
|
|
$
|
—
|
|
|
$
|
212,003
|
|
The following tables present the segments of the loan portfolio summarized by aging categories as of September 30, 2018 and June 30, 2018:
|
|
September 30, 2018
|
|
(Dollars in thousands)
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Loans
Receivable
>90 Days
and
Accruing
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
571
|
|
|
$
|
347
|
|
|
$
|
1,043
|
|
|
$
|
1,961
|
|
|
$
|
193,792
|
|
|
$
|
195,753
|
|
|
$
|
—
|
|
Home equity and HELOCs
|
|
|
—
|
|
|
|
—
|
|
|
|
105
|
|
|
|
105
|
|
|
|
4,125
|
|
|
|
4,230
|
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,438
|
|
|
|
10,438
|
|
|
|
—
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,729
|
|
|
|
3,729
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,230
|
|
|
|
3,230
|
|
|
|
—
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
885
|
|
|
|
108
|
|
|
|
178
|
|
|
|
1,171
|
|
|
|
5,842
|
|
|
|
7,013
|
|
|
|
178
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,456
|
|
|
$
|
455
|
|
|
$
|
1,326
|
|
|
$
|
3,237
|
|
|
$
|
221,159
|
|
|
$
|
224,396
|
|
|
$
|
178
|
|
21
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
|
30-59
Days Past
Due
|
|
|
60-89
Days Past
Due
|
|
|
Greater
than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Loans
Receivable
>90 Days
and
Accruing
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
595
|
|
|
$
|
412
|
|
|
$
|
800
|
|
|
$
|
1,807
|
|
|
$
|
180,427
|
|
|
$
|
182,234
|
|
|
$
|
—
|
|
Home equity and HELOCs
|
|
|
—
|
|
|
|
—
|
|
|
|
105
|
|
|
|
105
|
|
|
|
4,816
|
|
|
|
4,921
|
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,804
|
|
|
|
10,804
|
|
|
|
—
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,059
|
|
|
|
4,059
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,907
|
|
|
|
2,907
|
|
|
|
—
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education
|
|
|
152
|
|
|
|
62
|
|
|
|
24
|
|
|
|
238
|
|
|
|
6,809
|
|
|
|
7,047
|
|
|
|
24
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
31
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
747
|
|
|
$
|
474
|
|
|
$
|
929
|
|
|
$
|
2,150
|
|
|
$
|
209,853
|
|
|
$
|
212,003
|
|
|
$
|
24
|
|
The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan that is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers' operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company's allowance for loan losses. TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the modified contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
The Company may identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.
As of September 30, 2018 and June 30, 2018, the Company had two loans identified as TDRs totaling $296,000 and $304,000, respectively. At September 30, 2018 and June 30, 2018, all of the TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during the three months ended September 30, 2018. No additional loan commitments were outstanding to these borrowers at September 30, 2018 and June 30, 2018. At both September 30, 2018 and June 30, 2018, there was a specific reserve of $14,000 related to one TDR.
The following table details the Company’s TDRs that are on accrual status and non-accrual status at September 30, 2018:
|
|
As of September 30, 2018
|
|
|
|
Number
|
|
|
Accrual
|
|
|
Non-Accrual
|
|
|
|
|
|
(Dollars in thousands)
|
|
Of Loans
|
|
|
Status
|
|
|
Status
|
|
|
Total TDRs
|
|
Commercial real estate
|
|
|
1
|
|
|
$
|
149
|
|
|
$
|
—
|
|
|
$
|
149
|
|
Commercial business
|
|
|
1
|
|
|
|
147
|
|
|
|
—
|
|
|
|
147
|
|
Total
|
|
|
2
|
|
|
$
|
296
|
|
|
$
|
—
|
|
|
$
|
296
|
|
22
The following table details the Company’s TDRs that are on accrual status and non-accrual status at June 30, 2018:
|
|
As of June 30, 2018
|
|
|
|
Number
|
|
|
Accrual
|
|
|
Non-Accrual
|
|
|
|
|
|
(Dollars in thousands)
|
|
Of Loans
|
|
|
Status
|
|
|
Status
|
|
|
Total TDRs
|
|
Commercial real estate
|
|
|
1
|
|
|
$
|
151
|
|
|
$
|
—
|
|
|
$
|
151
|
|
Commercial business
|
|
|
1
|
|
|
|
153
|
|
|
|
—
|
|
|
|
153
|
|
Total
|
|
|
2
|
|
|
$
|
304
|
|
|
$
|
—
|
|
|
$
|
304
|
|
The carrying amount of residential mortgage loans in the process of foreclosure was $562,000 and $565,000 at September 30, 2018 and June 30, 2018, respectively.
5. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of September 30, 2018 and June 30, 2018 and for the three months ended September 30, 2018 and 2017. The following tables summarize the amounts recorded in the Company’s consolidated statements of financial condition for derivatives not designated as hedging instruments as of September 30, 2018 and June 30, 2018 (in thousands):
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Notional
|
|
|
|
Presentation
|
|
Fair Value
|
|
|
Amount
|
|
Interest rate lock commitments
|
|
Mortgage banking derivatives
|
|
$
|
276
|
|
|
$
|
11,263
|
|
Forward loan sales commitments
|
|
Mortgage banking derivatives
|
|
|
123
|
|
|
|
4,624
|
|
To Be Announced securities ("TBAs")
|
|
Mortgage banking derivatives
|
|
|
31
|
|
|
|
7,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Notional
|
|
|
|
Presentation
|
|
Fair Value
|
|
|
Amount
|
|
Interest rate lock commitments
|
|
Other liabilities
|
|
$
|
34
|
|
|
$
|
4,100
|
|
Forward loan sales commitments
|
|
Other liabilities
|
|
|
10
|
|
|
|
467
|
|
TBA securities
|
|
Other liabilities
|
|
|
24
|
|
|
|
10,750
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Notional
|
|
|
|
Presentation
|
|
Fair Value
|
|
|
Amount
|
|
Interest rate lock commitments
|
|
Mortgage banking derivatives
|
|
$
|
642
|
|
|
$
|
20,589
|
|
Forward loan sales commitments
|
|
Mortgage banking derivatives
|
|
|
175
|
|
|
|
4,687
|
|
TBA securities
|
|
Mortgage banking derivatives
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
|
|
Notional
|
|
|
|
Presentation
|
|
Fair Value
|
|
|
Amount
|
|
Interest rate lock commitments
|
|
Other liabilities
|
|
$
|
56
|
|
|
$
|
6,795
|
|
Forward loan sales commitments
|
|
Other liabilities
|
|
|
4
|
|
|
|
1,522
|
|
TBA securities
|
|
Other liabilities
|
|
|
78
|
|
|
|
17,750
|
|
23
The following table summarizes the amounts recorded in the Company’s consolidated statements of income for derivative instruments not designated as hedging instruments for the three months ended
September 30
, 2018 and
September 30
, 2017 (in thousands):
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Consolidated Statements of Income Presentation
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Interest rate lock commitments
|
|
Loss from derivative instruments
|
|
$
|
(344
|
)
|
|
$
|
(369
|
)
|
Forward loan sales commitments
|
|
Loss from derivative instruments
|
|
|
(58
|
)
|
|
|
(8
|
)
|
To Be Announced securities
|
|
Gain (loss) from derivative instruments
|
|
|
85
|
|
|
|
(13
|
)
|
|
|
Total loss from derivative instruments
|
|
$
|
(317
|
)
|
|
$
|
(390
|
)
|
6.
FAIR VALUE PRESENTATION
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
24
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of t
he assumptions used to determine fair value.
Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on 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 asset or liability.
Level 3 – Valuation is based on 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 determination of fair value requires significant management judgment or estimation.
The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of September 30, 2018 and June 30, 2018:
|
|
September 30, 2018
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities
|
|
$
|
—
|
|
|
$
|
915
|
|
|
$
|
—
|
|
|
$
|
915
|
|
Corporate notes
|
|
|
—
|
|
|
|
5,209
|
|
|
|
495
|
|
|
|
5,704
|
|
Collateralized mortgage obligations -
agency residential
|
|
|
—
|
|
|
|
13,204
|
|
|
|
—
|
|
|
|
13,204
|
|
Mortgage-backed securities - agency
residential
|
|
|
—
|
|
|
|
3,611
|
|
|
|
—
|
|
|
|
3,611
|
|
Municipal securities
|
|
|
—
|
|
|
|
1,381
|
|
|
|
—
|
|
|
|
1,381
|
|
Bank CDs
|
|
|
—
|
|
|
|
4,428
|
|
|
|
—
|
|
|
|
4,428
|
|
Loans held for sale
|
|
|
—
|
|
|
|
15,853
|
|
|
|
—
|
|
|
|
15,853
|
|
Forward loan sales commitments
|
|
|
—
|
|
|
|
123
|
|
|
|
—
|
|
|
|
123
|
|
TBA securities
|
|
|
—
|
|
|
|
31
|
|
|
|
—
|
|
|
|
31
|
|
Interest rate lock commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
276
|
|
|
|
276
|
|
|
|
$
|
—
|
|
|
$
|
44,755
|
|
|
$
|
771
|
|
|
$
|
45,526
|
|
25
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities
|
|
$
|
—
|
|
|
$
|
967
|
|
|
$
|
—
|
|
|
$
|
967
|
|
Corporate notes
|
|
|
—
|
|
|
|
5,214
|
|
|
|
494
|
|
|
|
5,708
|
|
Collateralized mortgage obligations -
agency residential
|
|
|
—
|
|
|
|
13,794
|
|
|
|
—
|
|
|
|
13,794
|
|
Mortgage-backed securities - agency
residential
|
|
|
—
|
|
|
|
3,778
|
|
|
|
—
|
|
|
|
3,778
|
|
Municipal securities
|
|
|
—
|
|
|
|
1,680
|
|
|
|
—
|
|
|
|
1,680
|
|
Bank CDs
|
|
|
—
|
|
|
|
4,920
|
|
|
|
—
|
|
|
|
4,920
|
|
Loans held for sale
|
|
|
—
|
|
|
|
13,558
|
|
|
|
—
|
|
|
|
13,558
|
|
Forward loan sales commitments
|
|
|
—
|
|
|
|
175
|
|
|
|
—
|
|
|
|
175
|
|
TBA securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest rate lock commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
642
|
|
|
|
642
|
|
|
|
$
|
—
|
|
|
$
|
44,086
|
|
|
$
|
1,136
|
|
|
$
|
45,222
|
|
The following tables provide the fair value for liabilities required to be measured and reported at fair value on a recurring basis as of September 30, 2018 and June 30, 2018.
|
|
September 30, 2018
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Forward loan sales commitments
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
10
|
|
TBA securities
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
24
|
|
Interest rate lock commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
34
|
|
Liabilities measured at fair value on a recurring basis at June 30, 2018 are summarized below.
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Forward loan sales commitments
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
TBA securities
|
|
|
—
|
|
|
|
78
|
|
|
|
—
|
|
|
|
78
|
|
Interest rate lock commitments
|
|
|
—
|
|
|
|
—
|
|
|
|
56
|
|
|
|
56
|
|
The following tables represent the change in the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2018 and 2017:
|
|
Level 3
|
|
(Dollars in thousands)
|
|
Bank CDs
|
|
|
Corporate
notes
|
|
|
IRLC-
Asset
|
|
|
IRLC-
Liability
|
|
Beginning Balance: July 1, 2018
|
|
$
|
—
|
|
|
$
|
494
|
|
|
$
|
642
|
|
|
$
|
(56
|
)
|
Total gains (unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
Total (losses) or gains included in
earnings and held at reporting date
|
|
|
—
|
|
|
|
—
|
|
|
|
(366
|
)
|
|
|
22
|
|
Transfers in and/or out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Ending Balance: September 30, 2018
|
|
$
|
—
|
|
|
$
|
495
|
|
|
$
|
276
|
|
|
$
|
(34
|
)
|
26
|
|
Level 3
|
|
(Dollars in thousands)
|
|
Bank CDs
|
|
|
Corporate
notes
|
|
|
IRLC-
Asset
|
|
|
IRLC-
Liability
|
|
Beginning Balance: July 1, 2017
|
|
$
|
243
|
|
|
$
|
968
|
|
|
$
|
786
|
|
|
$
|
(19
|
)
|
Total losses (unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
Total (losses) or gains included in
earnings and held at reporting date
|
|
|
—
|
|
|
|
—
|
|
|
|
(374
|
)
|
|
|
4
|
|
Transfers in and/or out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Ending Balance: September 30, 2017
|
|
$
|
243
|
|
|
$
|
982
|
|
|
$
|
412
|
|
|
$
|
(15
|
)
|
There were no assets measured at fair value on a nonrecurring basis at September 30, 2018 and June 30, 2018.
The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition as of September 30, 2018 and June 30, 2018:
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
September 30, 2018
|
|
Carrying
|
|
|
Estimated
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,020
|
|
|
$
|
6,020
|
|
|
$
|
6,020
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities held-to-maturity
|
|
|
13,898
|
|
|
|
13,647
|
|
|
|
—
|
|
|
|
11,647
|
|
|
|
2,000
|
|
Equity securities
|
|
|
500
|
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Loans receivable, net
(1)
|
|
|
225,177
|
|
|
|
215,789
|
|
|
|
—
|
|
|
|
—
|
|
|
|
215,789
|
|
Bank-owned life insurance
|
|
|
6,056
|
|
|
|
6,056
|
|
|
|
6,056
|
|
|
|
—
|
|
|
|
—
|
|
Restricted investment in bank stock
|
|
|
900
|
|
|
|
900
|
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
968
|
|
|
|
968
|
|
|
|
968
|
|
|
|
—
|
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
251,059
|
|
|
$
|
251,109
|
|
|
$
|
178,135
|
|
|
$
|
72,974
|
|
|
$
|
—
|
|
Advances from the FHLB
|
|
|
14,000
|
|
|
|
13,787
|
|
|
|
7,000
|
|
|
|
6,787
|
|
|
|
—
|
|
Securities sold under agreements to
repurchase
|
|
|
3,215
|
|
|
|
3,212
|
|
|
|
3,212
|
|
|
|
—
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
109
|
|
|
|
109
|
|
|
|
109
|
|
|
|
—
|
|
|
|
—
|
|
Off-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to extend credit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In accordance with the prospective adoption of ASU No. 2016-01, the fair value of the loans as of September 30, 2018 was measured using an exit price notion. The fair value of loans as of June 30, 2018 was measured using an entry price notion.
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
June 30, 2018
|
|
Carrying
|
|
|
Estimated
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,475
|
|
|
$
|
14,475
|
|
|
$
|
14,475
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities held-to-maturity
|
|
|
13,905
|
|
|
|
13,747
|
|
|
|
—
|
|
|
|
11,747
|
|
|
|
2,000
|
|
Loans receivable, net
|
|
|
212,696
|
|
|
|
205,026
|
|
|
|
—
|
|
|
|
—
|
|
|
|
205,026
|
|
Bank-owned life insurance
|
|
|
6,016
|
|
|
|
6,016
|
|
|
|
6,016
|
|
|
|
—
|
|
|
|
—
|
|
Restricted investment in bank stock
|
|
|
1,190
|
|
|
|
1,190
|
|
|
|
1,190
|
|
|
|
—
|
|
|
|
—
|
|
Accrued interest receivable
|
|
|
940
|
|
|
|
940
|
|
|
|
940
|
|
|
|
—
|
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
235,403
|
|
|
$
|
232,905
|
|
|
$
|
191,953
|
|
|
$
|
40,952
|
|
|
$
|
—
|
|
Advances from the FHLB
|
|
|
22,000
|
|
|
|
21,807
|
|
|
|
10,000
|
|
|
|
11,807
|
|
|
|
—
|
|
Securities sold under agreements to
repurchase
|
|
|
5,739
|
|
|
|
5,734
|
|
|
|
5,734
|
|
|
|
—
|
|
|
|
—
|
|
Accrued interest payable
|
|
|
74
|
|
|
|
74
|
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
Off-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to extend credit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. There were no changes in methodologies or transfers between levels at September 30, 2018. During the three months ended June 30, 2018, a Bank CD was transferred out of Level 3 as the Company determined there were the significant observable inputs to classify the Bank CD as sufficiently observable. Therefore, at June 30, 2018, the Bank CD was transferred into a Level 2 valuation.
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2018 and June 30, 2018:
Cash and Cash Equivalents
These short-term assets are valued at their face value, which approximate fair value.
Investments (Available- for- Sale and Held- to- Maturity)
Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain Mortgage Backed Securities (MBS), Collateralized Mortgage Obligations (CMO), Corporate notes, and Municipal and U.S government securities. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Investment securities classified within Level 3 include certain equity securities that do not have readily available market prices, certain corporate notes, certain Bank CDS and other less liquid investment securities. If observable market-based inputs are not available, we use unobservable inputs to determine appropriate valuation adjustments by reviewing valuation reports provided by a third-party (Level 3).
28
Loans Held for Sale at Fair Value
All mortgage loans held for sale are carried at fair value which is determined on a recurring basis by utilizing quoted prices from dealers in such loans.
The Company's mortgage loans held for sale are generally classified within Level 2 of the valuation hierarchy.
The
f
o
l
l
o
w
i
ng
t
a
b
l
e
r
e
f
l
e
c
t
s
t
he
d
i
f
f
e
r
en
c
e be
t
w
e
en
t
he
c
a
rr
y
i
ng a
m
ount
of
m
o
rt
g
a
g
e
l
oans
h
e
l
d
f
o
r
s
a
l
e
,
m
ea
s
u
r
ed
at
f
a
i
r
v
a
l
ue
a
n
d
t
he
a
gg
r
e
g
a
t
e
unp
a
i
d
p
r
i
nc
i
p
a
l
a
m
ou
n
t
t
h
at
t
he
Company
is
co
nt
r
a
c
t
u
al
ly
en
t
i
t
l
ed
t
o
r
ec
e
i
v
e at
m
a
t
u
r
i
t
y
as
of
September 30, 2018
and June
30, 2018 (in thousands
):
Loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
Aggregated Unpaid Principal Balance
|
|
|
Excess Carrying
Amount Over
Aggregate Unpaid
Principal Balance
|
|
September 30, 2018
|
|
$
|
15,853
|
|
|
$
|
15,513
|
|
|
$
|
340
|
|
June 30, 2018
|
|
$
|
13,558
|
|
|
$
|
13,279
|
|
|
$
|
279
|
|
The
Company
d
i
d not
h
a
v
e any
m
o
rt
g
a
g
e
l
oans h
e
l
d
f
or
sa
l
e
r
eco
r
ded
a
t
f
a
i
r
v
a
l
ue
t
ha
t
w
e
r
e
9
0 or mo
r
e da
y
s pa
s
t due and
on no
n
-
acc
r
u
a
l
at
September 30
, 2018 or June 30, 2018
.
Interest Rate Lock Commitments (“IRLC”)
The fair value of the Company’s IRLC instruments are based upon the underlying mortgage loan adjusted for the probability of such commitments being exercised and estimated costs to complete and originate the loan. The Company’s IRLCs are classified within Level 3 of the valuation hierarchy as a result of unobservable market data inputs.
Forward Loan Sale Commitments
Fair values for forward loan sales commitments are based on forward prices with dealers in such securities. Due to the observable inputs used by the Company, the Company’s forward loan sales commitments are classified within Level 2 of the valuation hierarchy.
To Be Announced Securities (“TBAs”)
TBAs are valued based on forward dealer marks from the Company’s approved counterparties. The Company utilizes a third party market pricing service which compiles current prices for instruments from market sources, and those prices represent the current executable price. Due to the observable inputs used by the Company, the Company’s TBAs are classified within Level 2 of the valuation hierarchy.
Loan Receivable, Net
Fair values are estimated for portfolios of loans with similar financial characteristics. For loans that reprice frequently, the carrying value approximates fair value. The fair value of other type of loans is estimated by discounting expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit ratings and for similar remaining maturities.
29
Impaired Loans
The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral. The fair value of collateral is based on appraisals performed by qualified licensed appraisers hired by the Company. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level III measurement. At September 30, 2018 and June 30, 2018, the fair value of the collateral exceeded the carrying amount of the loan; therefore there are no impaired loans currently being carried at its fair value.
Bank-Owned Life Insurance
The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.
Restricted Investment in Bank Stock
The stock is carried at cost; which approximates fair value and considers the limited marketability of such securities.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amount of accrued interest receivable and payable approximates their respective fair values.
Deposits
The carrying amount of demand deposits, savings accounts and money market deposits approximate their fair value. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities. The fair value of certificates of deposit is estimated discounting the contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities.
Advances from the FHLB
The fair value of advances is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for borrowings with comparable terms, credit, and remaining maturities.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are carried at the amounts at which the securities will be subsequently repurchased as specified in the agreements and the carrying amount is a reasonable estimate of the fair value. The Company values the collateral on a daily basis and obtains additional collateral, if necessary, to protect the Company in the event of default by the counterparties.
30
Commitments to Extend Credit
The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because commitments to extend credit are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties and is not considered material for disclosure.
7. CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present the changes in the balances of each component of accumulated other comprehensive income (“AOCI”) for the three months ended September 30, 2018 and September 30, 2017. All amounts are presented net of tax.
Net unrealized holding gains on available-for-sales securities
(1)
:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(Dollars in thousands)
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Balance at beginning period
|
|
$
|
(648
|
)
|
|
$
|
(111
|
)
|
Unrealized holding losses on available-for-sale
securities before reclassification
|
|
|
(86
|
)
|
|
|
(12
|
)
|
Amount reclassified for investment
securities gains included in net income
|
|
|
—
|
|
|
|
(25
|
)
|
Net current-period other comprehensive loss
|
|
|
(86
|
)
|
|
|
(37
|
)
|
Balance at ending period
|
|
$
|
(734
|
)
|
|
$
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
(1) All amounts are net of tax. Related income tax expense or benefit is calculated using an income tax rate of approximately 29.5% and 41.3% for the three months ended September 30, 2018 and 2017, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
The following table present reclassifications out of AOCI by component for the three months ended September 30, 2018 and September 30, 2017.
|
|
For the three months ended
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
|
(Dollars in thousands)
|
|
Amount reclassified
from accumulated
other comprehensive
income (2)
|
|
Amount reclassified
from accumulated
other comprehensive
income (2)
|
|
|
Net unrealized gain on available-for securities (1)
|
|
$
|
—
|
|
$
|
34
|
|
Gain on sale of
investment
available-for-sale
securities, net
|
|
|
|
—
|
|
|
(9)
|
|
Income tax
expense
|
|
|
$
|
—
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For additional details related to unrealized gains on investment securities and related amounts reclassified from accumulated other comprehensive loss, See Note 2, “Investment securities.”
|
|
(2)
|
Amounts in parentheses indicate debits.
|
8. EARNINGS PER SHARE
Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for
31
each period presented. The diluted EPS calculation reflec
ts the EPS if all outstanding instruments convertible to common stock were exercised
.
The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. At Septem
ber 30, 2018, there were
198,000
stock options outstanding and
77,000
restricted stock shares outstanding which none of the stock options and restricted stock shares were vested and exercisable at September 30, 2018.
The 198,000 stock options outstanding w
ere not included in the computation of diluted net income per share for the
three
months
ended
September
30, 2018 as their effect would have been anti-dilutive.
For the three
months
ended September 30, 2017, there were no stock options or other convertibl
e instruments outstanding for the year. Therefore, there is no effect of dilution on the Company’s earnings per share for the three
months
ended September 30, 2017.
The calculation of EPS for the three months ended September 30, 2018 and 2017 is as follows (in thousands, except per share data):
|
|
For the Three Months
Ended September 30
|
|
|
|
2018
|
|
|
2017
|
|
Net income (basic and diluted)
|
|
$
|
270
|
|
|
$
|
236
|
|
Weighted average number of shares issued
|
|
|
2,259,125
|
|
|
|
2,182,125
|
|
Less weighted average number of unearned ESOP shares
|
|
|
(164,096
|
)
|
|
|
—
|
|
Less weighted average number of unvested restricted stock awards
|
|
|
(75,207
|
)
|
|
|
—
|
|
Basic weighted average shares outstanding
|
|
|
2,019,822
|
|
|
|
2,182,125
|
|
Add dilutive effect of restricted stock awards
|
|
|
347
|
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
|
|
2,020,169
|
|
|
|
2,182,125
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.11
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.11
|
|
9. EMPLOYEE BENFITS
The Company adopted the Huntingdon Valley Bank Employee Stock Ownership Plan (the “ESOP”) for eligible employees. Eligible employees who have attained age 21 may participate in the ESOP on the later of the effective date of the ESOP or upon the first entry date commencing on or after the eligible employee’s completion of 1,000 hours of service during a continuous 12-month period.
During the year ended June 30, 2017, the ESOP purchased 8% of the total shares issued in the Company’s initial public offering which equates to 174,570 shares of the Company’s common stock in the open market ranging from $12.50 per share to $14.21 per share for a weighted average price per share of $13.92, and a total purchase price of $2,430,000.
The following table presents the components of the ESOP Shares at September 30, 2018:
|
|
2018
|
|
Allocated shares
|
|
|
8,729
|
|
Committed shares
|
|
|
6,545
|
|
Unreleased shares
|
|
|
159,296
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
174,570
|
|
|
|
|
|
|
Fair value of unreleased shares (in thousands)
|
|
$
|
2,546
|
|
Equity Incentive Plan
32
The Company’s shareholders approved
the HV Bancorp, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”)
at a
Special Meeting
of shareholders
on June 13, 2018. An aggregate of 305,497 shares
of authorized but unissued common stock of the Company was reserved for future grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units under the 2018 Equity Incentive Plan. Of the 305,497 authorized shares,
the maximum number of shares of the Company’s common stock that may be issued under the 2018 Equity Incentive Plan pursuant to the exercise of stock options is 218,212 shares, and the maximum number of shares of the Company’s common stock that may be issue
d as restricted stock awards or restricted stock units is 87,285 shares.
On June 13, 2018, the Compensation Committee of the Board of Directors authorized the grant of 275,000 shares which included 43,000 incentive stock options to employees, 125,000 incentive stock options to officers, 30,000 non-qualified stock options to outside directors, 12,000 shares of restricted stock to employees, 50,000 shares of restricted stock to officers and 15,000 shares of restricted stock to outside directors under the 2018 Equity Incentive Plan. The restricted shares and stock options vest over a seven year period.
The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2018 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of September 30, 2018, there were 30,497 shares available for future awards under this plan, which includes 10,285 shares available for restricted stock awards.
Stock option expense was $18,000 for the three months ended September 30, 2018. The Company did not record any stock option expense for the three months ended September 30, 2017. At September 30, 2018,
t
otal unrecognized compensation cost related to stock options was $341,000.
A summary of the Company’s stock option activity and related information for the three months ended September 30, 2018 was as follows:
|
|
2018
|
|
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Average
Intrinsic Value
(in thousands)
|
|
Outstanding, July 1
|
|
|
198,000
|
|
|
$
|
14.80
|
|
|
$
|
3,960
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Outstanding, September 30
|
|
|
198,000
|
|
|
$
|
14.80
|
|
|
$
|
3,960
|
|
Exercisable, September 30
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The weighted average remaining contractual life was 9.7 years at September 30, 2018 and
the grant-date fair value of stock options of $1.81 was estimated using the Black-Scholes Option-Pricing Model.
Restricted stock expense for the three months ended September 30, 2018 was $46,000. The Company did not record any restricted stock expense for the three months ended September 30, 2017. At September 30, 2018, the expected future compensation expense relating to non-vested restricted stock outstanding was $1.1 million.
A summary of the Company’s restricted stock activity and related information for the three months ended September 30, 2018 was as follows:
33
|
|
2018
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Non-vested, July 1
|
|
|
77,000
|
|
|
$
|
14.80
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested at September 30
|
|
|
77,000
|
|
|
$
|
14.80
|
|
10. RELATED PARTY TRANSACTIONS
In November 2017, the Company engaged a third party to provide services for certain customers with large deposit balances, by offering both a competitive rate of return and FDIC insurance. Related party balances in this program totaled $20.4 million at September 30, 2018 for which we received approximately $37,000 in fees for customer services which is included in the three months ended September 30, 2018.
In January 2018, the Company entered into a business consulting agreement with one of our directors to provide deposit sales training, grow deposit market share and identify deposit opportunities. This agreement will terminate on December 31, 2019. The Company has paid $15,000 in consulting fees to the director for the three months ended September 30, 2018.
11. REVENUE RECOGNITION
On July 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. As stated in Note 1 Summary of Significant Accounting Policies, the implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after July 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as income from bank owned life insurance, sales of investment securities, mortgage banking activities, and certain items within other income are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such deposit related fees, interchange fees, and fees income received in exchange for customer’s deposits sourced with a deposit placement network. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.
34
The following
table
presents noninterest inco
me
for the three months ended September 30, 2018 and 2017:
(Dollars in thousands)
|
|
Three Months Ended
September 30,
|
|
Non-Interest Income
|
|
2018
|
|
|
2017
|
|
Fees for Customer Service
|
|
|
|
|
|
|
|
|
Fee income
|
|
$
|
39
|
|
|
$
|
—
|
|
Insufficient fund fees
|
|
|
16
|
|
|
|
19
|
|
Other service charges
|
|
|
15
|
|
|
|
24
|
|
ATM interchange fee income
|
|
|
2
|
|
|
|
2
|
|
Total Fees for Customer Service
|
|
|
72
|
|
|
|
45
|
|
Increase in cash surrender value of bank-owned life insurance
|
|
|
40
|
|
|
|
34
|
|
Gain on sale of loans, net
|
|
|
901
|
|
|
|
1,236
|
|
Gain on sale of available-for-sale securities
|
|
|
—
|
|
|
|
34
|
|
Loss from derivative instruments
|
|
|
(317
|
)
|
|
|
(390
|
)
|
Change in fair value for loans held-for-sale
|
|
|
61
|
|
|
|
45
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
Total Non-Interest Income
|
|
$
|
758
|
|
|
$
|
1,005
|
|
The following is a discussion of key revenues of fees for customer services that are within the scope of the new revenue guidance:
•
Fee income –
Fee income primarily consists of a fee received for placing customer deposits in a deposit placement network such that amounts are under the standard FDIC insurance maximum of $250,000 making the deposits eligible for FDIC insurance. The Company acts as an intermediary between the customer and the deposit placement network. The Company’s performance obligation is generally satisfied upon placement of the customer’s deposit in deposit placement network.
•
Insufficient fund fees and
other service charges
–
Revenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services; as well as overdraft, non-sufficient funds, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees. These revenues are included in insufficient funds fees and other service charges in the table above
.
•
ATM interchange and fee income
–
ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder used a Company’s ATM. The Company’s performance obligation for ATM fee income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.
|
35