The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to
Consolidated Financial Statements
(Unaudited)
NOTE A – BASIS OF PRESENTATION
The consolidated financial statements
include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”),
and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and MagBank Investment
Company. All material intercompany transactions and balances have been eliminated. The Company prepares its financial statements
on the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US
GAAP"). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that
are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.
Operating results for the three
months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the year ending September
30, 2019. The September 30, 2018 information has been derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by US GAAP for complete consolidated financial statements.
The preparation of consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of income 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, the valuation of other real estate owned, and the assessment of realizability of deferred income
tax assets.
The Company has evaluated events
and transactions occurring subsequent to the balance sheet date of December 31, 2018 for items that should potentially be recognized
or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial
statements were issued.
NOTE B- RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts
with Customers
(
Topic 606
), which superseded the previous revenue recognition requirements in Topic 605,
Revenue
Recognition
. ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The Company’s main source
of revenue is comprised of interest income on interest earning assets and non-interest income. The scope of the guidance explicitly
excludes interest income as well as many other revenues for financial assets and liabilities including loans and investment securities.
Under previous U.S. GAAP, when full
consideration is not expected and financing is required by the buyer to purchase the property, there were very prescriptive requirements
in determining when foreclosed real estate property sold by an institution should be derecognized and a gain or loss be recognized.
The new guidance that was applied to these sales is more principles based. For example, as it pertains to the criteria for determining
how a contract should be accounted for under the new guidance, judgment will need to be exercised in evaluating if: (a) a commitment
on the buyer’s part exists, (b) collection is probable in circumstances where the initial investment is minimal and (c) the
buyer has obtained control of the asset, including the significant risks and rewards of the ownership. If there is no commitment
on the buyer’s part, collection is not probable or the buyer has not obtained control of the asset, then a gain cannot be
recognized under the new guidance. The initial investment requirement for the buyer along with the various methods for profit recognition
are no longer applicable.
For deposit-related fees, considering
the straightforward nature of the arrangements with the Company’s deposits customers, the Company's recognition and measurement
outcomes of deposit-related fees was not significantly different under the new guidance compared to previous U.S. GAAP.
ASU 2014-09 was to be effective
for interim and annual periods beginning after December 15, 2016 and was to be applied on either a modified retrospective or full
retrospective basis. In August 2015, the FASB issued ASU 2015-14 which deferred the original effective date for all public business
entities to be effective for annual reporting periods beginning after December 15, 2017 (October 1, 2018 for the Company), including
interim reporting periods within that reporting period. The adoption of ASU 2014-09 did not have a significant impact on the Company’s
consolidated financial statements.
In January 2016, FASB issued ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01,
among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair
value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair
values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities
to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes; (v) requires 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; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form
of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity
should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. In addition, the amendments
in this ASU require an entity to disclose the fair value of its financial instruments using the exit price notion. Exit price 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. For public entities, the guidance is effective for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. The Company has updated the fair value disclosure on Note G “Fair Value
Disclosures” in this report to reflect adoption of this standard, to include using the exit price notion in the fair value
disclosure of financial instruments. The Company`s adoption of the ASU did not have a significant impact on the Company's consolidated
financial statements.
In February 2016,
the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which will supersede the current lease requirements in Topic 840. The
ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for
short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense
recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases
recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be
generally consistent with the current guidance. The new guidance will be effective for years beginning after December 15, 2018
for public companies. Once effective, the standard will be applied using a modified retrospective transition method to the beginning
of the earliest period presented. The Company is currently assessing the impacts this new standard will have on its consolidated
financial statements.
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments - Credit Losses
. ASU 2016-13 requires entities to report “expected”
credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss”
model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current
conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other
financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the
credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative
requirements that provide additional information about the amounts recorded in the financial statements. For public business entities
that are U.S. Securities and Exchange Commission filers, the amendments are effective for fiscal years beginning after December
15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU
2016-13 will have on its consolidated financial statements.
In August 2017,
the FASB issued the ASU 2017-12,
Derivatives and Hedging (Topic 815):
Targeted
Improvements to Accounting for Hedging Activities
. The purpose
of this guidance is to better align a company’s financial reporting for hedging relationships with the company’s risk
management activities by expanding strategies that qualify for hedge accounting, modifying the presentation of certain hedging
relationships in the financial statements and simplifying the application of hedge accounting in certain situations. ASU 2017-12
is effective for fiscal years beginning after December 15, 2018, with early adoption permitted in any interim or annual period
before the effective date. ASU 2017-12 was applied using a modified retrospective approach through a cumulative-effect adjustment
related to the elimination of the separate measurement of ineffectiveness to the balance of accumulated other comprehensive income
with a corresponding adjustment to retained earnings as of the beginning of the fiscal year in which the amendments in this update
are adopted. The amended presentation and disclosure guidance is required only prospectively. Upon adoption, the ASU allows for
the reclassification of debt securities eligible to be hedged under the ASU from held-to-maturity to available-for-sale.
The
Company adopted ASU 2017-12 during the quarter ended December 31, 2017 and reclassified ten mortgage-backed securities totaling
$12.6 million from the held-to-maturity portfolio to the available-for-sale portfolio.
In
February 2018, the FASB issued ASU 2018-02,
Income Statement- Reporting Comprehensive Income (Topic 220) – Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income.
ASU
2018-02 allows a reclassification from accumulated other comprehensive income (loss) ("AOCI") to retained earnings for
the stranded tax effects caused by the revaluation of deferred taxes resulting from the newly enacted corporate tax rate in the
Tax Cuts and Jobs Act. The ASU is effective in years beginning after December 15, 2018, but permits early adoption in a period
for which financial statements have not yet been issued. The Company elected to early adopt the ASU as of January 1, 2018 which
resulted in
a reclassification adjustment of $188,000 from AOCI to retained earnings in the consolidated statements of stockholders’
equity.
NOTE C -
CONTINGENCIES
The Company, from time to time,
is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of
this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results
of operations.
NOTE D -
EARNINGS PER SHARE
Basic and diluted earnings per share
for the three months ended December 31, 2018 and 2017 were calculated by dividing net income by the weighted-average number of
shares outstanding for the period considering the effect of dilutive equity options and stock awards for the diluted earnings per
share calculations.
|
|
For the Three Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Weighted
|
|
|
Per
|
|
|
|
|
|
Weighted
|
|
|
Per
|
|
|
|
|
|
|
average
|
|
|
share
|
|
|
|
|
|
average
|
|
|
share
|
|
|
|
Income
|
|
|
shares
|
|
|
Amount
|
|
|
Income
|
|
|
shares
|
|
|
Amount
|
|
|
|
(In thousands, except per share data)
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
685
|
|
|
|
5,821
|
|
|
$
|
0.12
|
|
|
$
|
329
|
|
|
|
5,821
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and grants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversion
|
|
$
|
685
|
|
|
|
5,821
|
|
|
$
|
0.12
|
|
|
$
|
329
|
|
|
|
5,821
|
|
|
$
|
0.06
|
|
There were no outstanding stock
awards or options to purchase common stock at December 31, 2018 and 2017.
NOTE E – STOCK-BASED COMPENSATION AND
STOCK REPURCHASE PROGRAM
The Company follows FASB Accounting
Standards Codification (“ASC”) Section 718, Compensation-Stock Compensation, which covers a wide range of share-based
compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights,
and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized
in consolidated financial statements. The cost is measured based on the fair value of the equity or liability instruments issued.
There were no grants, vested shares
or forfeitures of non-vested restricted stock awards the three months ended December 31, 2018 and 2017 nor were there any stock
option and stock award expenses included with compensation expense for the three months ended December 31, 2018 and 2017.
The Company announced in November
2007 its second stock repurchase program of up to 5% of its publicly-held outstanding shares of common stock, or 129,924 shares.
Through December 31, 2017, the Company had repurchased a total of 81,000 shares of its common stock at an average cost of $8.33
per share under this program. No shares were repurchased during the three months ended December 31, 2018 and 2017, respectively.
Under the stock repurchase program, 48,924 shares of the 129,924 shares authorized remained available for repurchase as of December
31, 2018. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held 102,996
total treasury stock shares at December 31, 2018, of which 81,000 were from repurchases under this program.
The Company has an Employee Stock
Ownership Plan ("ESOP") for the benefit of employees of the Company and the Bank who meet the eligibility requirements
as defined in the plan. In 2006 the ESOP trust purchased 217,863 shares of common stock in the open market using proceeds of a
loan from the Company. The total cost of shares purchased by the ESOP trust was $2.3 million, reflecting an average cost per share
of $10.58. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required
loan payments to the Company. The loan bears a variable interest rate that adjusts annually every January 1
st
to the
then published Prime Rate (4.50% at January 1, 2018) with principal and interest payable annually in equal installments over thirty
years. The loan is secured by shares of the Company’s stock.
As the debt is repaid, shares are
released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned
ESOP shares in the Consolidated Balance Sheets. As shares are released from collateral, the Company reports compensation expense
equal to the then current market price of the shares, and the shares become outstanding for earnings per share computations.
At December 31, 2018, shares allocated
to participants totaled 178,216. Unallocated ESOP shares held in suspense totaled 39,647 at December 31, 2018 and had a fair market
value of $485,676. The Company's contribution expense for the ESOP was $39,000 for the three months ended December
31, 2018 and 2017.
NOTE F –
OTHER COMPREHENSIVE INCOME
The components of other comprehensive
income and the related income tax effects are as follows:
|
|
Three Months Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
Before Tax
|
|
|
(Benefit)
|
|
|
Tax
|
|
|
Before Tax
|
|
|
(Benefit)
|
|
|
Tax
|
|
|
|
Amount
|
|
|
Expense
|
|
|
Amount
|
|
|
Amount
|
|
|
Expense
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Unrealized holding gains arising
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during period on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
$
|
343
|
|
|
$
|
(97
|
)
|
|
$
|
246
|
|
|
$
|
33
|
|
|
$
|
(12
|
)
|
|
$
|
21
|
|
Less reclassification adjustment for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassified available-for-sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
|
|
(32
|
)
|
|
|
72
|
|
Net gains realized on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
(a) (b)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(107
|
)
|
|
|
33
|
|
|
|
(74
|
)
|
Other comprehensive income, net
|
|
$
|
343
|
|
|
$
|
(97
|
)
|
|
$
|
246
|
|
|
$
|
30
|
|
|
$
|
(11
|
)
|
|
$
|
19
|
|
|
(a)
|
Realized gains on securities transactions included in gains on sales of investment securities in the accompanying Consolidated
Statements of Operation
|
|
(b)
|
Tax effect included in income tax expense in the accompanying Consolidated Statements of Operation
|
NOTE G – FAIR VALUE DISCLOSURES
The Company uses fair value measurements
to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The securities available-for-sale
are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair
value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans
receivable and other real estate owned, or OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market
accounting or write-downs of individual assets.
In accordance with ASC 820, the
Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and
the reliability of the assumptions used to determine fair value. These levels are:
|
Level 1
-
|
Valuation is based upon quoted prices for identical instruments traded in active markets.
|
|
|
|
|
Level 2
-
|
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
|
|
|
|
|
Level 3
-
|
Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.
|
The Company based its fair values
on 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. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.
The following is a description
of valuation methodologies used for assets measured at fair value on a recurring basis.
Securities available-for-sale
The securities available-for-sale
portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported
as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists
of U.S government-sponsored mortgage-backed securities and private label mortgage-backed securities. The fair values of these securities
are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with
prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for
the securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for Company’s
mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark
yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference
data.
The following tables provide the
level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring
basis.
|
|
Fair Value at December 31, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
1,481
|
|
|
$
|
—
|
|
|
$
|
1,481
|
|
|
$
|
—
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
18,460
|
|
|
|
—
|
|
|
|
18,460
|
|
|
|
—
|
|
Debt securities
|
|
|
2,414
|
|
|
|
—
|
|
|
|
2,414
|
|
|
|
—
|
|
Total securities available for sale
|
|
$
|
22,355
|
|
|
$
|
—
|
|
|
$
|
22,355
|
|
|
$
|
—
|
|
|
|
Fair Value at September 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
1,495
|
|
|
$
|
—
|
|
|
$
|
1,495
|
|
|
$
|
—
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
18,613
|
|
|
|
—
|
|
|
|
18,613
|
|
|
|
—
|
|
Debt securities
|
|
|
2,361
|
|
|
|
—
|
|
|
|
2,361
|
|
|
|
—
|
|
Total securities available for sale
|
|
$
|
22,469
|
|
|
$
|
—
|
|
|
$
|
22,469
|
|
|
$
|
—
|
|
The following is a description
of valuation methodologies used for assets measured at fair value on a non-recurring basis.
Mortgage Servicing Rights, net
Mortgage Servicing Rights (MSRs)
are carried at the lower of cost or estimated fair value. The estimated fair value of MSR is determined through a calculation of
future cash flows, incorporating estimates of assumptions market participants would use in determining fair value including market
discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, including the
market’s perception of future interest rate movements and, as such, are classified as Level 3. The Company had MSRs totaling
$41,000 and $45,000 at December 31, 2018 and September 30, 2018, respectively.
Impaired Loans
Loans which meet certain criteria
are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due
according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected
as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset:
1) the present value of expected future cash flows discounted at the loan’s effective interest rate (the rate of return implicit
in the loan); 2) the asset’s observable market price; or 3) the fair value of the collateral, less anticipated selling and
disposition costs, if the asset is collateral dependent. The regulatory agencies require the last method for loans from which repayment
is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent
and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair value is estimated through
current appraisals, and adjusted by management as necessary, to reflect current market conditions and, as such, are generally classified
as Level 3.
Appraisals of collateral securing
impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the
Company’s credit administration department, independent from the lender who originated the loan, once the loan is deemed
impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one
year of the last appraisal. The Company discounts the appraised “as is” value of the collateral for estimated selling
and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan
amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional
collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase
the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral,
net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss.
Other Real Estate Owned
The fair value of other real estate
owned is determined through current appraisals, and adjusted as necessary, by management, to reflect current market conditions
and anticipated selling and disposition costs. As such, other real estate owned is generally classified as Level 3.
The following tables provide the
level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a non-recurring
basis at December 31, 2018 and September 30, 2018.
|
|
Fair Value at December 31, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
460
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
460
|
|
Other real estate owned
|
|
|
8,192
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,192
|
|
Total
|
|
$
|
8,652
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,652
|
|
|
|
Fair Value at September 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
464
|
|
Other real estate owned
|
|
|
8,586
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,586
|
|
Total
|
|
$
|
9,050
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,050
|
|
The following tables present additional
quantitative information about assets measured at fair value on a nonrecurring basis and for which Company has utilized Level 3
inputs to determine fair value:
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
|
|
|
|
|
Fair Value
|
Valuation
|
|
|
December 31, 2018
|
Estimate
|
Techniques
|
Unobservable Input
|
Range (Weighted Average)
|
|
|
|
|
|
Impaired loans
|
$ 460
|
Appraisal of
collateral
(1)
|
Appraisal adjustments (2)
|
-10.2% to -33.6% (-22.1%)
|
Other real estate owned
|
$ 8,192
|
Appraisal of
collateral
(1)
|
Liquidation expenses (2)
|
-5.6% to -48.5% (-18.2%)
|
Quantitative Information about Level 3 Fair Value Measurements
|
(Dollars in thousands)
|
|
|
|
|
|
|
Fair Value
|
Valuation
|
|
|
September 30, 2018
|
Estimate
|
Techniques
|
Unobservable Input
|
Range (Weighted Average)
|
|
|
|
|
|
Impaired loans
|
$ 464
|
Appraisal of
collateral (1)
|
Appraisal adjustments (2)
|
-10.2% to -32.0% (-21.3%)
|
Other real estate owned
|
$ 8,586
|
Appraisal of
collateral (1)
|
Liquidation expenses (2)
|
-5.6% to -48.5% (-15.4%)
|
|
(1)
|
Fair value is generally determined through independent appraisals for the underlying collateral,
which generally include various level 3 inputs which are not identifiable.
|
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and
estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented
as a percent of the appraisal.
|
The following presents the carrying
amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized
cost as of December 31, 2018 and September 30, 2018. This table excludes financial instruments for which the carrying amount
approximates level 1 fair value. For short-term financial assets such as cash and cash equivalents and accrued interest receivable,
the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument
and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits,
the carrying amount is a reasonable estimate of fair value due to these products being payable on demand and having no stated maturity.
|
|
Carrying
|
|
|
Fair
|
|
|
Fair Value Measurement Placement
|
|
|
|
Value
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
34,553
|
|
|
$
|
33,467
|
|
|
$
|
—
|
|
|
$
|
33,467
|
|
|
$
|
—
|
|
Loans
|
|
|
510,161
|
|
|
|
509,628
|
|
|
|
—
|
|
|
|
—
|
|
|
|
509,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit including retirement certificates
|
|
|
126,599
|
|
|
|
126,997
|
|
|
|
—
|
|
|
|
126,997
|
|
|
|
—
|
|
Borrowings
|
|
|
34,699
|
|
|
|
34,329
|
|
|
|
—
|
|
|
|
34,329
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
33,645
|
|
|
$
|
32,151
|
|
|
$
|
—
|
|
|
$
|
32,151
|
|
|
$
|
—
|
|
Loans
|
|
|
508,430
|
|
|
|
505,479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
505,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit including retirement certificates
|
|
|
130,343
|
|
|
|
130,813
|
|
|
|
—
|
|
|
|
130,813
|
|
|
|
—
|
|
Borrowings
|
|
|
35,524
|
|
|
|
34,863
|
|
|
|
—
|
|
|
|
34,863
|
|
|
|
—
|
|
There were no transfers between fair value measurement
placements for the three months ended December 31, 2018.
NOTE H - INVESTMENT SECURITIES
The following tables summarize
the amortized cost and fair values of securities available for sale at December 31, 2018 and September 30, 2018:
|
|
December 31, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
1,442
|
|
|
$
|
41
|
|
|
$
|
(2
|
)
|
|
$
|
1,481
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
18,826
|
|
|
|
15
|
|
|
|
(381
|
)
|
|
|
18,460
|
|
Debt securities
|
|
|
2,500
|
|
|
|
—
|
|
|
|
(86
|
)
|
|
|
2,414
|
|
Total securities available for sale
|
|
$
|
22,768
|
|
|
$
|
56
|
|
|
$
|
(469
|
)
|
|
$
|
22,355
|
|
|
|
September 30, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities - residential
|
|
$
|
1,463
|
|
|
$
|
40
|
|
|
$
|
(8
|
)
|
|
$
|
1,495
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
19,262
|
|
|
|
13
|
|
|
|
(662
|
)
|
|
|
18,613
|
|
Debt securities
|
|
|
2,500
|
|
|
|
—
|
|
|
|
(139
|
)
|
|
|
2,361
|
|
Total securities available for sale
|
|
$
|
23,225
|
|
|
$
|
53
|
|
|
$
|
(809
|
)
|
|
$
|
22,469
|
|
The maturities
of the debt securities and mortgage-backed securities available for sale at December 31, 2018 are summarized in the following table:
|
|
December 31, 2018
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Due within 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after 1 but within 5 years
|
|
|
2,500
|
|
|
|
2,414
|
|
Due after 5 but within 10 years
|
|
|
—
|
|
|
|
—
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
Total debt securities
|
|
|
2,500
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
20,268
|
|
|
|
19,941
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
22,768
|
|
|
$
|
22,355
|
|
The following tables summarize
the amortized cost and fair values of securities held to maturity at December 31, 2018 and September 30, 2018:
|
|
December 31, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
490
|
|
|
$
|
—
|
|
|
$
|
(92
|
)
|
|
$
|
398
|
|
Mortgage-backed securities - commercial
|
|
|
889
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
880
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed-securities - residential
|
|
|
27,332
|
|
|
|
34
|
|
|
|
(510
|
)
|
|
|
26,856
|
|
Debt securities
|
|
|
2,465
|
|
|
|
—
|
|
|
|
(74
|
)
|
|
|
2,391
|
|
Private label mortgage-backed securities - residential
|
|
|
377
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
376
|
|
Corporate securities
|
|
|
3,000
|
|
|
|
—
|
|
|
|
(434
|
)
|
|
|
2,566
|
|
Total securities held to maturity
|
|
$
|
34,553
|
|
|
$
|
34
|
|
|
$
|
(1,120
|
)
|
|
$
|
33,467
|
|
|
|
September 30, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
568
|
|
|
$
|
—
|
|
|
$
|
(93
|
)
|
|
$
|
475
|
|
Mortgage-backed securities - commercial
|
|
|
904
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
895
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities - residential
|
|
|
26,316
|
|
|
|
4
|
|
|
|
(867
|
)
|
|
|
25,453
|
|
Debt securities
|
|
|
2,464
|
|
|
|
—
|
|
|
|
(142
|
)
|
|
|
2,322
|
|
Private label mortgage-backed securities - residential
|
|
|
393
|
|
|
|
1
|
|
|
|
—
|
|
|
|
394
|
|
Corporate securities
|
|
|
3,000
|
|
|
|
—
|
|
|
|
(388
|
)
|
|
|
2,612
|
|
Total securities held to maturity
|
|
$
|
33,645
|
|
|
$
|
5
|
|
|
$
|
(1,499
|
)
|
|
$
|
32,151
|
|
The maturities
of the debt securities and the mortgage backed securities held to maturity at December 31, 2018 are summarized in the following
table:
|
|
December 31, 2018
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Due within 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after 1 but within 5 years
|
|
|
1,499
|
|
|
|
1,483
|
|
Due after 5 but within 10 years
|
|
|
3,966
|
|
|
|
3,474
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
Total debt securities
|
|
|
5,465
|
|
|
|
4,957
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
28,199
|
|
|
|
27,630
|
|
Commercial
|
|
|
889
|
|
|
|
880
|
|
Total
|
|
$
|
34,553
|
|
|
$
|
33,467
|
|
There were no sales of investment
securities during the three months ended December 31, 2018.
NOTE I – IMPAIRMENT OF INVESTMENT SECURITIES
The Company recognizes credit-related
other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt
securities not expected to be sold are recognized in other comprehensive income.
The Company reviews its investment
portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent
to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including
any specific events which may influence the operations of the issuer and the intent and ability to hold the investment for a period
of time sufficient to allow for any anticipated recovery in the market. The Company evaluates its intent and ability to hold debt
securities based upon its investment strategy for the particular type of security and its cash flow needs, liquidity position,
capital adequacy and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced
by prolonged recession in the U.S. economy, changes in real estate values and interest deferrals.
Investment securities with fair
values less than their amortized cost contain unrealized losses. The following tables present the gross unrealized losses and fair
value at December 31, 2018 and September 30, 2018 for both available for sale and held to maturity securities by investment category
and time frame for which the loss has been outstanding:
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months Or Greater
|
|
|
Total
|
|
|
|
Number of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Securities
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
|
3
|
|
|
$
|
525
|
|
|
$
|
(2
|
)
|
|
$
|
398
|
|
|
$
|
(92
|
)
|
|
$
|
923
|
|
|
$
|
(94
|
)
|
Mortgage-backed securities - commercial
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
880
|
|
|
|
(9
|
)
|
|
|
880
|
|
|
|
(9
|
)
|
Obligations of U.S. government-sponsored enterprises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,337
|
|
|
|
(892
|
)
|
|
|
39,337
|
|
|
|
(892
|
)
|
Debt securities
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,805
|
|
|
|
(160
|
)
|
|
|
4,805
|
|
|
|
(160
|
)
|
Private label mortgage-backed securities residential
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92
|
|
|
|
(1
|
)
|
|
|
92
|
|
|
|
(1
|
)
|
Corporate securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,567
|
|
|
|
(434
|
)
|
|
|
2,567
|
|
|
|
(434
|
)
|
Total
|
|
|
41
|
|
|
$
|
525
|
|
|
$
|
(2
|
)
|
|
$
|
48,079
|
|
|
$
|
(1,588
|
)
|
|
$
|
48,604
|
|
|
$
|
(1,590
|
)
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months Or Greater
|
|
|
Total
|
|
|
|
Number of
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Securities
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
|
3
|
|
|
$
|
532
|
|
|
$
|
(8
|
)
|
|
$
|
475
|
|
|
$
|
(93
|
)
|
|
$
|
1,007
|
|
|
$
|
(101
|
)
|
Mortgage-backed securities - commercial
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
895
|
|
|
|
(9
|
)
|
|
|
895
|
|
|
|
(9
|
)
|
Obligations of U.S. government-sponsored enterprises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
|
34
|
|
|
|
11,336
|
|
|
|
(312
|
)
|
|
|
30,605
|
|
|
|
(1,217
|
)
|
|
|
41,941
|
|
|
|
(1,529
|
)
|
Debt securities
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,683
|
|
|
|
(281
|
)
|
|
|
4,683
|
|
|
|
(281
|
)
|
Private label mortgage-backed securities residential
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
|
|
—
|
|
|
|
104
|
|
|
|
—
|
|
Corporate securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,612
|
|
|
|
(388
|
)
|
|
|
2,612
|
|
|
|
(388
|
)
|
Total
|
|
|
44
|
|
|
$
|
11,868
|
|
|
$
|
(320
|
)
|
|
$
|
39,374
|
|
|
$
|
(1,988
|
)
|
|
$
|
51,242
|
|
|
$
|
(2,308
|
)
|
The Company evaluated these securities
and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related
to any company or industry specific event. At December 31, 2018 and September 30, 2018, there were forty-one and forty-four, respectively,
investment securities with unrealized losses.
The Company anticipates full recovery
of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that
it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery.
Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities
with impairment that is other than temporary as of December 31, 2018 and September 30, 2018.
NOTE J – LOANS RECEIVABLE, NET AND RELATED
ALLOWANCE FOR LOAN LOSSES
Loans receivable,
net were comprised of the following:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
186,328
|
|
|
$
|
185,287
|
|
Commercial real estate
|
|
|
223,146
|
|
|
|
219,347
|
|
Construction
|
|
|
31,287
|
|
|
|
30,412
|
|
Home equity lines of credit
|
|
|
18,518
|
|
|
|
17,982
|
|
Commercial business
|
|
|
49,842
|
|
|
|
53,320
|
|
Other
|
|
|
5,317
|
|
|
|
6,150
|
|
Total loans receivable
|
|
|
514,438
|
|
|
|
512,498
|
|
Net deferred loan costs
|
|
|
125
|
|
|
|
132
|
|
Allowance for loan losses
|
|
|
(4,402
|
)
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
510,161
|
|
|
$
|
508,430
|
|
The segments
of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The
residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens,
and home equity lines of credit, which are generally second liens. The commercial real estate loan segment is further
disaggregated into three classes: loans secured by multifamily structures, owner-occupied commercial structures, and non-owner
occupied nonresidential properties. The construction loan segment consists primarily of loans to developers or investors
for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four
family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which
a residential dwelling is to be built. Construction loans to developers and investors have a higher risk profile because
the ultimate buyer, once development is completed, is generally not known at the time of the loan. The commercial business
loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists primarily
of revolving lines of credit. The other loan segment consists primarily of stock-secured installment consumer loans, but also
includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.
Management
evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated
Substandard and is 90 days or more past due. Loans are considered to be impaired when, based on current information
and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment
include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Once the
determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan
using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest
rate; (b) the loan’s observable market price; or (c) the fair value of the collateral securing the loan, less anticipated
selling and disposition costs. The method is selected on a loan by loan basis, with management primarily utilizing the fair
value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the
loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books
at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment
in a loan does not exceed its fair value.
The following
tables present impaired loans by class, segregated by those for which a specific allowance was required and charged-off and those
for which a specific allowance was not necessary at the dates presented:
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
December 31, 2018
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,130
|
|
|
$
|
1,130
|
|
|
$
|
1,130
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
3,935
|
|
|
|
3,935
|
|
|
|
3,935
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
2,900
|
|
Home equity lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
58
|
|
|
|
58
|
|
|
|
58
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
708
|
|
|
|
708
|
|
|
|
798
|
|
Total impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,731
|
|
|
$
|
8,731
|
|
|
$
|
8,821
|
|
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
September 30, 2018
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,132
|
|
|
$
|
1,132
|
|
|
$
|
1,132
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
3,961
|
|
|
|
3,961
|
|
|
|
3,961
|
|
Home equity lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
58
|
|
|
|
58
|
|
|
|
58
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
710
|
|
|
|
710
|
|
|
|
801
|
|
Total impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,861
|
|
|
$
|
5,861
|
|
|
$
|
5,952
|
|
The average
recorded investment in impaired loans was $7.3 million and $7.0 million for the three months ended December 31, 2018 and 2017,
respectively. The Company’s impaired loans include delinquent non-accrual loans and performing Troubled Debt Restructurings
(“TDRs”), as TDRs remain impaired loans until fully repaid. During the three months ended December 31, 2018 and 2017,
interest income of $64,000 and $65,000, respectively, was recognized for TDR loans while no interest income was recognized for
delinquent non-accrual loans.
The following
tables present the average recorded investment in impaired loans for the periods indicated. There was no interest income recognized
on impaired loans during the periods presented.
|
|
Three Months
|
|
|
|
Ended December 31, 2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
1,131
|
|
Commercial real estate
|
|
|
3,948
|
|
Construction
|
|
|
1,450
|
|
Home equity lines of credit
|
|
|
58
|
|
Commercial business
|
|
|
709
|
|
Average investment in impaired loans
|
|
$
|
7,296
|
|
|
|
Three Months
|
|
|
|
Ended December 31, 2017
|
|
|
|
(In thousands)
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
2,841
|
|
Commercial real estate
|
|
|
3,881
|
|
Commercial business
|
|
|
303
|
|
Average investment in impaired loans
|
|
$
|
7,025
|
|
Management
uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories
are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management
generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are
potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans
in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility
that some loss will be sustained if the weaknesses are not corrected.
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.
All loans greater than three months past due
are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.
To help ensure
that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has
a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential
mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession,
or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for
the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Asset Review
Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse. Confirmation
of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within
the portfolio. Generally, the external consultant reviews commercial relationships greater than $500,000 and/or criticized
relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as
Substandard on a monthly basis.
The following
tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention,
Substandard and Doubtful within the Bank’s internal risk rating system at the dates presented:
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
186,152
|
|
|
$
|
—
|
|
|
$
|
176
|
|
|
$
|
—
|
|
|
$
|
186,328
|
|
Commercial real estate
|
|
|
221,745
|
|
|
|
750
|
|
|
|
651
|
|
|
|
—
|
|
|
|
223,146
|
|
Construction
|
|
|
28,387
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
—
|
|
|
|
31,287
|
|
Home equity lines of credit
|
|
|
18,460
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
18,518
|
|
Commercial business
|
|
|
49,367
|
|
|
|
—
|
|
|
|
475
|
|
|
|
—
|
|
|
|
49,842
|
|
Other
|
|
|
5,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,317
|
|
Total
|
|
$
|
509,428
|
|
|
$
|
750
|
|
|
$
|
4,260
|
|
|
$
|
—
|
|
|
$
|
514,438
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
185,118
|
|
|
$
|
—
|
|
|
$
|
169
|
|
|
$
|
—
|
|
|
$
|
185,287
|
|
Commercial real estate
|
|
|
217,935
|
|
|
|
753
|
|
|
|
659
|
|
|
|
—
|
|
|
|
219,347
|
|
Construction
|
|
|
30,412
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,412
|
|
Home equity lines of credit
|
|
|
17,924
|
|
|
|
—
|
|
|
|
58
|
|
|
|
—
|
|
|
|
17,982
|
|
Commercial business
|
|
|
52,845
|
|
|
|
—
|
|
|
|
475
|
|
|
|
—
|
|
|
|
53,320
|
|
Other
|
|
|
6,150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,150
|
|
Total
|
|
$
|
510,384
|
|
|
$
|
753
|
|
|
$
|
1,361
|
|
|
$
|
—
|
|
|
$
|
512,498
|
|
Management
further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by
the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized
by the aging categories of performing loans and nonaccrual loans at the dates presented:
|
|
|
|
|
30-59
|
|
|
60-89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
90 Days +
|
|
|
Total
|
|
|
Non-
|
|
|
Total
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Accrual
|
|
|
Loans
|
|
|
|
(In thousands)
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
184,741
|
|
|
$
|
1,411
|
|
|
$
|
—
|
|
|
$
|
176
|
|
|
$
|
1,587
|
|
|
$
|
176
|
|
|
$
|
186,328
|
|
Commercial real estate
|
|
|
218,163
|
|
|
|
3,586
|
|
|
|
945
|
|
|
|
452
|
|
|
|
4,983
|
|
|
|
452
|
|
|
|
223,146
|
|
Construction
|
|
|
28,387
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
31,287
|
|
Home equity lines of credit
|
|
|
18,431
|
|
|
|
29
|
|
|
|
—
|
|
|
|
58
|
|
|
|
87
|
|
|
|
58
|
|
|
|
18,518
|
|
Commercial business
|
|
|
48,967
|
|
|
|
384
|
|
|
|
16
|
|
|
|
475
|
|
|
|
875
|
|
|
|
475
|
|
|
|
49,842
|
|
Other
|
|
|
5,317
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,317
|
|
Total
|
|
$
|
504,006
|
|
|
$
|
5,410
|
|
|
$
|
961
|
|
|
$
|
4,061
|
|
|
$
|
10,432
|
|
|
$
|
4,061
|
|
|
$
|
514,438
|
|
|
|
|
|
|
30-59
|
|
|
60-89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
90 Days +
|
|
|
Total
|
|
|
Non-
|
|
|
Total
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Accrual
|
|
|
Loans
|
|
|
|
(In thousands)
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
185,132
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
138
|
|
|
$
|
155
|
|
|
$
|
138
|
|
|
$
|
185,287
|
|
Commercial real estate
|
|
|
218,892
|
|
|
|
—
|
|
|
|
—
|
|
|
|
455
|
|
|
|
455
|
|
|
|
455
|
|
|
|
219,347
|
|
Construction
|
|
|
30,412
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,412
|
|
Home equity lines of credit
|
|
|
17,892
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90
|
|
|
|
90
|
|
|
|
90
|
|
|
|
17,982
|
|
Commercial business
|
|
|
52,845
|
|
|
|
252
|
|
|
|
—
|
|
|
|
223
|
|
|
|
475
|
|
|
|
223
|
|
|
|
53,320
|
|
Other
|
|
|
6,150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,150
|
|
Total
|
|
$
|
511,323
|
|
|
$
|
269
|
|
|
$
|
—
|
|
|
$
|
906
|
|
|
$
|
1,175
|
|
|
$
|
906
|
|
|
$
|
512,498
|
|
An allowance
for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s
continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions,
diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing
loans (“NPLs”).
The Bank’s
methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for
impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency
Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.
Loans that
are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances,
historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified
by other qualitative and economic factors.
The loans
are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical
net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage
for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over a defined number
of consecutive historical years is used.
Non-impaired
credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative
factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit
losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are
evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources include: national
and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and
terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral;
and concentrations of credit from a loan type, industry and/or geographic standpoint.
Management
reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and
timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts
are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their
fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.
The following
table summarizes the ALL by loan category and the related activity for the three months ended December 31, 2018:
|
|
One-to-Four
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Family
|
|
|
Commercial
|
|
|
|
|
|
Lines of
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Credit
|
|
|
Business
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance- September 30, 2018
|
|
$
|
687
|
|
|
$
|
1,540
|
|
|
$
|
493
|
|
|
$
|
109
|
|
|
$
|
1,151
|
|
|
$
|
25
|
|
|
$
|
195
|
|
|
$
|
4,200
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Provision
|
|
|
11
|
|
|
|
50
|
|
|
|
181
|
|
|
|
11
|
|
|
|
31
|
|
|
|
(21
|
)
|
|
|
(62
|
)
|
|
|
201
|
|
Balance- December 31, 2018
|
|
$
|
698
|
|
|
$
|
1,590
|
|
|
$
|
674
|
|
|
$
|
121
|
|
|
$
|
1,182
|
|
|
$
|
4
|
|
|
$
|
133
|
|
|
$
|
4,402
|
|
The following
table summarizes the ALL by loan category and the related activity for the three months ended December 31, 2017:
|
|
One-to-Four
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Family
|
|
|
Commercial
|
|
|
|
|
|
Lines of
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Credit
|
|
|
Business
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-September 30, 2017
|
|
$
|
587
|
|
|
$
|
1,277
|
|
|
$
|
490
|
|
|
$
|
57
|
|
|
$
|
956
|
|
|
$
|
6
|
|
|
$
|
102
|
|
|
$
|
3,475
|
|
Charge-offs
|
|
|
(127
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(170
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(297
|
)
|
Recoveries
|
|
|
82
|
|
|
|
23
|
|
|
|
3
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
Provision
|
|
|
21
|
|
|
|
(1
|
)
|
|
|
(109
|
)
|
|
|
74
|
|
|
|
265
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
250
|
|
Balance-December 31, 2017
|
|
$
|
563
|
|
|
$
|
1,299
|
|
|
$
|
384
|
|
|
$
|
131
|
|
|
$
|
1,052
|
|
|
$
|
4
|
|
|
$
|
104
|
|
|
$
|
3,537
|
|
The following
tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment
and the amount required for loans collectively evaluated for impairment as of December 31, 2018 and September 30, 2018:
|
|
One-to-Four
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Family
|
|
|
Commercial
|
|
|
|
|
|
Lines of
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Credit
|
|
|
Business
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018
|
|
$
|
698
|
|
|
$
|
1,590
|
|
|
$
|
674
|
|
|
$
|
121
|
|
|
$
|
1,182
|
|
|
$
|
4
|
|
|
$
|
133
|
|
|
$
|
4,402
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
698
|
|
|
|
1,590
|
|
|
|
674
|
|
|
|
121
|
|
|
|
1,182
|
|
|
|
4
|
|
|
|
133
|
|
|
|
4,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2018
|
|
$
|
186,328
|
|
|
$
|
223,146
|
|
|
$
|
31,287
|
|
|
$
|
18,518
|
|
|
$
|
49,842
|
|
|
$
|
5,317
|
|
|
$
|
—
|
|
|
$
|
514,438
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
1,130
|
|
|
|
3,935
|
|
|
|
2,900
|
|
|
|
58
|
|
|
|
708
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,731
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
185,198
|
|
|
|
219,211
|
|
|
|
28,387
|
|
|
|
18,460
|
|
|
|
49,134
|
|
|
|
5,317
|
|
|
|
—
|
|
|
|
505,707
|
|
|
|
One-to- Four
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Family
|
|
|
Commercial
|
|
|
|
|
|
Lines of
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Credit
|
|
|
Business
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2018
|
|
$
|
687
|
|
|
$
|
1,540
|
|
|
$
|
493
|
|
|
$
|
109
|
|
|
$
|
1,151
|
|
|
$
|
25
|
|
|
$
|
195
|
|
|
$
|
4,200
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
687
|
|
|
|
1,540
|
|
|
|
493
|
|
|
|
109
|
|
|
|
1,151
|
|
|
|
25
|
|
|
|
195
|
|
|
|
4,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2018
|
|
$
|
185,287
|
|
|
$
|
219,347
|
|
|
$
|
30,412
|
|
|
$
|
17,982
|
|
|
$
|
53,320
|
|
|
$
|
6,150
|
|
|
$
|
—
|
|
|
$
|
512,498
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
1,132
|
|
|
|
3,961
|
|
|
|
—
|
|
|
|
58
|
|
|
|
710
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,861
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
184,155
|
|
|
|
215,386
|
|
|
|
30,412
|
|
|
|
17,924
|
|
|
|
52,610
|
|
|
|
6,150
|
|
|
|
—
|
|
|
|
506,637
|
|
The allowance
for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation
of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the
consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the
portfolio at any given date.
A Troubled
Debt Restructuring (TDR) is a loan
that has been modified whereby the Bank has agreed to
make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of
a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified
using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally include, but
are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.
A default on a troubled debt restructured
loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable
collateral has occurred.
There were no defaults on TDRs for three months ended December 31,
2018
and 2017.
NOTE K -
DEPOSITS
A summary
of deposits by type of account are summarized as follows:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
109,312
|
|
|
$
|
104,745
|
|
Savings accounts
|
|
|
76,113
|
|
|
|
81,373
|
|
NOW accounts
|
|
|
46,244
|
|
|
|
46,336
|
|
Money market accounts
|
|
|
191,518
|
|
|
|
167,340
|
|
Certificates of deposit
|
|
|
108,660
|
|
|
|
112,014
|
|
Retirement certificates
|
|
|
17,939
|
|
|
|
18,329
|
|
Total deposits
|
|
$
|
549,786
|
|
|
$
|
530,137
|
|
NOTE L –
INCOME TAXES
The Company
records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized
for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences
are expected to be recovered or settled.
Where applicable, deferred tax assets
are reduced by a valuation allowance for any portions determined not likely to be realized. The valuation allowance is assessed
by management on a quarterly basis and adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances
warrant. In assessing whether it is more likely than not that some portion or all of the deferred tax assets will not be realized,
management considers projections of future taxable income, the projected periods in which current temporary differences will be
deductible, the availability of carry forwards, feasible and permissible tax planning strategies and existing tax laws and regulations.
The Company did not have a valuation allowance against its net deferred tax assets at December 31, 2018 and September 30, 2018.
A reconciliation of income tax between
the amounts calculated based upon pre-tax income at the Company’s federal statutory rate and the amounts reflected in the
consolidated statements of operations are as follows:
|
|
For the Three Months
|
|
|
|
Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Income tax expense at the statutory federal tax rate of 21% and 24%
|
|
|
|
|
|
|
|
|
for the three months ended December 31, 2018 and 2017, respectively
|
|
$
|
179
|
|
|
$
|
214
|
|
State tax expense
|
|
|
111
|
|
|
|
61
|
|
Reduction of deferred tax asset from change in federal tax rate
|
|
|
—
|
|
|
|
306
|
|
Other
|
|
|
(11
|
)
|
|
|
(17
|
)
|
Income tax expense
|
|
$
|
279
|
|
|
$
|
564
|
|
On December 22, 2017, the Company
revised its estimated annual effective rate to reflect a change in the United States federal corporate tax rate from 34% to 21%.
The rate change was administratively effective to the
beginning of our fiscal year
resulting
in the use of a statutory rate of 21% for the three months ended December 31, 2018 and a blended rate of 24% for the three months
ended December 31, 2017. Included in the income tax expense for the three months ended December 31, 2017 was a $306,000 expense
for a reduction in the Company’s net deferred tax assets resulting from the impact of the Tax Cuts and Jobs Act.
NOTE M -
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company occasionally uses derivative
financial instruments, such as interest rate floors and collars, as part of its interest rate risk management. Interest rate
caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount
for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent
in these contracts to be negligible.
As of December 31, 2018 and September
30, 2018, the Company did not hold any interest rate floors or collars.
In the normal
course of business the Bank is a party to financial instruments with off-balance-sheet risk and in only to meet the financing needs
of its customers. These financial instruments are commitments to extend credit are summarized in the below table. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated
balance sheets.
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Financial instruments whose contract amounts
|
|
|
|
|
|
|
|
|
represent credit risk
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
1,939
|
|
|
$
|
1,939
|
|
Unused lines of credit
|
|
|
60,469
|
|
|
|
54,127
|
|
Fixed rate loan commitments
|
|
|
2,995
|
|
|
|
4,397
|
|
Variable rate loan commitments
|
|
|
6,531
|
|
|
|
12,523
|
|
Total
|
|
$
|
71,934
|
|
|
$
|
72,986
|
|