PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,106
|
|
|
$
|
674
|
|
Interest earning deposits with banks
|
|
|
47,064
|
|
|
|
14,694
|
|
Total cash and cash equivalents
|
|
|
48,170
|
|
|
|
15,368
|
|
|
|
|
|
|
|
|
|
|
Investment securities - available for sale, at fair value
|
|
|
24,347
|
|
|
|
22,469
|
|
Investment securities - held to maturity, at amortized cost (fair value of
|
|
|
|
|
|
|
|
|
$33,236 and $32,151 at March 31, 2019 and September 30, 2018, respectively)
|
|
|
33,920
|
|
|
|
33,645
|
|
Federal Home Loan Bank of New York stock, at cost
|
|
|
2,031
|
|
|
|
2,164
|
|
Loans receivable, net of allowance for loan losses of $4,600 and $4,200
|
|
|
|
|
|
|
|
|
at March 31, 2019 and September 30, 2018, respectively
|
|
|
515,380
|
|
|
|
508,430
|
|
Bank owned life insurance
|
|
|
11,990
|
|
|
|
11,843
|
|
Accrued interest receivable
|
|
|
2,237
|
|
|
|
2,181
|
|
Premises and equipment, net
|
|
|
16,586
|
|
|
|
16,990
|
|
Other real estate owned ("OREO")
|
|
|
7,558
|
|
|
|
8,586
|
|
Other assets
|
|
|
2,743
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
664,962
|
|
|
$
|
623,968
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
571,794
|
|
|
$
|
530,137
|
|
Escrowed funds
|
|
|
2,714
|
|
|
|
2,285
|
|
Federal Home Loan Bank of New York advances
|
|
|
32,559
|
|
|
|
35,524
|
|
Accrued interest payable
|
|
|
222
|
|
|
|
193
|
|
Accounts payable and other liabilities
|
|
|
4,347
|
|
|
|
4,467
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
611,636
|
|
|
|
572,606
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock: $.01 Par Value, 1,000,000 shares authorized; none issued
|
|
|
—
|
|
|
|
—
|
|
Common stock: $.01 Par Value, 8,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
5,923,742 issued; 5,820,746 shares outstanding
|
|
|
|
|
|
|
|
|
at March 31, 2019 and September 30, 2018
|
|
|
59
|
|
|
|
59
|
|
Additional paid-in capital
|
|
|
26,314
|
|
|
|
26,310
|
|
Treasury stock: 102,996 shares
|
|
|
|
|
|
|
|
|
at March 31, 2019 and September 30, 2018, at cost
|
|
|
(1,152
|
)
|
|
|
(1,152
|
)
|
Unearned Employee Stock Ownership Plan shares
|
|
|
(285
|
)
|
|
|
(356
|
)
|
Retained earnings
|
|
|
29,427
|
|
|
|
27,975
|
|
Accumulated other comprehensive loss
|
|
|
(1,037
|
)
|
|
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
53,326
|
|
|
|
51,362
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
664,962
|
|
|
$
|
623,968
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands, Except
Share and Per Share Data)
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended March 31,
|
|
|
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
6,226
|
|
|
$
|
5,408
|
|
|
$
|
12,353
|
|
|
$
|
10,843
|
|
Investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
546
|
|
|
|
416
|
|
|
|
1,034
|
|
|
|
837
|
|
Federal Home Loan Bank of New York stock
|
|
|
37
|
|
|
|
33
|
|
|
|
82
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
6,809
|
|
|
|
5,857
|
|
|
|
13,469
|
|
|
|
11,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,508
|
|
|
|
871
|
|
|
|
2,946
|
|
|
|
1,765
|
|
Borrowings
|
|
|
180
|
|
|
|
165
|
|
|
|
370
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,688
|
|
|
|
1,036
|
|
|
|
3,316
|
|
|
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income
|
|
|
5,121
|
|
|
|
4,821
|
|
|
|
10,153
|
|
|
|
9,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
106
|
|
|
|
257
|
|
|
|
307
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provision for loan losses
|
|
|
5,015
|
|
|
|
4,564
|
|
|
|
9,846
|
|
|
|
9,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
279
|
|
|
|
222
|
|
|
|
600
|
|
|
|
480
|
|
Income on bank owned life insurance
|
|
|
73
|
|
|
|
74
|
|
|
|
147
|
|
|
|
146
|
|
Other operating income
|
|
|
30
|
|
|
|
43
|
|
|
|
61
|
|
|
|
67
|
|
Gains on sales of loans
|
|
|
151
|
|
|
|
30
|
|
|
|
151
|
|
|
|
216
|
|
Gains on sales of investment securities
|
|
|
32
|
|
|
|
—
|
|
|
|
32
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
565
|
|
|
|
369
|
|
|
|
991
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and employee benefits
|
|
|
2,517
|
|
|
|
2,443
|
|
|
|
4,960
|
|
|
|
4,801
|
|
Occupancy expenses
|
|
|
744
|
|
|
|
755
|
|
|
|
1,484
|
|
|
|
1,472
|
|
Professional fees
|
|
|
278
|
|
|
|
255
|
|
|
|
569
|
|
|
|
484
|
|
Data processing expenses
|
|
|
154
|
|
|
|
143
|
|
|
|
307
|
|
|
|
280
|
|
OREO expenses
|
|
|
214
|
|
|
|
168
|
|
|
|
261
|
|
|
|
400
|
|
FDIC deposit insurance premiums
|
|
|
109
|
|
|
|
95
|
|
|
|
216
|
|
|
|
205
|
|
Loan servicing expenses
|
|
|
47
|
|
|
|
78
|
|
|
|
106
|
|
|
|
158
|
|
Insurance expense
|
|
|
49
|
|
|
|
43
|
|
|
|
102
|
|
|
|
101
|
|
Other expenses
|
|
|
377
|
|
|
|
375
|
|
|
|
776
|
|
|
|
790
|
|
Total other expenses
|
|
|
4,489
|
|
|
|
4,355
|
|
|
|
8,781
|
|
|
|
8,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,091
|
|
|
|
578
|
|
|
|
2,056
|
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
324
|
|
|
|
182
|
|
|
|
604
|
|
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
767
|
|
|
$
|
396
|
|
|
$
|
1,452
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share-basic and diluted
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding
|
|
|
5,820,746
|
|
|
|
5,820,746
|
|
|
|
5,820,746
|
|
|
|
5,820,746
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(In Thousands)
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
Ended March 31,
|
|
|
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
Net income
|
|
$
|
767
|
|
|
$
|
396
|
|
|
$
|
1,452
|
|
|
$
|
725
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale
|
|
|
297
|
|
|
|
(352
|
)
|
|
|
639
|
|
|
|
(319
|
)
|
Less reclassification adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassified available for sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
Net gains realized on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
(107
|
)
|
Other comprehensive income (loss), before tax
|
|
|
265
|
|
|
|
(352
|
)
|
|
|
607
|
|
|
|
(322
|
)
|
Deferred income tax effect
|
|
|
(75
|
)
|
|
|
88
|
|
|
|
(170
|
)
|
|
|
88
|
|
Total other comprehensive income (loss)
|
|
|
190
|
|
|
|
(264
|
)
|
|
|
437
|
|
|
|
(234
|
)
|
Total comprehensive income
|
|
$
|
957
|
|
|
$
|
132
|
|
|
$
|
1,889
|
|
|
$
|
491
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Three and Six Months Ended March 31, 2019 and 2018
(In Thousands, Except for Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
ESOP
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Shares
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
Balance, September 30, 2018
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,310
|
|
|
$
|
(1,152
|
)
|
|
$
|
(356
|
)
|
|
$
|
27,975
|
|
|
$
|
(1,474
|
)
|
|
$
|
51,362
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
685
|
|
|
|
—
|
|
|
|
685
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
246
|
|
|
|
246
|
|
ESOP shares allocated
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
Balance, December 31, 2018
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,314
|
|
|
$
|
(1,152
|
)
|
|
$
|
(321
|
)
|
|
$
|
28,660
|
|
|
$
|
(1,228
|
)
|
|
$
|
52,332
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
767
|
|
|
|
—
|
|
|
|
767
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
191
|
|
|
|
191
|
|
ESOP shares allocated
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
Balance, March 31, 2019
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,314
|
|
|
$
|
(1,152
|
)
|
|
$
|
(285
|
)
|
|
$
|
29,427
|
|
|
$
|
(1,037
|
)
|
|
$
|
53,326
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
ESOP
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Shares
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
Balance, September 30, 2017
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,289
|
|
|
$
|
(1,152
|
)
|
|
$
|
(492
|
)
|
|
$
|
25,757
|
|
|
$
|
(1,004
|
)
|
|
$
|
49,457
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
329
|
|
|
|
—
|
|
|
|
329
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
19
|
|
ESOP shares allocated
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
Balance, December 31, 2017
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,295
|
|
|
$
|
(1,152
|
)
|
|
$
|
(459
|
)
|
|
$
|
26,086
|
|
|
$
|
(985
|
)
|
|
$
|
49,844
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
396
|
|
|
|
—
|
|
|
|
396
|
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
(441
|
)
|
Reclassification of the stranded tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect related to defferred taxes for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan*
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
177
|
|
|
|
—
|
|
|
|
177
|
|
Securities available-for-sale*
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
11
|
|
ESOP shares allocated
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40
|
|
Balance, March 31, 2018
|
|
|
5,820,746
|
|
|
$
|
59
|
|
|
$
|
26,300
|
|
|
$
|
(1,152
|
)
|
|
$
|
(424
|
)
|
|
$
|
26,670
|
|
|
$
|
(1,426
|
)
|
|
$
|
50,027
|
|
(1)
|
In
January 2018, the Company adopted ASU 2018-02, as a result, the Company made a policy election to release income tax effects,
as a result of the Tax Act, from AOCI to retained earnings.
|
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
|
|
For the Six Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,452
|
|
|
$
|
725
|
|
Adjustment to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
by operating activities
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
468
|
|
|
|
424
|
|
Premium amortization on investment securities, net
|
|
|
56
|
|
|
|
76
|
|
Provision for loan losses
|
|
|
307
|
|
|
|
506
|
|
Provision for loss on other real estate owned
|
|
|
212
|
|
|
|
273
|
|
Originations of SBA loans held for sale
|
|
|
(2,170
|
)
|
|
|
(4,448
|
)
|
Proceeds from the sales of SBA loans
|
|
|
2,321
|
|
|
|
4,664
|
|
Gains on sale of loans receivable
|
|
|
(151
|
)
|
|
|
(216
|
)
|
Gains on sales of investment securities
|
|
|
(32
|
)
|
|
|
(107
|
)
|
Gains on the sales of other real estate owned
|
|
|
(35
|
)
|
|
|
(30
|
)
|
ESOP compensation expense
|
|
|
75
|
|
|
|
79
|
|
Deferred income tax (benefit) expense
|
|
|
(158
|
)
|
|
|
107
|
|
Increase in accrued interest receivable
|
|
|
(56
|
)
|
|
|
(34
|
)
|
Increase in surrender value of bank owned life insurance
|
|
|
(147
|
)
|
|
|
(146
|
)
|
Increase in other assets
|
|
|
(463
|
)
|
|
|
(121
|
)
|
Increase in accrued interest payable
|
|
|
29
|
|
|
|
12
|
|
(Decrease) increase in accounts payable and other liabilities
|
|
|
(120
|
)
|
|
|
481
|
|
Net cash provided by operating activities
|
|
|
1,588
|
|
|
|
2,245
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Net increase in loans receivable
|
|
|
(11,643
|
)
|
|
|
(14,217
|
)
|
Purchases of loans receivable
|
|
|
—
|
|
|
|
(461
|
)
|
Proceeds from the sale of loans receivable
|
|
|
4,386
|
|
|
|
1,200
|
|
Purchases of investment securities held to maturity
|
|
|
(1,645
|
)
|
|
|
(3,492
|
)
|
Purchases of investment securities available for sale
|
|
|
(3,088
|
)
|
|
|
(1,443
|
)
|
Sales of investment securities held to maturity
|
|
|
—
|
|
|
|
3,408
|
|
Sales of investment securities available for sale
|
|
|
947
|
|
|
|
—
|
|
Principal repayments on investment securities held to maturity
|
|
|
1,338
|
|
|
|
1,817
|
|
Principal repayments on investment securities available for sale
|
|
|
878
|
|
|
|
1,812
|
|
Purchases of premises and equipment
|
|
|
(64
|
)
|
|
|
(205
|
)
|
Investment in other real estate owned
|
|
|
(11
|
)
|
|
|
(182
|
)
|
Proceeds from other real estate owned
|
|
|
862
|
|
|
|
845
|
|
Redemptions (purchases) of Federal Home Loan Bank stock
|
|
|
133
|
|
|
|
(90
|
)
|
Net cash used by investing activities
|
|
|
(7,907
|
)
|
|
|
(11,008
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
41,657
|
|
|
|
1,553
|
|
Net increase in escrowed funds
|
|
|
429
|
|
|
|
227
|
|
Proceeds from long-term advances
|
|
|
3,975
|
|
|
|
—
|
|
(Repayments) proceeds of long-term advances
|
|
|
(6,940
|
)
|
|
|
2,000
|
|
Net cash provided by financing activities
|
|
|
39,121
|
|
|
|
3,780
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
32,802
|
|
|
|
(4,983
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
15,368
|
|
|
|
22,334
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
48,170
|
|
|
$
|
17,351
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,286
|
|
|
$
|
2,081
|
|
Income taxes
|
|
$
|
414
|
|
|
$
|
814
|
|
Non-cash investing activities
|
|
|
|
|
|
|
|
|
Investment securities transferred from held to maturity to available for sale
|
|
$
|
—
|
|
|
$
|
12,619
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MAGYAR BANCORP, INC. AND SUBSIDIARY
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
and six months ended March 31, 2019 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 March 31, 2019 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 November 2018, the FASB issued
ASU 2018-19,
Codification Improvements to Topic 326
, which clarifies that receivables arising from operating leases are
not within the scope of Topic 326. In December 2018, regulators issued a final rule related to regulatory capital
(Regulatory
Capital Rule: Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments
to the Regulatory Capital Rule and Conforming Amendments to Other Regulations)
which is intended to provide regulatory capital
relief for entities transitioning to CECL. The Company does not plan to early adopt this guidance and will adopt this guidance
on January 1, 2020.
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 and six months ended March 31, 2019 and 2018 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.
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended March 31,
|
|
|
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to common shares
|
|
$
|
767
|
|
|
$
|
396
|
|
|
$
|
1,452
|
|
|
$
|
725
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - basic
|
|
|
5,821
|
|
|
|
5,821
|
|
|
|
5,821
|
|
|
|
5,821
|
|
Stock options and restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and common share equivalents - diluted
|
|
|
5,821
|
|
|
|
5,821
|
|
|
|
5,821
|
|
|
|
5,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.07
|
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
There were no outstanding options
to purchase common stock at March 31, 2019 and March 31, 2018.
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 and six months ended March 31, 2019 and 2018 nor were there any
stock option and stock award expenses included with compensation expense for the three and six months ended March 31, 2019 and
2018.
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 March 31, 2019, 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 six months ended March 31, 2019 and 2018, respectively. Under the
stock repurchase program, 48,924 shares of the 129,924 shares authorized remained available for repurchase as of March 31, 2019.
The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held 102,996 total treasury
stock shares at March 31, 2019.
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. 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 (5.50% at January 1, 2019) 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 March 31, 2019, shares allocated
to participants totaled 178,216. Unallocated ESOP shares held in suspense totaled 39,647 at March 31, 2019 and had a fair market
value of $446,425. The Company's contribution expense for the ESOP was $75,000 and $79,000 for the six months ended March 31, 2019
and 2018, respectively.
NOTE F –
OTHER COMPREHENSIVE INCOME
The components of other comprehensive
income and the related income tax effects are as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
Before Tax
|
|
|
Benefit
|
|
|
Tax
|
|
|
Before Tax
|
|
|
Benefit
|
|
|
Tax
|
|
|
|
Amount
|
|
|
(Expense)
|
|
|
Amount
|
|
|
Amount
|
|
|
(Expense)
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Unrealized holding gain arising
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during period on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
$
|
297
|
|
|
$
|
(84
|
)
|
|
$
|
213
|
|
|
$
|
(352
|
)
|
|
$
|
88
|
|
|
$
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less reclassification adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains realized on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale
(a) (b)
|
|
|
(32
|
)
|
|
|
9
|
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
265
|
|
|
$
|
(75
|
)
|
|
$
|
190
|
|
|
$
|
(352
|
)
|
|
$
|
88
|
|
|
$
|
(264
|
)
|
|
|
Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
|
|
Tax
|
|
|
Net of
|
|
|
|
Before Tax
|
|
|
Benefit
|
|
|
Tax
|
|
|
Before Tax
|
|
|
Benefit
|
|
|
Tax
|
|
|
|
Amount
|
|
|
(Expense)
|
|
|
Amount
|
|
|
Amount
|
|
|
(Expense)
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Unrealized holding gain arising
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during period on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments
|
|
$
|
639
|
|
|
$
|
(179
|
)
|
|
$
|
460
|
|
|
$
|
(319
|
)
|
|
$
|
87
|
|
|
$
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less reclassification adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassified available for sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104
|
|
|
|
(32
|
)
|
|
|
72
|
|
Net gains realized on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available for sale
(a) (b)
|
|
|
(32
|
)
|
|
|
9
|
|
|
|
(23
|
)
|
|
|
(107
|
)
|
|
|
33
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
607
|
|
|
$
|
(170
|
)
|
|
$
|
437
|
|
|
$
|
(322
|
)
|
|
$
|
88
|
|
|
$
|
(234
|
)
|
(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 March 31, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
$
|
1,962
|
|
|
$
|
—
|
|
|
$
|
1,962
|
|
|
$
|
—
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
19,933
|
|
|
|
—
|
|
|
|
19,933
|
|
|
|
—
|
|
Debt securities
|
|
|
2,452
|
|
|
|
—
|
|
|
|
2,452
|
|
|
|
—
|
|
Total securities available for sale
|
|
$
|
24,347
|
|
|
$
|
—
|
|
|
$
|
24,347
|
|
|
$
|
—
|
|
|
|
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
$37,000 and $45,000 at March 31, 2019 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 as necessary, by management, 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. However, the Company also obtains updated appraisals on performing construction loans that are approaching
their maturity date to determine whether or not the fair value of the collateral securing the loan remains sufficient to cover
the loan amount prior to considering an extension. 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 March 31, 2019 and September 30, 2018.
|
|
Fair Value at March 31, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
365
|
|
Other real estate owned
|
|
|
7,558
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,558
|
|
Total
|
|
$
|
7,923
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,923
|
|
|
|
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
|
|
|
March 31, 2019
|
Estimate
|
Techniques
|
Unobservable Input
|
Range (Weighted Average)
|
|
|
|
|
|
Impaired loans
|
$ 365
|
Appraisal of collateral
(1)
|
Appraisal adjustments (2)
|
-1.4% to -1.4% (-1.4%)
|
Other real estate owned
|
$ 7,558
|
Appraisal of collateral
(1)
|
Liquidation expenses (2)
|
-7.8% to -48.5% (-18.4%)
|
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 downward 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 March 31, 2019 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,
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)
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
33,920
|
|
|
$
|
33,236
|
|
|
$
|
—
|
|
|
$
|
33,236
|
|
|
$
|
—
|
|
Loans
|
|
|
515,380
|
|
|
|
518,458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
518,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments - liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit including retirement certificates
|
|
|
120,922
|
|
|
|
121,519
|
|
|
|
—
|
|
|
|
121,519
|
|
|
|
—
|
|
Borrowings
|
|
|
32,559
|
|
|
|
32,520
|
|
|
|
—
|
|
|
|
32,520
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 during the six months ended March 31, 2019.
NOTE H - INVESTMENT SECURITIES
The following tables summarize
the amortized cost and fair values of securities available for sale at March 31, 2019 and September 30, 2018:
|
|
March 31, 2019
|
|
|
|
|
|
|
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
|
|
$
|
1,937
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
1,962
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities-residential
|
|
|
20,059
|
|
|
|
49
|
|
|
|
(175
|
)
|
|
|
19,933
|
|
Debt securities
|
|
|
2,500
|
|
|
|
—
|
|
|
|
(48
|
)
|
|
|
2,452
|
|
Total securities available for sale
|
|
$
|
24,496
|
|
|
$
|
74
|
|
|
$
|
(223
|
)
|
|
$
|
24,347
|
|
|
|
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 March 31, 2019 are summarized in the following table:
|
|
March 31, 2019
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Due within 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after 1 but within 5 years
|
|
|
2,500
|
|
|
|
2,452
|
|
Due after 5 but within 10 years
|
|
|
—
|
|
|
|
—
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
Total debt securities
|
|
|
2,500
|
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
21,996
|
|
|
|
21,895
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
24,496
|
|
|
$
|
24,347
|
|
The following tables summarize
the amortized cost and fair values of securities held to maturity at March 31, 2019 and September 30, 2018:
|
|
March 31, 2019
|
|
|
|
|
|
|
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
|
|
$
|
478
|
|
|
$
|
—
|
|
|
$
|
(84
|
)
|
|
$
|
394
|
|
Mortgage-backed securities - commercial
|
|
|
873
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
864
|
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed-securities - residential
|
|
|
26,730
|
|
|
|
44
|
|
|
|
(258
|
)
|
|
|
26,516
|
|
Debt securities
|
|
|
2,466
|
|
|
|
1
|
|
|
|
(33
|
)
|
|
|
2,434
|
|
Private label mortgage-backed securities - residential
|
|
|
373
|
|
|
|
2
|
|
|
|
—
|
|
|
|
375
|
|
Corporate securities
|
|
|
3,000
|
|
|
|
—
|
|
|
|
(347
|
)
|
|
|
2,653
|
|
Total securities held to maturity
|
|
$
|
33,920
|
|
|
$
|
47
|
|
|
$
|
(731
|
)
|
|
$
|
33,236
|
|
|
|
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 March 31, 2019 are summarized in the following table:
|
|
March 31, 2019
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Due within 1 year
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after 1 but within 5 years
|
|
|
1,499
|
|
|
|
1,500
|
|
Due after 5 but within 10 years
|
|
|
3,967
|
|
|
|
3,587
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
Total debt securities
|
|
|
5,466
|
|
|
|
5,087
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
27,581
|
|
|
|
27,285
|
|
Commercial
|
|
|
873
|
|
|
|
864
|
|
Total
|
|
$
|
33,920
|
|
|
$
|
33,236
|
|
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 (“OCI”).
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 March 31, 2019 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:
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
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
|
|
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
394
|
|
|
$
|
(84
|
)
|
|
$
|
394
|
|
|
$
|
(84
|
)
|
Mortgage-backed securities - commercial
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
864
|
|
|
|
(9
|
)
|
|
|
864
|
|
|
|
(9
|
)
|
Obligations of U.S. government-sponsored enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities - residential
|
|
|
29
|
|
|
|
1,615
|
|
|
|
(6
|
)
|
|
|
34,663
|
|
|
|
(427
|
)
|
|
|
36,278
|
|
|
|
(433
|
)
|
Debt securities
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,386
|
|
|
|
(81
|
)
|
|
|
3,386
|
|
|
|
(81
|
)
|
Private label mortgage-backed securities residential
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
|
|
—
|
|
|
|
91
|
|
|
|
—
|
|
Corporate securities
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,653
|
|
|
|
(347
|
)
|
|
|
2,653
|
|
|
|
(347
|
)
|
Total
|
|
|
37
|
|
|
$
|
1,615
|
|
|
$
|
(6
|
)
|
|
$
|
42,051
|
|
|
$
|
(948
|
)
|
|
$
|
43,666
|
|
|
$
|
(954
|
)
|
|
|
|
|
|
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 March 31, 2019 and September 30, 2018, there were thirty-seven
and forty-four investment securities, respectively, 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 March 31, 2019 and September 30, 2018.
NOTE J – LOANS RECEIVABLE, NET AND RELATED
ALLOWANCE FOR LOAN LOSSES
Loans receivable,
net were comprised of the following:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
189,066
|
|
|
$
|
185,287
|
|
Commercial real estate
|
|
|
223,432
|
|
|
|
219,347
|
|
Construction
|
|
|
33,493
|
|
|
|
30,412
|
|
Home equity lines of credit
|
|
|
19,482
|
|
|
|
17,982
|
|
Commercial business
|
|
|
49,225
|
|
|
|
53,320
|
|
Other
|
|
|
5,178
|
|
|
|
6,150
|
|
Total loans receivable
|
|
|
519,876
|
|
|
|
512,498
|
|
Net deferred loan costs
|
|
|
104
|
|
|
|
132
|
|
Allowance for loan losses
|
|
|
(4,600
|
)
|
|
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
Total loans receivable, net
|
|
$
|
515,380
|
|
|
$
|
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 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 six months ended March 31, 2019 and September 30, 2018:
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
March 31, 2019
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,349
|
|
|
$
|
1,349
|
|
|
$
|
1,349
|
|
Commercial real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
3,911
|
|
|
|
3,911
|
|
|
|
3,911
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
2,900
|
|
Home equity lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
39
|
|
|
|
39
|
|
Commercial business
|
|
|
—
|
|
|
|
—
|
|
|
|
583
|
|
|
|
583
|
|
|
|
583
|
|
Total impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,782
|
|
|
$
|
8,782
|
|
|
$
|
8,782
|
|
|
|
|
|
|
|
|
|
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 $7.8 million and $6.9 million for the six months ended March 31, 2019 and 2018, 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. There was one TDR during the six months ended March 31, 2019 totaling $365,000
that resulted from the restructure of a previously impaired, non-accrual loan. There were no TDRs during the six months ended March
31, 2018. During the six months ended March 31, 2019 and 2018, interest income of $109,000 and $157,000, 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 three and six months ended March 31, 2019 and 2018.
|
|
Three Months
|
|
|
Six Months
|
|
|
|
March 31, 2019
|
|
|
March 31, 2019
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
1,240
|
|
|
$
|
1,204
|
|
Commercial real estate
|
|
|
3,923
|
|
|
|
3,936
|
|
Construction
|
|
|
2,900
|
|
|
|
1,933
|
|
Home equity lines of credit
|
|
|
49
|
|
|
|
52
|
|
Commercial business
|
|
|
646
|
|
|
|
667
|
|
Average investment in impaired loans
|
|
$
|
8,758
|
|
|
$
|
7,792
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
March 31, 2018
|
|
|
March 31, 2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
2,531
|
|
|
$
|
2,728
|
|
Commercial real estate
|
|
|
3,658
|
|
|
|
3,801
|
|
Commercial business
|
|
|
363
|
|
|
|
323
|
|
Average investment in impaired loans
|
|
$
|
6,552
|
|
|
$
|
6,852
|
|
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)
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
188,663
|
|
|
$
|
—
|
|
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
189,066
|
|
Commercial real estate
|
|
|
221,946
|
|
|
|
840
|
|
|
|
646
|
|
|
|
—
|
|
|
|
223,432
|
|
Construction
|
|
|
30,593
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
—
|
|
|
|
33,493
|
|
Home equity lines of credit
|
|
|
19,443
|
|
|
|
—
|
|
|
|
39
|
|
|
|
—
|
|
|
|
19,482
|
|
Commercial business
|
|
|
48,873
|
|
|
|
—
|
|
|
|
352
|
|
|
|
—
|
|
|
|
49,225
|
|
Other
|
|
|
5,178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,178
|
|
Total
|
|
$
|
514,696
|
|
|
$
|
840
|
|
|
$
|
4,340
|
|
|
$
|
—
|
|
|
$
|
519,876
|
|
|
|
|
|
|
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 table presents 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)
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
$
|
188,055
|
|
|
$
|
973
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
1,011
|
|
|
$
|
38
|
|
|
$
|
189,066
|
|
Commercial real estate
|
|
|
220,955
|
|
|
|
2,027
|
|
|
|
—
|
|
|
|
450
|
|
|
|
2,477
|
|
|
|
450
|
|
|
|
223,432
|
|
Construction
|
|
|
30,593
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
|
33,493
|
|
Home equity lines of credit
|
|
|
19,443
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
39
|
|
|
|
39
|
|
|
|
19,482
|
|
Commercial business
|
|
|
48,589
|
|
|
|
284
|
|
|
|
—
|
|
|
|
352
|
|
|
|
636
|
|
|
|
352
|
|
|
|
49,225
|
|
Other
|
|
|
5,178
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,178
|
|
Total
|
|
$
|
512,813
|
|
|
$
|
3,284
|
|
|
$
|
—
|
|
|
$
|
3,779
|
|
|
$
|
7,063
|
|
|
$
|
3,779
|
|
|
$
|
519,876
|
|
|
|
|
|
|
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 six months ended March 31, 2019:
|
|
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
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
92
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92
|
|
Provision
|
|
|
(80
|
)
|
|
|
95
|
|
|
|
142
|
|
|
|
17
|
|
|
|
(78
|
)
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
106
|
|
Balance- March 31, 2019
|
|
$
|
710
|
|
|
$
|
1,685
|
|
|
$
|
816
|
|
|
$
|
138
|
|
|
$
|
1,104
|
|
|
$
|
3
|
|
|
$
|
144
|
|
|
$
|
4,600
|
|
The following
table summarizes the ALL by loan category and the related activity for the six months ended March 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, 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
|
|
Charge-offs
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Provision
|
|
|
(5
|
)
|
|
|
119
|
|
|
|
58
|
|
|
|
(19
|
)
|
|
|
106
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
257
|
|
Balance- March 31, 2018
|
|
$
|
533
|
|
|
$
|
1,418
|
|
|
$
|
442
|
|
|
$
|
112
|
|
|
$
|
1,158
|
|
|
$
|
4
|
|
|
$
|
102
|
|
|
$
|
3,769
|
|
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 March 31, 2019 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 - March 31, 2019
|
|
$
|
710
|
|
|
$
|
1,685
|
|
|
$
|
816
|
|
|
$
|
138
|
|
|
$
|
1,104
|
|
|
$
|
3
|
|
|
$
|
144
|
|
|
$
|
4,600
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
710
|
|
|
|
1,685
|
|
|
|
816
|
|
|
|
138
|
|
|
|
1,104
|
|
|
|
3
|
|
|
|
144
|
|
|
|
4,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2019
|
|
$
|
189,066
|
|
|
$
|
223,432
|
|
|
$
|
33,493
|
|
|
$
|
19,482
|
|
|
$
|
49,225
|
|
|
$
|
5,178
|
|
|
$
|
—
|
|
|
$
|
519,876
|
|
Individually evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
1,349
|
|
|
|
3,911
|
|
|
|
2,900
|
|
|
|
39
|
|
|
|
583
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,782
|
|
Collectively evaluated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for impairment
|
|
|
187,717
|
|
|
|
219,521
|
|
|
|
30,593
|
|
|
|
19,443
|
|
|
|
48,642
|
|
|
|
5,178
|
|
|
|
—
|
|
|
|
511,094
|
|
|
|
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 was one TDR for the three and six months ended March 31, 2019.
There
were no TDRs for the three and six months ended
March 31, 2018
.
The
following tables summarize the TDRs for the three and six months
ended March 31, 2019:
|
|
Three Months Ended March 31, 2019
|
|
|
|
Number of
|
|
|
Investment Before
|
|
|
Investment After
|
|
|
|
Loans
|
|
|
TDR Modification
|
|
|
TDR Modification
|
|
|
|
(Dollars in thousands)
|
|
One-to four-family residential
|
|
|
1
|
|
|
$
|
260
|
|
|
$
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
260
|
|
|
$
|
365
|
|
|
|
Six Months Ended March 31, 2019
|
|
|
|
Number of
|
|
|
Investment Before
|
|
|
Investment After
|
|
|
|
Loans
|
|
|
TDR Modification
|
|
|
TDR Modification
|
|
|
|
(Dollars in thousands)
|
|
One-to four-family residential
|
|
|
1
|
|
|
$
|
260
|
|
|
$
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1
|
|
|
$
|
260
|
|
|
$
|
365
|
|
NOTE K -
DEPOSITS
A summary of
deposits by type of account are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
123,818
|
|
|
$
|
104,745
|
|
Savings accounts
|
|
|
74,585
|
|
|
|
81,373
|
|
NOW accounts
|
|
|
47,151
|
|
|
|
46,336
|
|
Money market accounts
|
|
|
205,318
|
|
|
|
167,340
|
|
Certificates of deposit
|
|
|
103,612
|
|
|
|
112,014
|
|
Retirement certificates
|
|
|
17,310
|
|
|
|
18,329
|
|
Total deposits
|
|
$
|
571,794
|
|
|
$
|
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 March 31, 2019 or 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
|
|
|
For the Six Months
|
|
|
|
Ended March 31,
|
|
|
Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense at the statutory federal tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of 21% and 24% for the three and six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 and 2018, respectively
|
|
$
|
203
|
|
|
$
|
138
|
|
|
$
|
382
|
|
|
$
|
352
|
|
State tax expense
|
|
|
125
|
|
|
|
40
|
|
|
|
236
|
|
|
|
101
|
|
Reduction of deferred tax asset from change in federal tax rate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
306
|
|
Other
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
(14
|
)
|
|
|
(13
|
)
|
Income tax expense
|
|
$
|
324
|
|
|
$
|
182
|
|
|
$
|
604
|
|
|
$
|
746
|
|
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 and six months ended March 31, 2019 and a blended rate of 24% for the three
and six months ended March 31, 2018. Included in the income tax expense for the six months ended March 31, 2018 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 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 March 31, 2019 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.
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Financial instruments whose contract amounts
|
|
|
|
|
|
|
|
|
represent credit risk
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
1,914
|
|
|
$
|
1,939
|
|
Unused lines of credit
|
|
|
63,749
|
|
|
|
54,127
|
|
Fixed rate loan commitments
|
|
|
3,100
|
|
|
|
4,397
|
|
Variable rate loan commitments
|
|
|
13,099
|
|
|
|
12,523
|
|
Total
|
|
$
|
81,862
|
|
|
$
|
72,986
|
|
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
When used in this filing
and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other
public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words
or phrases, “anticipate,” “would be,” “will allow,” “intends to,” “will likely
result,” “are expected to,” “will continue,” “is anticipated,” “estimated,”
“projected,” “believes”, or similar expressions are intended to identify “forward looking statements.”
Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks previously
disclosed by the Company in Item 1A of its Annual Report on Form 10-K as may be supplemented by Quarterly Reports on Form 10-Q
filed with the SEC, general economic conditions, changes in interest rates, regulatory considerations, competition, technological
developments, retention and recruitment of qualified personnel, and market acceptance of the Company’s pricing, products
and services, and with respect to the loans extended by the Bank and real estate owned, the following: risks related to the economic
environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey;
the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may
be incurred by the Company in connection with the resolution of these loans.
The Company wishes
to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market
interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect
the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially
from those anticipated or projected.
The Company does
not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
Critical Accounting Policies
Critical accounting
policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially
different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions
or assessments. We consider the following to be our critical accounting policies.
Allowance
for Loan Losses.
The allowance for loan losses is the amount estimated by management as necessary to cover credit losses
in the loan portfolio both probable and reasonably estimable at the balance sheet date. The allowance is established through the
provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant
estimates and has identified this policy as one of our most critical. Due to the high degree of judgment involved, the subjectivity
of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount
of the recorded allowance for loan losses, the methodology for determining the allowance for loan losses is considered a critical
accounting policy by management.
As a substantial
amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and
discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans.
Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly
optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan
and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully
reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.
Management performs
a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this
estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations,
the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant
factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant
change based on changes in economic and real estate market conditions.
The evaluation has
a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as impaired
through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with
principal consideration given to the value of the collateral securing the loan and discounted cash flows. Specific impairment allowances
are established as required by this analysis. The general component is determined by segregating the remaining loans by type of
loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general
economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan
groups to determine the amount of the general component of the allowance for loan losses.
Actual loan losses may
be significantly greater than the allowances we have established, which could have a material negative effect on our financial
results.
Other Real Estate
Owned.
Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure, is recorded at fair value less estimated
selling costs at the date of acquisition or transfer, and subsequently at the lower of its new cost or fair value less estimated
selling costs. Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses.
The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated
selling costs, at which time a provision for losses on such real estate is charged to operations.
Appraisals are critical
in determining the fair value of the other real estate owned amount. Assumptions for appraisals are instrumental in determining
the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation
of a property. The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting
values reasonably reflect amounts realizable.
Investment Securities.
If the fair value of a security is less than its amortized cost, the security is deemed to be impaired. Management evaluates all
securities with unrealized losses quarterly to determine if such impairments are “temporary” or “other-than-temporary”
in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification
as either available-for-sale, held-to-maturity, or trading. Temporary impairments on “available-for-sale” securities
are recognized, on a tax-effected basis, through accumulated other comprehensive income (“AOCI”) with offsetting entries
adjusting the carrying value of the security and the balance of deferred taxes. Conversely, the Company does not adjust the carrying
value of “held-to-maturity” securities for temporary impairments, although information concerning the amount and duration
of impairments on held to maturity securities is generally disclosed in periodic financial statements. The carrying value of securities
held in a trading portfolio is adjusted to their fair value through earnings on a daily basis. However, the Company maintained
no securities in trading portfolios at or during the periods presented in these financial statements.
The Company accounts for
other-than-temporary impairments based upon several considerations. First, other-than-temporary impairments on securities that
the Company has decided to sell as of the close of a fiscal period, or will, more likely than not, be required to sell prior to
the full recovery of the their fair value to a level equal to or exceeding their amortized cost, are recognized in operations.
If neither of these criteria apply, then the other-than-temporary impairment is separated into credit-related and noncredit-related
components. The credit-related impairment generally represents the amount by which the present value of the cash flows that are
expected to be collected on an other-than-temporarily impaired security fall below its amortized cost while the noncredit-related
component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes
credit-related, other-than-temporary impairments in earnings, while noncredit-related, other-than-temporary impairments on debt
securities are recognized, net of deferred taxes, in AOCI. Management did not account for any other-than-temporary impairments
at or during the periods presented in these financial statements.
Fair Value.
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Our securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, we 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. 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, Fair Value Measurements and Disclosures, we group our 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. We base our 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 us to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
Deferred 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 effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment. The valuation allowance
is adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.
Comparison of Financial Condition at March
31, 2019 and September 30, 2018
Total assets increased
$41.0 million, or 6.6%, to $665.0 million at the six months ended March 31, 2019 from $624.0 million at September 30, 2018. The
increase was attributable to a $32.8 million increase in cash and cash equivalent balances, a $7.0 million increase in net loans
receivable, and a $2.2 million increase in investment securities, offset by a $1.0 million decrease in other real estate owned
properties.
Cash and interest bearing
deposits with banks increased $32.8 million, or 213.4%, to $48.2 million at March 31, 2019 from $15.4 million at September 30,
2018. The increase was primarily due to the net deposit inflows during the six months ended March 31, 2019.
At March 31, 2019, investment
securities totaled $58.3 million, reflecting an increase of $2.2 million, or 3.8%, from $56.1 million at September 30, 2018. The
Company purchased $4.7 million of U.S. Government-sponsored enterprise obligations, sold securities totaling $915,000 and received
principal repayments totaling $2.2 million during the six months ended March 31, 2019. In addition, the mark-to-market value of
the Company’s available-for-sale investment portfolio increased $607,000 during the six months ended March 31, 2019 due to
price fluctuations from change in market interest rates.
Investment securities at
March 31, 2019 consisted of $50.0 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored
enterprises, $4.9 million in debt securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $3.0
million in corporate notes, and $373,000 in “private-label” mortgage-backed securities. There were no other-than-temporary-impairment
charges for the Company’s investment securities for the six months ended March 31, 2019.
Total loans receivable
increased $7.4 million, or 1.4%, to $519.9 million during the six months ended March 31, 2019 compared with $512.5 million at September
30, 2018. Total loans receivable were comprised of $223.4 million (43.0%) commercial real estate loans, $189.1 million (36.4%)
one-to-four family residential mortgage loans, $49.2 million (9.5%) commercial business loans, $33.5 million (6.4%) construction
loans, $19.5 million (3.7%) home equity lines of credit and $5.2 million (1.0%) other loans.
Total non-performing loans
increased $2.9 million to $3.8 million at March 31, 2019 from $906,000 at September 30, 2018. Included in the non-performing loan
totals were three commercial real estate loans totaling $450,000, two commercial business loan totaling $352,000, one home equity
line of credit totaling $39,000, one residential mortgage loan totaling $38,000, and one construction loan totaling $2.9 million.
The increase in non-performing
loans was due to one construction loan that ceased performing and in accordance with Company policy resulted in the initiation
of foreclosure proceedings. Based on updated appraisals of the real estate securing the loan, management believes the loan is adequately
secured by real estate. For the three months ended March 31, 2019 non-performing loans declined $282,000. The ratio of non-performing
loans to total loans increased to 0.73% at March 31, 2019 from 0.18% at September 30, 2018.
During the six months ended
March 31, 2019, the allowance for loan losses increased $400,000 to $4.6 million. The allowance for loan losses as a percentage
of non-performing loans decreased to 122% at March 31, 2019 compared with 464% at September 30, 2018. At March 31, 2019 the Company’s
allowance for loan losses as a percentage of total loans was 0.88% compared with 0.82% at September 30, 2018. Future increases
in the allowance for loan losses may be necessary based on the growth of the loan portfolio, the change in composition of the loan
portfolio, possible future increases in non-performing loans and charge-offs, and the possible deterioration of the current economic
environment.
Other real estate owned
decreased $1.0 million to $7.6 million at March 31, 2019 from $8.6 million at September 30, 2018. The decrease was the result of
the two sales totaling $846,000 and valuation allowances totaling $212,000. The Company is determining the proper course of action
for its other real estate owned, which may include holding the properties until the real estate market further improves, marketing
the individual properties for sale, or selling multiple properties to a real estate investor.
Total deposits increased
$41.7 million, or 7.9%, to $571.8 million during the six months ended March 31, 2019. The increase in deposits occurred in money
market accounts, which increased $38.0 million, or 22.7%, to $205.3 million, non-interest bearing checking accounts, which increased
$19.1 million, or 18.2%, to $123.8 million and in interest-bearing checking accounts, which increased $815,000, or 1.8%, to $47.2
million. Offsetting these increases were decreases in certificates of deposit (including individual retirement accounts) which
decreased $9.4 million, or 7.2%, to $120.9 million, and in savings accounts, which decreased $6.8 million, or 8.3%, to $74.6 million.
Included in the total deposits
were $8.8 million in brokered certificates of deposit at March 31, 2019 and $14.8 million at September 30, 2018. Retail deposit
inflows were used to repay matured brokered certificate of deposits during the six months ended March 31, 2019.
Federal Home Loan Bank
of New York advances decreased $2.9 million to $32.6 million at March 31, 2019 from $35.5 million at September 30, 2018. During
the six months ended March 31, 2019 the Company paid off three maturing long-term advances totaling $6.9 million with new advances
totaling $4.0 million and retail deposit inflows.
Stockholders’ equity
increased $1.9 million, or 3.8%, to $53.3 million at March 31, 2019 from $51.4 million at September 30, 2018. The Company’s
book value per share increased to $9.16 at March 31, 2019 from $8.82 at September 30, 2018. The increase in stockholders’
equity was attributable to the Company’s results from operations for the six months ended March 31, 2019.
The Company did not repurchase
any shares of its common stock during the six months ended March 31, 2019. Through March 31, 2019, the Company had repurchased
81,000 shares at an average price of $8.33 pursuant to the second stock repurchase plan, which reduced outstanding shares to 5,820,746.
Average Balance Sheet for the Three and
Six Months Ended March 31, 2019 and 2018
The tables on the following
pages present certain information regarding the Company’s financial condition and net interest income for the three and six
months ended March 31, 2019 and 2018. The tables present the annualized average yield on interest-earning assets and the annualized
average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average
balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances
from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields.
|
|
For the Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Yield/Cost
(Annualized)
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Yield/Cost
(Annualized)
|
|
|
|
(Dollars In Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
|
$
|
35,416
|
|
|
$
|
206
|
|
|
|
2.35%
|
|
|
$
|
16,300
|
|
|
$
|
62
|
|
|
|
1.53%
|
|
Loans receivable, net
|
|
|
513,472
|
|
|
|
6,226
|
|
|
|
4.92%
|
|
|
|
479,464
|
|
|
|
5,408
|
|
|
|
4.57%
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB of NY stock
|
|
|
2,047
|
|
|
|
37
|
|
|
|
7.31%
|
|
|
|
2,047
|
|
|
|
33
|
|
|
|
6.50%
|
|
Total interest-earning assets
|
|
|
608,222
|
|
|
|
6,809
|
|
|
|
4.54%
|
|
|
|
558,722
|
|
|
|
5,857
|
|
|
|
4.25%
|
|
Noninterest-earning assets
|
|
|
41,948
|
|
|
|
|
|
|
|
|
|
|
|
45,734
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
650,170
|
|
|
|
|
|
|
|
|
|
|
$
|
604,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
(1)
|
|
$
|
75,917
|
|
|
|
125
|
|
|
|
0.67%
|
|
|
$
|
100,675
|
|
|
|
175
|
|
|
|
0.71%
|
|
NOW accounts
(2)
|
|
|
240,205
|
|
|
|
832
|
|
|
|
1.40%
|
|
|
|
187,284
|
|
|
|
312
|
|
|
|
0.68%
|
|
Time deposits
(3)
|
|
|
125,426
|
|
|
|
551
|
|
|
|
1.78%
|
|
|
|
120,772
|
|
|
|
384
|
|
|
|
1.29%
|
|
Total interest-bearing deposits
|
|
|
441,548
|
|
|
|
1,508
|
|
|
|
1.39%
|
|
|
|
408,731
|
|
|
|
871
|
|
|
|
0.86%
|
|
Borrowings
|
|
|
32,935
|
|
|
|
180
|
|
|
|
2.22%
|
|
|
|
32,905
|
|
|
|
165
|
|
|
|
2.03%
|
|
Total interest-bearing liabilities
|
|
|
474,483
|
|
|
|
1,688
|
|
|
|
1.44%
|
|
|
|
441,636
|
|
|
|
1,036
|
|
|
|
0.95%
|
|
Noninterest-bearing liabilities
|
|
|
123,251
|
|
|
|
|
|
|
|
|
|
|
|
113,062
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
597,734
|
|
|
|
|
|
|
|
|
|
|
|
554,698
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
52,436
|
|
|
|
|
|
|
|
|
|
|
|
49,758
|
|
|
|
|
|
|
|
|
|
Total liabilities and retained earnings
|
|
$
|
650,170
|
|
|
|
|
|
|
|
|
|
|
$
|
604,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income
|
|
|
|
|
|
$
|
5,121
|
|
|
|
|
|
|
|
|
|
|
$
|
4,821
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.10%
|
|
|
|
|
|
|
|
|
|
|
|
3.30%
|
|
Net interest-earning assets
|
|
$
|
133,739
|
|
|
|
|
|
|
|
|
|
|
$
|
117,086
|
|
|
|
|
|
|
|
|
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
|
|
3.41%
|
|
|
|
|
|
|
|
|
|
|
|
3.50%
|
|
Average interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities
|
|
|
128.19%
|
|
|
|
|
|
|
|
|
|
|
|
126.51%
|
|
|
|
|
|
|
|
|
|
(1)
Includes passbook savings, money market passbook and club accounts.
(2)
Includes interest-bearing checking and money market accounts.
(3)
Includes certificates of deposits and individual retirement accounts.
(4)
Calculated as annualized net interest income divided by average total interest-earning assets.
|
|
For the Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Yield/Cost
(Annualized)
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
|
Yield/Cost
(Annualized)
|
|
|
|
(Dollars In Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
|
$
|
34,502
|
|
|
$
|
359
|
|
|
|
2.08%
|
|
|
$
|
19,162
|
|
|
$
|
133
|
|
|
|
1.39%
|
|
Loans receivable, net
|
|
|
511,187
|
|
|
|
12,353
|
|
|
|
4.85%
|
|
|
|
475,742
|
|
|
|
10,843
|
|
|
|
4.57%
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
56,920
|
|
|
|
675
|
|
|
|
2.38%
|
|
|
|
61,402
|
|
|
|
704
|
|
|
|
2.30%
|
|
FHLB of NY stock
|
|
|
2,084
|
|
|
|
82
|
|
|
|
7.93%
|
|
|
|
2,025
|
|
|
|
64
|
|
|
|
6.31%
|
|
Total interest-earning assets
|
|
|
604,693
|
|
|
|
13,469
|
|
|
|
4.47%
|
|
|
|
558,331
|
|
|
|
11,744
|
|
|
|
4.22%
|
|
Noninterest-earning assets
|
|
|
42,332
|
|
|
|
|
|
|
|
|
|
|
|
45,858
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
647,025
|
|
|
|
|
|
|
|
|
|
|
$
|
604,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
(1)
|
|
$
|
76,766
|
|
|
$
|
251
|
|
|
|
0.66%
|
|
|
$
|
102,769
|
|
|
$
|
366
|
|
|
|
0.71%
|
|
NOW accounts
(2)
|
|
|
236,522
|
|
|
|
1,590
|
|
|
|
1.35%
|
|
|
|
184,612
|
|
|
|
621
|
|
|
|
0.67%
|
|
Time deposits
(3)
|
|
|
127,148
|
|
|
|
1,105
|
|
|
|
1.74%
|
|
|
|
122,966
|
|
|
|
778
|
|
|
|
1.27%
|
|
Total interest-bearing deposits
|
|
|
440,436
|
|
|
|
2,946
|
|
|
|
1.34%
|
|
|
|
410,347
|
|
|
|
1,765
|
|
|
|
0.86%
|
|
Borrowings
|
|
|
33,758
|
|
|
|
370
|
|
|
|
2.20%
|
|
|
|
32,400
|
|
|
|
327
|
|
|
|
2.03%
|
|
Total interest-bearing liabilities
|
|
|
474,194
|
|
|
|
3,316
|
|
|
|
1.40%
|
|
|
|
442,747
|
|
|
|
2,092
|
|
|
|
0.95%
|
|
Noninterest-bearing liabilities
|
|
|
119,861
|
|
|
|
|
|
|
|
|
|
|
|
111,309
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
594,055
|
|
|
|
|
|
|
|
|
|
|
|
554,056
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
52,970
|
|
|
|
|
|
|
|
|
|
|
|
50,133
|
|
|
|
|
|
|
|
|
|
Total liabilities and retained earnings
|
|
$
|
647,025
|
|
|
|
|
|
|
|
|
|
|
$
|
604,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest and dividend income
|
|
|
|
|
|
$
|
10,153
|
|
|
|
|
|
|
|
|
|
|
$
|
9,652
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.07%
|
|
|
|
|
|
|
|
|
|
|
|
3.27%
|
|
Net interest-earning assets
|
|
$
|
130,499
|
|
|
|
|
|
|
|
|
|
|
$
|
115,584
|
|
|
|
|
|
|
|
|
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
|
|
3.37%
|
|
|
|
|
|
|
|
|
|
|
|
3.47%
|
|
Average interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average interest-bearing liabilities
|
|
|
127.52%
|
|
|
|
|
|
|
|
|
|
|
|
126.11%
|
|
|
|
|
|
|
|
|
|
(1)
Includes passbook savings, money market passbook and club accounts.
(2)
Includes interest-bearing checking and money market accounts.
(3)
Includes certificates of deposits and individual retirement accounts.
(4)
Calculated
as annualized net interest income divided by average total interest-earning assets.
Comparison of Operating Results for the
Three Months Ended March 31, 2019 and 2018
Net Income
.
Net income increased $371,000, or 94.0%, to $767,000 during the three-month period ended March 31, 2019 compared with $396,000
at three-month period ended March 31, 2018 primarily due to higher net interest and dividend income and lower provisions for loan
loss.
Net Interest and
Dividend Income.
Net interest and dividend income increased $300,000, or 6.2%, to $5.1 million for the three months ended
March 31, 2019 from $4.8 million for the three months ended March 31, 2018. The Company’s net interest margin decreased by
9 basis points to 3.41% for the three months ended March 31, 2019 compared to 3.50% for the three months ended March 31, 2018.
The yield on the Company’s
interest-earning assets increased 29 basis points to 4.54% for the three months ended March 31, 2019 from 4.25% for the three months
ended March 31, 2018 primarily due to higher average balances of loans receivable, net of allowance for loan losses, which increased
$35.4 million, as well as higher market interest rates between periods. The average yield on loans receivable net increased 35
basis points to 4.92% for the three months ended March 31, 2019 from 4.57% for the three months ended March 31, 2018, due to higher
average balances of loan receivable and higher market interest rates. The cost of interest-bearing liabilities increased 49 basis
points to 1.44% for the three months ended March 31, 2019 from 0.95% for the three months ended March 31, 2018. The increase in
the cost of interest-bearing liabilities was attributable to higher average balances in interest-bearing deposits and higher market
interest rates.
Interest and Dividend
Income.
Interest and dividend income increased $952,000, or 16.3%, to $6.8 million for the three months ended March 31,
2019 from $5.9 million for the three months ended March 31, 2018. The increase was attributable to a $49.5 million, or 8.9%, increase
in the average balance of interest-earning assets in addition to a 29 basis point increase in the yield on such assets to 4.54%
for the quarter ended March 31, 2019 compared with the prior year period.
Interest earned on loans
increased $818,000, or 15.1%, to $6.2 million for the three months ended March 31, 2019 compared with $5.4 million the same period
prior year due to a $34.0 million increase in the average balance in the net loan receivable and higher market interest rates.
Interest earned on our
investment securities, including interest earning deposits and excluding FHLB stock, increased $130,000, or 31.3%, to $546,000
at March 31, 2019 from $416,000 at March 31, 2018. The average yield on investment securities and interest earning deposits increased
21 basis points to 2.39% for the three months ended March 31, 2019 from 2.18% for the three months ended March 31, 2018.
Interest Expense.
Interest expense increased $652,000, or 62.9%, to $1.7 million for the three months ended March 31, 2019 from $1.0 million
for the three months ended March 31, 2018. The average balance of interest-bearing liabilities increased $32.8 million, or 7.4%,
to $474.5 million from $441.6 million between the two periods, while the cost on such liabilities increased 49 basis points to
1.44% for the three months ended March 31, 2019 from 0.95% compared with the prior year period.
The average balance of
interest bearing deposits increased $32.8 million, or 8.0%, to $441.5 million at March 31, 2019 from $408.7 million at March 31,
2018, while the average cost of such deposits increased 53 basis points to 1.39% from 0.86% between the two periods. As a result,
interest paid on interest-bearing deposits increased $637,000, or 73.1%, to $1.5 million for the three months ended March 31, 2019
from $871,000 for the three months ended March 31, 2018. Contributing to the higher balance and cost of deposits were money market
account deposit promotions paying an interest rate between 1.80% and 2.50%. The promotion was run during the Company’s first
quarter and resulted in $15.1 million in new money market account balances in addition to $4.6 million in non-interest checking
balances and the retention of $9.1 million in other deposits. During the Company’s second quarter deposits increased $22.0
million, $14.5 million of which was in non-interest bearing checking accounts.
Interest paid on advances
increased $15,000, or 9.1%, to $180,000 for the three months ended March 31, 2019 from $165,000 for the same period prior year
due to a higher average cost of advances, which increased 19 basis points to 2.22% for the three months ended March 31, 2019 from
2.03% for the three months ended March 31, 2018, reflecting the higher market interest rate environment. The average balance of
such borrowings was unchanged at $32.9 million between periods.
Provision for Loan
Losses.
We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and
inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level
of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in
the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available or as future events occur.
After an evaluation of
these factors, management recorded a provision of $106,000 for the three months ended March 31, 2019 compared to a provision of
$257,000 for the three months ended March 31, 2018. The Company did not incur any charge-offs during the current period but did
receive $92,000 in recoveries of loans previously charged-off. Comparatively, the Company incurred $25,000 in net charge-offs for
the three months ended March 31, 2018.
Determining the amount
of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance
on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph.
As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial
real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.
Other Income.
Non-interest
income increased $196,000, or 53.1%, to $565,000 during the three months ended March 31, 2019 compared to $369,000 for the three
months ended March 31, 2018. The increase was attributable to higher service charge income, higher gains from the sale of SBA loans,
and a gain from the sale of an investment security. Service charge income increased $57,000 from the prior year period due to higher
loan and deposit fees. The Company recorded a gain totaling $151,000 from the sale of the guaranteed portion of a SBA loan during
the three months ended March 31, 2019, compared with $30,000 in gains for the prior year period. In addition, one investment security
totaling $915,000 was sold for a gain of $32,000 during the three months ended March 31, 2019 while there were no investment gains
for the prior year period.
Other Expenses.
Non-interest
expenses increased $134,000, or 3.1%, to $4.5 million from the three months ended March 31, 2019. Compensation and benefit expense
increased $74,000, or 3.0%, from the prior year period due to the addition of a new commercial lender as well as annual merit increases
for employees. In addition, OREO expenses increased $46,000 to $214,000 for the three months ended March 31, 2019 from $168,000
for the prior year period due to higher valuation allowances resulting from updated real estate appraisals.
Income Tax Expense.
The Company recorded tax expense of $324,000 on income of $1.1 million for the three months ended March 31, 2019, compared to tax
expense of $182,000 on income of $578,000 for the three months ended March 31, 2018. The increase was due to a $514,000 increase
in the Company’s results from operations. The Company’s effective tax rate for the three months ended March 31, 2019
was 29.7% compared with 31.5% for the three months ended March 31, 2018.
Comparison of Operating Results for the
Six Months Ended March 31, 2019 and 2018
Net Income.
Net
income increased $727,000, or 100.3%, to $1.5 million during the six-month period ended March 31, 2019 compared with $725,000 for
the six-month period ended March 31, 2018 due to higher net interest and dividend income and lower provisions for loan loss.
The net interest margin
decreased by 10 basis points to 3.37% for the six months ended March 31, 2019 compared to 3.47% for the six months ended March
31, 2018. The yield on interest-earning assets increased 25 basis points to 4.47% for the six months ended March 31, 2019 from
4.22% for the six months ended March 31, 2018 primarily due to higher balances of loans receivable as well as higher market interest
rates between the two periods. The cost of interest-bearing liabilities increased 45 basis points to 1.40% for the six months ended
March 31, 2019 from 0.95% for the six months ended March 31, 2018 due to higher market interest rates and a higher average balance
in money market accounts.
Net Interest and
Dividend Income.
The Company’s net interest and dividend income increased $501,000, or 5.2%, to $10.2 million for
the six month period ended March 31, 2019 from $9.7 million for the six months ended March 31, 2018.
Interest and Dividend
Income.
Interest and dividend income increased $1.7 million, or 14.7%, to $13.5 million for the six months ended March
31, 2019 compared to $11.7 million for the six months ended March 31, 2018. The average balance of interest-earning assets increased
$46.4 million, or 8.3%, to $604.7 million from $558.3 million between the six months periods ended March 31, 2019 and 2018, respectively,
while the yield on such assets increased 25 basis points to 4.47% for the six months ended March 31, 2019 compared with 4.22% for
the six months ended March 31, 2018.
Interest earned on loans
increased $1.5 million, or 13.9%, to $12.3 million for the six months ended March 31, 2019 compared with $10.8 million the same
period prior year due to a $35.4 million increase in the average balance in the net loan receivable and higher market interest
rates.
Interest earned on our
investment securities, including interest earning deposits and excluding FHLB stock, increased $197,000, or 23.5%, to $1.0 million
for the six months ended March 31, 2019 compared with $837,000 for the same period last year. The increase was due to a $10.9 million,
or 13.5%, increase in the average balance of such securities and deposits to $91.4 million for the six months ended March 31, 2019
from $80.5 million at March 31, 2018. The average yield on investment securities and interest earning deposits increased 19 basis
points to 2.27% for the six months ended March 31, 2019 from 2.08% for the six months ended March 31, 2018 due to higher market
interest rates.
Interest Expense.
Interest expense increased $1.2 million, or 58.5%, to $3.3 million for the six months ended March 31, 2019 from $2.1 million
for the six months ended March 31, 2018. The average balance of interest-bearing liabilities increased $31.4 million, or 7.1%,
to $474.2 million from $442.7 million between the two periods while the cost on such liabilities increased 45 basis points to 1.40%
from 0.95%.
The average balance of
interest bearing deposits increased $30.0 million, or 7.3%, to $440.4 million at March 31, 2019 from $410.4 million at March 31,
2018, while the average cost of such deposits increased 48 basis points to 1.34% for the six months ended March 31, 2019 from 0.86%
for the six months ended March 31, 2018. Interest paid on deposits increased $1.1 million, or 66.9%, to $2.9 million for the six
months ended March 31, 2019 from $1.8 million for the six months ended March 31, 2018. Contributing to the higher balance and cost
of deposits were money market account deposit promotions paying an interest rate between 1.80% and 2.50%. The promotion was run
during the Company’s first quarter and resulted in $15.1 million in new money market account balances in addition to $4.6
million in non-interest checking balances and the retention of $9.1 million in other deposits. During the Company’s second
quarter deposits increased $22.0 million, $14.5 million of which was in non-interest bearing checking accounts.
Interest paid on advances
increased $43,000, or 13.1%, to $370,000 for the six months ended March 31, 2019 compared with $327,000 for the same period prior
year. The average balance of such borrowings increased $1.4 million to $33.8 million from $32.4 million while the average cost
of advances increased 17 basis points to 2.20% for the six months ended March 31, 2019 from 2.03% for the same period of March
31, 2018.
Provision for Loan
Losses.
We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and
inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level
of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in
the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available or as future events occur.
After an evaluation of
these factors, management recorded a provision of $307,000 for the six months ended March 31, 2019 compared to $506,000 for the
six months ended March 31, 2018. During the six months ended March 31, 2019 there were no loan charge-offs and four loan recoveries
totaling $93,000 compared to net charge-offs of $213,000 for the six months ended March 31, 2018.
Determining the amount
of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance
on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph.
As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial
real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.
Other Income.
Non-interest
income decreased $25,000, or 2.5%, to $1.0 million for the six months ended March 31, 2019 compared to $1.0 million the prior year
period. The decrease was attributable to lower gains from the sale of loans and investments, partially offset by higher service
charges. The Company recorded gains totaling $151,000 from the sale of guaranteed portions of SBA loans and $32,000 from the sale
of investment securities during the six months ended March 31, 2019, compared with $216,000 in loan gains and $107,000 from the
sale of investment securities for the prior year period. Offsetting these decreases were higher service charges, which increased
$120,000 to $600,000 for the six months ended March 31, 2019 due to higher loan and deposit fees.
Other Expenses.
Non-interest
expenses increased $90,000, or 1.0%, to $8.8 million during the six months ended March 31, 2019 from $8.7 million the six months
ended March 31, 2018. Compensation and benefit expense increased $159,000, or 3.3%, from the prior year period due the addition
of a new commercial lender as well as annual merit increases for employees. In addition, professional fees increased $85,000 to
$569,000 for the six months ended March 31, 2019 from $484,000 for the prior year period due to higher legal expenses resulting
from collection efforts of non-performing loans. Offsetting these increases were decreases in OREO expenses, which declined $139,000,
and loan servicing expenses, which declined $52,000.
Income Tax Expense.
The Company recorded income tax expense of $604,000 on income of $2.1 million for the six months ended March 31, 2019, compared
to tax expense of $746,000 on income of $1.5 million for the six months ended March 31, 2018. The decrease was the result of a
prior period charge in the amount of $306,000 resulting from the write-down of deferred tax assets due to the enactment of the
Tax Cuts and Jobs Act on December 22, 2017, which lowered the Company’s federal income tax rate from 34% to 21%. The decrease
was partially offset by higher income tax resulting from a $585,000 increase in the Company’s results from operations. The
Company’s effective tax rate for the six months ended March 31, 2019 was 29.4% compared with 29.9% for the six months ended
March 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company’s liquidity
is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective
manner. The Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and
cash equivalents, new deposits, other borrowings, and new advances from the Federal Home Loan Bank. There has been no material
adverse change during the six months ended March 31, 2019 in the ability of the Company and its subsidiaries to fund their operations.
At March 31, 2019, the
Company had commitments outstanding under letters of credit of $1.9 million, commitments to originate loans of $16.2 million, and
commitments to fund undisbursed balances of closed loans and unused lines of credit of $63.7 million. There has been no material
change during the six months ended March 31, 2019 in any of the Company’s other contractual obligations or commitments to
make future payments.
Capital Requirements
At March 31, 2019, the
Bank’s Tier 1 capital as a percentage of the Bank's total assets was 8.43%, and total qualifying capital as a percentage
of risk-weighted assets was 12.70%.