UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For the quarterly period ended March 31, 2018
|
|
OR
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For the transition period from to
|
|
Commission file number: 000-55084
|
Prudential Bancorp, Inc.
|
|
(Exact Name of Registrant as Specified in Its Charter)
|
|
Pennsylvania
|
|
46-2935427
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.)
|
1834 West Oregon Avenue
Philadelphia, Pennsylvania
|
|
19145
|
(Address of Principal Executive Offices)
|
|
Zip Code
|
(215) 755-1500
|
(Registrant’s Telephone Number, Including Area Code)
|
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes
x
No
¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
x
Yes
¨
No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
¨
|
Accelerated filer
x
|
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
¨
|
Emerging growth company
¨
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act
¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock as of the latest practical date: as of April 30, 2018, 10,819,006 shares were issued and 8,992,535 were
outstanding.
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PRUDENTIAL BANCORP,
INC. AND SUBSIDIARIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and amounts due from depository institutions
|
|
$
|
2,720
|
|
|
$
|
2,274
|
|
Interest-bearing deposits
|
|
|
15,388
|
|
|
|
25,629
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
18,108
|
|
|
|
27,903
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
1,604
|
|
|
|
1,604
|
|
Investment and mortgage-backed securities available for sale (amortized cost— March 31, 2018, $225,480; September 30, 2017, $180,087)
|
|
|
219,103
|
|
|
|
178,402
|
|
Investment and mortgage-backed securities held to maturity (fair value— March 31, 2018, $60,137; September 30, 2017, $60,179)
|
|
|
63,026
|
|
|
|
61,284
|
|
Loans receivable—net of allowance for loan losses (March 31, 2018, $4,841; September 30, 2017, $4,466)
|
|
|
584,380
|
|
|
|
571,343
|
|
Accrued interest receivable
|
|
|
3,439
|
|
|
|
2,825
|
|
Real estate owned
|
|
|
85
|
|
|
|
192
|
|
Federal Home Loan Bank stock—at cost
|
|
|
6,759
|
|
|
|
6,002
|
|
Office properties and equipment—net
|
|
|
7,671
|
|
|
|
7,804
|
|
Bank owned life insurance
|
|
|
28,370
|
|
|
|
28,048
|
|
Prepaid expenses and other assets
|
|
|
1,534
|
|
|
|
3,231
|
|
Goodwill
|
|
|
6,102
|
|
|
|
6,102
|
|
Intangible assets
|
|
|
639
|
|
|
|
709
|
|
Deferred tax assets-net
|
|
|
3,555
|
|
|
|
4,091
|
|
TOTAL ASSETS
|
|
$
|
944,375
|
|
|
$
|
899,540
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
11,904
|
|
|
$
|
9,375
|
|
Interest-bearing
|
|
|
662,798
|
|
|
|
626,607
|
|
Total deposits
|
|
|
674,702
|
|
|
|
635,982
|
|
Advances from Federal Home Loan Bank (short-term)
|
|
|
20,000
|
|
|
|
20,000
|
|
Advances from Federal Home Loan Bank (long-term)
|
|
|
106,355
|
|
|
|
94,318
|
|
Accrued interest payable
|
|
|
1,328
|
|
|
|
1,933
|
|
Advances from borrowers for taxes and insurance
|
|
|
2,490
|
|
|
|
2,207
|
|
Accounts payable and accrued expenses
|
|
|
7,440
|
|
|
|
8,921
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
812,315
|
|
|
|
763,361
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 issued and 8,998,235 outstanding at March 31, 2018; 10,819,006 issued and 9,008,125 outstanding at September 30, 2017
|
|
|
108
|
|
|
|
108
|
|
Additional paid-in capital
|
|
|
118,549
|
|
|
|
118,751
|
|
Treasury stock, at cost: 1,820,771 shares at March 31, 2018 and and 1,810,881 shares at September 30, 2017
|
|
|
(27,177
|
)
|
|
|
(26,707
|
)
|
Retained earnings
|
|
|
45,035
|
|
|
|
44,787
|
|
Accumulated other comprehensive loss
|
|
|
(4,455
|
)
|
|
|
(760
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
132,060
|
|
|
|
136,179
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
944,375
|
|
|
$
|
899,540
|
|
See notes to unaudited consolidated financial statements.
PRUDENTIAL
bancorp, inc. and subsidiarIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
$
|
6,261
|
|
|
$
|
5,090
|
|
|
$
|
12,368
|
|
|
$
|
8,415
|
|
Interest on mortgage-backed securities
|
|
|
851
|
|
|
|
806
|
|
|
|
1,693
|
|
|
|
1,377
|
|
Interest and dividends on investments
|
|
|
1,060
|
|
|
|
731
|
|
|
|
2,009
|
|
|
|
1,337
|
|
Interest on interest-bearing assets
|
|
|
183
|
|
|
|
44
|
|
|
|
321
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
8,355
|
|
|
|
6,671
|
|
|
|
16,391
|
|
|
|
11,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
1,571
|
|
|
|
996
|
|
|
|
2,983
|
|
|
|
1,687
|
|
Interest on advances from Federal Home Loan Bank(short-term)
|
|
|
59
|
|
|
|
-
|
|
|
|
141
|
|
|
|
-
|
|
Interest on advances from Federal Home Loan Bank(long-term)
|
|
|
497
|
|
|
|
376
|
|
|
|
903
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,127
|
|
|
|
1,372
|
|
|
|
4,027
|
|
|
|
2,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
6,228
|
|
|
|
5,299
|
|
|
|
12,364
|
|
|
|
8,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
|
|
|
150
|
|
|
|
2,365
|
|
|
|
360
|
|
|
|
2,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
6,078
|
|
|
|
2,934
|
|
|
|
12,004
|
|
|
|
6,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and other service charges
|
|
|
161
|
|
|
|
169
|
|
|
|
328
|
|
|
|
293
|
|
Gain on sale of loans, net
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
49
|
|
Income from bank owned life insurance
|
|
|
156
|
|
|
|
171
|
|
|
|
320
|
|
|
|
337
|
|
Other
|
|
|
250
|
|
|
|
173
|
|
|
|
334
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
567
|
|
|
|
518
|
|
|
|
982
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,037
|
|
|
|
2,140
|
|
|
|
4,011
|
|
|
|
3,709
|
|
Data processing
|
|
|
189
|
|
|
|
194
|
|
|
|
365
|
|
|
|
306
|
|
Professional services
|
|
|
402
|
|
|
|
469
|
|
|
|
1,194
|
|
|
|
788
|
|
Office occupancy
|
|
|
308
|
|
|
|
257
|
|
|
|
579
|
|
|
|
427
|
|
Depreciation
|
|
|
156
|
|
|
|
159
|
|
|
|
312
|
|
|
|
241
|
|
Director compensation
|
|
|
61
|
|
|
|
93
|
|
|
|
120
|
|
|
|
161
|
|
Deposit insurance premium
|
|
|
80
|
|
|
|
71
|
|
|
|
141
|
|
|
|
41
|
|
Advertising
|
|
|
52
|
|
|
|
29
|
|
|
|
112
|
|
|
|
66
|
|
Merger related costs
|
|
|
-
|
|
|
|
2,663
|
|
|
|
-
|
|
|
|
2,663
|
|
Core deposit amortization
|
|
|
34
|
|
|
|
37
|
|
|
|
71
|
|
|
|
37
|
|
Other
|
|
|
550
|
|
|
|
651
|
|
|
|
1,007
|
|
|
|
1,044
|
|
Total non-interest expense
|
|
|
3,869
|
|
|
|
6,763
|
|
|
|
7,912
|
|
|
|
9,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
2,776
|
|
|
|
(3,311
|
)
|
|
|
5,074
|
|
|
|
(2,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current expense (benefit)
|
|
|
622
|
|
|
|
(642
|
)
|
|
|
1,270
|
|
|
|
(172
|
)
|
Deferred (benefit) expense
|
|
|
(3
|
)
|
|
|
(529
|
)
|
|
|
1,613
|
|
|
|
(629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
|
619
|
|
|
|
(1,171
|
)
|
|
|
2,883
|
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
2,157
|
|
|
$
|
(2,140
|
)
|
|
$
|
2,191
|
|
|
$
|
(1,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS (LOSS) PER SHARE
|
|
$
|
0.24
|
|
|
$
|
(0.27
|
)
|
|
$
|
0.25
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS) PER SHARE
|
|
$
|
0.24
|
|
|
$
|
(0.27
|
)
|
|
$
|
0.24
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.25
|
|
|
$
|
0.06
|
|
See notes to unaudited consolidated financial statements.
PRUDENTIAL
bancorp, inc. and subsidiarIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
Three months ended March 31,
|
|
|
Six months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands)
|
|
Net income (loss)
|
|
$
|
2,157
|
|
|
$
|
(2,140
|
)
|
|
$
|
2,191
|
|
|
$
|
(1,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on available-for-sale securities
|
|
|
(3,596
|
)
|
|
|
(548
|
)
|
|
|
(4,703
|
)
|
|
|
(4,000
|
)
|
Tax effect
|
|
|
756
|
|
|
|
186
|
|
|
|
1,132
|
|
|
|
1,360
|
|
Unrealized holding gain on interest rate swaps
|
|
|
190
|
|
|
|
59
|
|
|
|
234
|
|
|
|
784
|
|
Tax effect
|
|
|
(40
|
)
|
|
|
(20
|
)
|
|
|
(55
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
|
(2,690
|
)
|
|
|
(323
|
)
|
|
|
(3,392
|
)
|
|
|
(2,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(533
|
)
|
|
$
|
(2,463
|
)
|
|
$
|
(1,201
|
)
|
|
$
|
(3,527
|
)
|
See notes to unaudited consolidated financial statements.
PRUDENTIAL bancorp, inc. and subsidiarIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
ESOP
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Shares
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
BALANCE, October 1, 2017
|
|
$
|
108
|
|
|
$
|
118,751
|
|
|
$
|
-
|
|
|
$
|
(26,707
|
)
|
|
$
|
44,787
|
|
|
$
|
(760
|
)
|
|
$
|
136,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,392
|
)
|
|
|
(3,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.25 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,246
|
)
|
|
|
|
|
|
|
(2,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (99,430 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,804
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock used for employee benefit plans (89,540 shares)
|
|
|
|
|
|
|
(691
|
)
|
|
|
|
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares expense
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification due to change in federal income tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
|
|
(303
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2018
|
|
$
|
108
|
|
|
$
|
118,549
|
|
|
$
|
-
|
|
|
$
|
(27,177
|
)
|
|
$
|
45,035
|
|
|
$
|
(4,455
|
)
|
|
$
|
132,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
ESOP
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Shares
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
BALANCE, October 1, 2016
|
|
$
|
95
|
|
|
$
|
95,713
|
|
|
$
|
(4,550
|
)
|
|
$
|
(21,098
|
)
|
|
$
|
43,044
|
|
|
$
|
798
|
|
|
$
|
114,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,409
|
)
|
|
|
|
|
|
|
(1,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,118
|
)
|
|
|
(2,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid ($0.06 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
|
|
|
|
(495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock (1,274,197 shares)
|
|
|
13
|
|
|
|
21,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (43,435 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(995
|
)
|
|
|
|
|
|
|
|
|
|
|
(995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminate ESOP Plan (303,115 shares)
|
|
|
|
|
|
|
|
|
|
|
4,456
|
|
|
|
(5,189
|
)
|
|
|
|
|
|
|
|
|
|
|
(733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock used for employee benefit plan (34,805 shares)
|
|
|
|
|
|
|
(653
|
)
|
|
|
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares expense
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP shares committed to be released (8,879 shares)
|
|
|
|
|
|
|
45
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, March 31, 2017
|
|
$
|
108
|
|
|
$
|
117,467
|
|
|
$
|
-
|
|
|
$
|
(26,629
|
)
|
|
$
|
41,140
|
|
|
$
|
(1,320
|
)
|
|
$
|
130,766
|
|
See notes to unaudited consolidated financial statements.
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Six Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands)
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,191
|
|
|
$
|
(1,409
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
312
|
|
|
|
241
|
|
Net amortization of premiums/discounts
|
|
|
234
|
|
|
|
510
|
|
Provision for loan losses
|
|
|
360
|
|
|
|
2,550
|
|
Net amortization of deferred loan fees and costs
|
|
|
165
|
|
|
|
165
|
|
Share-based compensation expense for stock options and awards
|
|
|
489
|
|
|
|
266
|
|
Income from bank owned life insurance
|
|
|
(320
|
)
|
|
|
(277
|
)
|
Gain from sale of loans held for sale
|
|
|
-
|
|
|
|
(44
|
)
|
Gain on sale of other real estate owned
|
|
|
(60
|
)
|
|
|
(60
|
)
|
Originations of loans held for sale
|
|
|
-
|
|
|
|
(2,434
|
)
|
Proceeds from sale of loans held for sale
|
|
|
-
|
|
|
|
2,478
|
|
Compensation expense of ESOP
|
|
|
-
|
|
|
|
421
|
|
Deferred income tax expense (benefit)
|
|
|
1,613
|
|
|
|
(629
|
)
|
Changes in assets and liabilities which used cash:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(614
|
)
|
|
|
(698
|
)
|
Accrued interest payable
|
|
|
(605
|
)
|
|
|
(613
|
)
|
Other, net
|
|
|
(149
|
)
|
|
|
1,594
|
|
Net cash provided by operating activities
|
|
|
3,616
|
|
|
|
2,061
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of investment and mortgage-backed securities available for sale
|
|
|
(52,747
|
)
|
|
|
(67,387
|
)
|
Purchase of investment and mortgage-backed securities held to maturity
|
|
|
(2,458
|
)
|
|
|
(18,847
|
)
|
Loans originated
|
|
|
(54,131
|
)
|
|
|
(104,878
|
)
|
Principal collected on loans
|
|
|
40,860
|
|
|
|
85,384
|
|
Principal payments received on investment and mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
681
|
|
|
|
578
|
|
Available-for-sale
|
|
|
7,140
|
|
|
|
11,504
|
|
Proceeds from the sale of Polonia Bancorp's investment portfolio acquired
|
|
|
-
|
|
|
|
42,164
|
|
Redemption of FHLB Stock
|
|
|
1,596
|
|
|
|
163
|
|
Purchase of FHLB stock
|
|
|
(2,353
|
)
|
|
|
-
|
|
Proceeds from sale of real estate owned
|
|
|
278
|
|
|
|
449
|
|
Acquisition of Polonia Bancorp, Inc., net of cash
|
|
|
-
|
|
|
|
28,956
|
|
Purchase of BOLI
|
|
|
-
|
|
|
|
(10,000
|
)
|
Purchases of equipment
|
|
|
(179
|
)
|
|
|
(214
|
)
|
Net cash used in investing activities
|
|
|
(61,313
|
)
|
|
|
(32,128
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net decrease in demand deposits, NOW accounts, and savings accounts
|
|
|
(10,064
|
)
|
|
|
(4,009
|
)
|
Net increase in certificates of deposit
|
|
|
48,784
|
|
|
|
37,675
|
|
Proceeds from FHLB advances - long term
|
|
|
39,500
|
|
|
|
-
|
|
Repayment of FHLB advances - long term
|
|
|
(27,194
|
)
|
|
|
(1,813
|
)
|
Increase in advances from borrowers for taxes and insurance
|
|
|
283
|
|
|
|
1,041
|
|
Cash dividends paid
|
|
|
(2,246
|
)
|
|
|
(495
|
)
|
Release unallocated shares from ESOP Plan
|
|
|
-
|
|
|
|
4,550
|
|
Repayment of remaining principal balance of ESOP Loan
|
|
|
-
|
|
|
|
(733
|
)
|
Treasury stock used for employee benefit plans
|
|
|
643
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
(1,804
|
)
|
|
|
(5,531
|
)
|
Net cash provided by financing activities
|
|
|
47,902
|
|
|
|
30,685
|
|
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS –continued
|
|
|
Six Months Ended March 31.
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(9,795
|
)
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
|
27,903
|
|
|
|
12,440
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS—End of period
|
|
$
|
18,108
|
|
|
$
|
13,058
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest on deposits and advances from Federal
|
|
|
|
|
|
|
|
|
Home Loan Bank
|
|
$
|
4,632
|
|
|
$
|
2,842
|
|
Income taxes
|
|
|
1,400
|
|
|
|
980
|
|
Loans transferred to real estate owned
|
|
|
111
|
|
|
|
-
|
|
Acquisition of noncash assets and liabilities
|
|
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
-
|
|
|
|
42,164
|
|
Loans
|
|
|
-
|
|
|
|
160,157
|
|
Premises
|
|
|
-
|
|
|
|
6,902
|
|
Core deposit intangible
|
|
|
-
|
|
|
|
822
|
|
Other assets
|
|
|
-
|
|
|
|
14,039
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
224,084
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
-
|
|
|
$
|
172,243
|
|
Advances
|
|
|
-
|
|
|
|
57,232
|
|
Other liabilities
|
|
|
-
|
|
|
|
8,914
|
|
Total liabilities assumed
|
|
|
-
|
|
|
|
238,389
|
|
Net non-cash assets (liabilities) acquired
|
|
|
-
|
|
|
|
(14,305
|
)
|
Cash acquired
|
|
$
|
-
|
|
|
$
|
47,901
|
|
See notes to unaudited consolidated financial statements.
PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
|
|
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
SIGNIFICANT ACCOUNTING POLICIES
|
Prudential Bancorp, Inc. (the
“Company”) is a Pennsylvania corporation and the parent holding company for Prudential Bank (the “Bank”),
a Pennsylvania chartered savings bank. The Company is a registered bank holding company.
The Bank is a community-oriented
Pennsylvania-chartered savings bank headquartered in South Philadelphia. The banking office network currently consists of the headquarters
and main office (which includes a branch office), administrative office, and nine full-service branch offices. Eight of the branch
offices are located in Philadelphia (Philadelphia County), one is in Drexel Hill, Delaware County, and one is in Huntingdon Valley,
Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 10 of the banking offices. The Bank also provides
on-line and mobile banking services.
The Bank is subject to regulation
by the Pennsylvania Department of Banking and Securities (the “Department”), as its chartering authority and primary
regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up
to applicable limits. As a bank holding company, the Company is subject to the regulation of the Board of Governors of the Federal
Reserve System.
On January 1, 2017, the Company
completed its acquisition of Polonia Bancorp, Inc. (“Polonia Bancorp”) and Polonia Bank, Polonia’s wholly owned
subsidiary. Polonia Bancorp and Polonia Bank were merged with and into the Company and the Bank, respectively.
Basis of presentation
–
The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations
of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the
information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income,
changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial
statements have been included. The results for the three and six months ended March 31, 2018 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 2018, or any other period. These financial statements
should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The significant accounting
policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies
are presented on pages 84 through 88 of the Form 10-K for the year ended September 30, 2017.
Use of Estimates in the
Preparation of Financial Statements
—
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting
period. The most significant estimates and assumptions in the Company’s consolidated financial statements are recorded in
the allowance for loan losses, goodwill and intangible assets, deferred income taxes, other-than-temporary impairment, and the
fair value measurement for financial instruments. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In May 2014, the FASB issued
ASU 2014-09,
Revenue from Contracts with Customers
(a new revenue recognition standard). The Update’s core principle
is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies
the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue
recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods
within that reporting period. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers
(
Topic
606
). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities,
certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities
should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods
within annual reporting periods beginning after December 15, 2019. Since the guidance scopes out revenue associated with financial
instruments, including loan receivables and investment securities, we do not expect the adoption of the new standard, or any
of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's
revenue is not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements,
which are currently being evaluated
.
In January 2016, the FASB issued
ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities
. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to
provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other
things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those
that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
(b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured
at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities
to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial
instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial
assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables)
on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the
need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s
other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning
after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit
entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update
are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December
15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the
impact the adoption of the standard will have on the Company’s financial position or results of operations.
In February 2016, the FASB issued
ASU 2016-02,
Leases (Topic 842)
. The standard requires lessees to recognize the assets and liabilities that arise from leases
on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term
lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying
asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over
the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2018 and interim periods within those years. For all other entities, the amendments in this Update
are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December
15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach
with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing
the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the
financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s
balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates
additional disclosures to be provided at adoption
.
In June 2016, the FASB issued
ASU 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
, which changes
the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording
of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying
premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be
collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses
should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial
asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well
as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective
for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods
beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect
adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We
expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting
period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall
impact of the new guidance on the consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which addresses
eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments
for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement
of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement
of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for
premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination
of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects
early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective
transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues,
the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating
the impact the adoption of the standard will have on the Company’s statement of cash flows.
In January 2017, the FASB issued
ASU 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business
, which provides a more robust framework
to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The
screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in
a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number
of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual
periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the
amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December
15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected
to have a significant impact on the Company’s financial statements.
In January 2017, the FASB issued
ASU 2017-04,
Simplifying the Test for Goodwill Impairment
. To simplify the subsequent measurement of goodwill, the FASB
eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had
to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized
assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities
assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim,
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities
and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments
in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other
entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any
interim goodwill impairment tests in fiscal years beginning after December 15, 2021.
This Update
is not expected to have a significant impact on the Company’s financial statements.
In February 2017, the FASB issued
ASU 2017-05,
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).
The amendments
in this Update clarify what constitutes a financial asset within the scope of Subtopic 610-20. The amendments also clarify that
entities should identify each distinct nonfinancial asset or in substance nonfinancial asset that is promised to a counterparty
and to derecognize each asset when the counterparty obtains control. There is also additional guidance provided for partial sales
of a nonfinancial asset and when derecognition, and the related gain or loss, should be recognized. The amendments in this Update
are effective at the same time as the amendments in Update 2014-09. Therefore, for public entities, the amendments are effective
for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.
For all other entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2018,
and interim reporting periods within annual reporting periods beginning after December 15, 2019
.
The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position
or results of operations.
In March 2017, the FASB issued
ASU 2017-08,
Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20).
The
amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically,
the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change
for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments
in this Update are effective for fiscal years, and interim periods within those fiscal years, beg
inning after December 15,
2018.
For all other entities, the amendments are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified
retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.
Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company
is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results
of operations.
In May 2017, the FASB issued ASU 2017-09,
Compensation
– Stock Compensation (Topic 718)
, which affects any entity that changes the terms or conditions of a share-based payment
award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes
to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification
of the awards. The amendments in this Update are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period,
for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other
entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in
this Update should be applied prospectively to an award modified on or after the adoption date.
This
Update is not expected to have a significant impact on the Company’s financial statements.
In August 2017, the FASB issued
ASU 2017-12,
Derivatives and Hedging (Topic 850)
, the objective of which is to improve the financial reporting of hedging
relationships to better portray the economic results of an entity’s risk management activities in its financial statements.
In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the
hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this
Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning
after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing
at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement
of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained
earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and
disclosure guidance is required only prospectively
. The Company is currently evaluating the impact
the adoption of the standard will have on the Company’s financial position or results of operations.
In January 2018, the FASB issued
ASU 2018-01,
Leases (Topic 842)
, which provides an optional transition practical expedient to not evaluate under Topic 842
existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.
An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the
date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with
the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date
and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02 Topic
842.
The Company is currently evaluating the impact the adoption of the standard will have on the
Company’s financial position and results of operations.
In February 2018, the FASB issued
ASU 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220)
, to allow a reclassification from accumulated
other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently,
the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information
reported to financial statement users. The amendments in this Update are effective for all entities for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted,
including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements
have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been
made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively
to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act is recognized. On January 1, 2018, the Company adopted this standard which resulted in a reclassification of $303,000
between accumulated other comprehensive income and retained earnings on the consolidated balance sheet.
In February 2018, the FASB issued ASU 2018-03,
Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
, to clarify certain aspects
of the guidance issued in ASU 2016-01. (1) An entity measuring an equity security using the measurement alternative may change
its measurement approach to a fair value method in accordance with Topic 820,
Fair Value Measurement
, through an irrevocable
election that would apply to that security and all identical or similar investments of the same issuer. Once an entity makes this
election, the entity should measure all future purchases of identical or similar investments of the same issuer using a fair value
method in accordance with Topic 820. (2) Adjustments made under the measurement alternative are intended to reflect the fair value
of the security as of the date that the observable transaction for a similar security took place. (3) Remeasuring the entire value
of forward contracts and purchased options is required when observable transactions occur on the underlying equity securities.
(4) When the fair value option is elected for a financial liability, the guidance in paragraph 825-10- 45-5 should be applied,
regardless of whether the fair value option was elected under either Subtopic 815-15,
Derivatives and Hedging—Embedded
Derivatives
, or 825-10,
Financial Instruments—Overall
. (5) Financial liabilities for which the fair value option
is elected, the amount of change in fair value that relates to the instrument specific credit risk should first be measured in
the currency of denomination when presented separately from the total change in fair value of the financial liability. Then, both
components of the change in the fair value of the liability should be remeasured into the functional currency of the reporting
entity using end-of-period spot rates. (6) The prospective transition approach for equity securities without a readily determinable
fair value in the amendments in Update 2016-01 is meant only for instances in which the measurement alternative is applied. For
public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years beginning after June 15, 2018. Public business entities with fiscal years beginning between December
15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018,
and public business entities with fiscal years beginning between June 15, 2018, and December 15, 2018, are not required to adopt
these amendments before adopting the amendments in Update 2016-01. For all other entities, the effective date is the same as the
effective date in Update 2016-01. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years, as long as they have adopted Update 2016-01. The Company is currently evaluating
the impact the adoption of the standard will have on the Company’s financial position or results of operations.
Basic earnings per common share
is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock issued,
net of any treasury shares and unearned restricted stock shares, during the period. Diluted earnings per share is calculated by
dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net
of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury
stock method using an average market price for the period.
The calculated basic and diluted earnings per share
are as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
(Dollars in Thousands Except Share and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,157
|
|
|
$
|
2,157
|
|
|
$
|
(2,140
|
)
|
|
$
|
(2,140
|
)
|
Weighted average shares outstanding
|
|
|
8,851,805
|
|
|
|
8,851,805
|
|
|
|
8,639,908
|
|
|
|
8,639,908
|
|
Effect of common stock equivalents
|
|
|
-
|
|
|
|
326,295
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted weighted average shares used in earnings per share computation
|
|
|
8,851,805
|
|
|
|
9,178,100
|
|
|
|
8,639,908
|
|
|
|
8,639,908
|
|
Earnings (loss) per share - basic and diluted
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
(0.27
|
)
|
|
$
|
(0.27
|
)
|
|
|
Six Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
(Dollars in Thousands Except Share and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,191
|
|
|
$
|
2,191
|
|
|
$
|
(1,409
|
)
|
|
$
|
(1,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
8,853,479
|
|
|
|
8,853,479
|
|
|
|
7,979,541
|
|
|
|
7,979,541
|
|
Effect of common stock equivalents
|
|
|
-
|
|
|
|
351,436
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted weighted average shares used in earnings per share computation
|
|
|
8,853,479
|
|
|
|
9,204,915
|
|
|
|
7,979,541
|
|
|
|
7,979,541
|
|
Earnings (loss) per share - basic and diluted
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
$
|
(0.18
|
)
|
|
$
|
(0.18
|
)
|
All exercisable stock options outstanding as of
March 31, 2018 and 2017 had exercise prices below the then current per share market price for the Company’s common stock
and were considered dilutive for the earnings per share calculation.
|
3.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
The following table presents
the changes in accumulated other comprehensive (loss) income by component net of tax:
|
|
Three Months Ended March
31,
|
|
|
Three Months Ended March
31,
|
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
Unrealized
gain (loss)
on AFS securities (a)
|
|
|
Unrealized
gain (loss) on
interest rate swaps (a)
|
|
|
Total
accumulated
other comprehensive
income
|
|
|
Unrealized
gain (loss)
on AFS securities (a)
|
|
|
Unrealized
gain (loss) on
interest rate swaps (a)
|
|
|
Total
accumulated
other comprehensive
income
|
|
Beginning balance, January 1
|
|
$
|
(2,125
|
)
|
|
$
|
360
|
|
|
$
|
(1,765
|
)
|
|
$
|
(1,348
|
)
|
|
$
|
351
|
|
|
$
|
(997
|
)
|
Other
comprehensive (loss) income before reclassification
|
|
|
(2,840
|
)
|
|
|
150
|
|
|
|
(2,690
|
)
|
|
|
(362
|
)
|
|
|
39
|
|
|
|
(323
|
)
|
Total
|
|
|
(4,965
|
)
|
|
|
510
|
|
|
|
(4,455
|
)
|
|
|
(1,710
|
)
|
|
|
390
|
|
|
|
(1,320
|
)
|
Reclassification
due to change in federal income tax rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending Balance, March
31
|
|
$
|
(4,965
|
)
|
|
$
|
510
|
|
|
$
|
(4,455
|
)
|
|
$
|
(1,710
|
)
|
|
$
|
390
|
|
|
$
|
(1,320
|
)
|
(a) All amounts are net of
tax. Amounts in parentheses indicate debits.
The following table presents
the changes in accumulated other comprehensive (loss) income by component net of tax:
|
|
Six Months Ended March
31,
|
|
|
Six Months Ended March
31,
|
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
Unrealized
gain (loss)
on AFS securities (a)
|
|
|
Unrealized
gain (loss) on
interest rate swaps (a)
|
|
|
Total
accumulated
other comprehensive
income
|
|
|
Unrealized
gain (loss)
on AFS securities (a)
|
|
|
Unrealized
gain (loss) on
interest rate swaps (a)
|
|
|
Total
accumulated
other comprehensive
income
|
|
Beginning balance, October 1
|
|
$
|
(1,091
|
)
|
|
$
|
331
|
|
|
$
|
(760
|
)
|
|
$
|
931
|
|
|
$
|
(133
|
)
|
|
$
|
798
|
|
Other
comprehensive (loss) income before reclassification
|
|
|
(3,571
|
)
|
|
|
179
|
|
|
|
(3,392
|
)
|
|
|
(2,641
|
)
|
|
|
523
|
|
|
|
(2,118
|
)
|
Total
|
|
|
(4,662
|
)
|
|
|
510
|
|
|
|
(4,152
|
)
|
|
|
(1,710
|
)
|
|
|
390
|
|
|
|
(1,320
|
)
|
Reclassification
due to change in federal income tax rate
|
|
|
(303
|
)
|
|
|
-
|
|
|
|
(303
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending Balance, March
31
|
|
$
|
(4,965
|
)
|
|
$
|
510
|
|
|
$
|
(4,455
|
)
|
|
$
|
(1,710
|
)
|
|
$
|
390
|
|
|
$
|
(1,320
|
)
|
(a) All amounts are net of
tax. Amounts in parentheses indicate debits.
There was no reclassification
adjustment to accumulated comprehensive income for the periods presented.
|
4.
|
INVESTMENT AND MORTGAGE-BACKED SECURITIES
|
The amortized cost and fair value of investment
and mortgage-backed securities, with gross unrealized gains and losses, are as follows:
|
|
March 31, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
25,641
|
|
|
$
|
-
|
|
|
$
|
(876
|
)
|
|
$
|
24,765
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
136,236
|
|
|
|
95
|
|
|
|
(4,216
|
)
|
|
|
132,115
|
|
Corporate bonds
|
|
|
63,597
|
|
|
|
104
|
|
|
|
(1,514
|
)
|
|
|
62,187
|
|
Total debt securities available for sale
|
|
|
225,474
|
|
|
|
199
|
|
|
|
(6,606
|
)
|
|
|
219,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC preferred stock
|
|
|
6
|
|
|
|
30
|
|
|
|
-
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
225,480
|
|
|
$
|
229
|
|
|
$
|
(6,606
|
)
|
|
$
|
219,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
33,500
|
|
|
$
|
149
|
|
|
$
|
(2,561
|
)
|
|
$
|
31,088
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
6,338
|
|
|
|
188
|
|
|
|
(108
|
)
|
|
|
6,418
|
|
State and political subdivisions
|
|
|
23,188
|
|
|
|
21
|
|
|
|
(578
|
)
|
|
|
22,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
63,026
|
|
|
$
|
358
|
|
|
$
|
(3,247
|
)
|
|
$
|
60,137
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
26,125
|
|
|
$
|
9
|
|
|
$
|
(335
|
)
|
|
$
|
25,799
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
119,456
|
|
|
|
146
|
|
|
|
(1,475
|
)
|
|
|
118,127
|
|
Corporate debt securities
|
|
|
34,500
|
|
|
|
185
|
|
|
|
(285
|
)
|
|
|
34,400
|
|
Total debt securities available for sale
|
|
|
180,081
|
|
|
|
340
|
|
|
|
(2,095
|
)
|
|
|
178,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC preferred stock
|
|
|
6
|
|
|
|
70
|
|
|
|
-
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
180,087
|
|
|
$
|
410
|
|
|
$
|
(2,095
|
)
|
|
$
|
178,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
33,500
|
|
|
$
|
229
|
|
|
$
|
(1,688
|
)
|
|
$
|
32,041
|
|
State and political subdivisions
|
|
|
20,781
|
|
|
|
165
|
|
|
|
(104
|
)
|
|
|
20,842
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
7,003
|
|
|
|
304
|
|
|
|
(11
|
)
|
|
|
7,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
61,284
|
|
|
$
|
698
|
|
|
$
|
(1,803
|
)
|
|
$
|
60,179
|
|
As of March 31, 2018, the Bank
maintained $101.7 million in a safekeeping account at the FHLB of Pittsburgh used for collateral as a convenience. The Bank is
not required to maintain any specific collateral for its borrowings; therefore these securities are not restricted and could be
sold or transferred if needed.
The following table shows the gross unrealized losses
and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and
length of time that individual securities had been in a continuous loss position at March 31, 2018:
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(876
|
)
|
|
$
|
24,765
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(876
|
)
|
|
$
|
24,765
|
|
Mortgage-backed securities - agency
|
|
|
(2,684
|
)
|
|
|
85,474
|
|
|
|
(1,532
|
)
|
|
|
37,089
|
|
|
|
(4,216
|
)
|
|
|
122,563
|
|
Corporate debt securities
|
|
|
(1,514
|
)
|
|
|
52,233
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,514
|
)
|
|
|
52,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(5,074
|
)
|
|
$
|
162,472
|
|
|
$
|
(1,532
|
)
|
|
$
|
37,089
|
|
|
$
|
(6,606
|
)
|
|
$
|
199,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(2,561
|
)
|
|
$
|
27,939
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,561
|
)
|
|
$
|
27,939
|
|
Mortgage-backed securities - agency
|
|
|
(72
|
)
|
|
|
2,947
|
|
|
|
(36
|
)
|
|
|
1,042
|
|
|
|
(108
|
)
|
|
|
3,989
|
|
State and political subdivisions
|
|
|
(578
|
)
|
|
|
18,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(578
|
)
|
|
|
18,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
(3,211
|
)
|
|
$
|
49,227
|
|
|
$
|
(36
|
)
|
|
$
|
1,042
|
|
|
$
|
(3,247
|
)
|
|
$
|
50,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8,285
|
)
|
|
$
|
211,699
|
|
|
$
|
(1,568
|
)
|
|
$
|
38,131
|
|
|
$
|
(9,853
|
)
|
|
$
|
249,830
|
|
The following table shows the gross unrealized losses
and related fair values of the Company’s investment securities, aggregated by investment category and length of time that
individual securities had been in a continuous loss position at September 30, 2017:
|
|
Less than 12 months
|
|
|
More than 12 months
|
|
|
Total
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(335
|
)
|
|
$
|
20,655
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(335
|
)
|
|
$
|
20,655
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
(1,135
|
)
|
|
|
77,176
|
|
|
|
(340
|
)
|
|
|
11,684
|
|
|
|
(1,475
|
)
|
|
|
88,860
|
|
Corporate debt securities
|
|
|
(285
|
)
|
|
|
22,511
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(285
|
)
|
|
|
22,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
(1,755
|
)
|
|
$
|
120,342
|
|
|
$
|
(340
|
)
|
|
$
|
11,684
|
|
|
$
|
(2,095
|
)
|
|
$
|
132,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
(1,688
|
)
|
|
$
|
28,813
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,688
|
)
|
|
$
|
28,813
|
|
Mortgage-backed securities - U.S. government agencies
|
|
|
(11
|
)
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
1,176
|
|
State and political subdivisions
|
|
|
(104
|
)
|
|
|
7,854
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(104
|
)
|
|
|
7,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
(1,803
|
)
|
|
$
|
37,843
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(1,803
|
)
|
|
$
|
37,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,558
|
)
|
|
$
|
158,185
|
|
|
$
|
(340
|
)
|
|
$
|
11,684
|
|
|
$
|
(3,898
|
)
|
|
$
|
169,869
|
|
Management evaluates securities
for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market
concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors,
the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other
facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of
the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term
prospects of the issuer.
The Company assesses whether
a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2)
it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect
to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where
impairment in value was deemed to be other than temporary between the component representing credit loss and the component representing
loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a charge
to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected, discounted
at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security. The Company uses the
cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity of defaults,
estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a discount rate
equal to the effective yield of the security. The difference between the present value of the expected cash flows and the
amortized book value is considered a credit loss. The fair value of the security is determined using the same expected cash
flows; the discount rate is a rate the Company determines from open market and other sources as appropriate for the particular
security. The difference between the fair value and the security’s remaining amortized cost is recognized in other
comprehensive income (loss).
For both the three and six months ended
March 31, 2018 and 2017, the Company did not record any credit losses on investment securities through earnings.
U.S. Government and Agency Obligations
-
At March 31, 2018, there were 15 securities in a gross unrealized loss position for less than 12 months. These securities
represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit
of the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result,
the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2018.
Mortgage-Backed Securities –
At
March 31, 2018, there were 31 mortgage-backed securities in a gross unrealized loss position for less than 12 months, while there
were 31 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed
issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States
through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result, the Company does
not consider these investments to be other-than-temporarily impaired at March 31, 2018.
Corporate Debt Securities
–
At March 31, 2018, there were 32 securities in a gross unrealized loss position for less than 12 months. These securities were
issued by publicly traded companies with an investment grade rating by at least one bond credit rating agency. As a result, the
Company does not consider these investments to be other-than-temporarily impaired at March 31, 2018.
Municipal Bonds
– At March
31, 2018, there were 11 securities in a gross unrealized loss position for less than 12 months. These securities were issued by
local municipalities/school districts located in the Commonwealth of Pennsylvania with an investment grade rating by at least one
bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at
March 31, 2018.
The amortized cost and fair value of debt
securities, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or prepayment penalties.
The maturity table below excludes mortgage-backed
securities because the contractual maturities of such securities are not indicative of actual maturities due to significant prepayments.
|
|
March 31, 2018
|
|
|
|
Held to Maturity
|
|
|
Available for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Due after one through five years
|
|
$
|
4,357
|
|
|
$
|
4,355
|
|
|
$
|
7,076
|
|
|
$
|
7,026
|
|
Due after five through ten years
|
|
|
25,525
|
|
|
|
24,641
|
|
|
|
56,521
|
|
|
|
55,161
|
|
Due after ten years
|
|
|
26,806
|
|
|
|
24,723
|
|
|
|
25,641
|
|
|
|
24,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,688
|
|
|
$
|
53,719
|
|
|
$
|
89,238
|
|
|
$
|
86,952
|
|
During the both three and six month periods ended March
31, 2018 and 2017, the Company did not sell any securities.
During the both three and six month periods
ended March 31, 2018 and 2017, the Company did not use investment securities as collateral for any of its FHLB advances.
Loans receivable consist of the following:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
346,486
|
|
|
$
|
351,298
|
|
Multi-family residential
|
|
|
21,345
|
|
|
|
21,508
|
|
Commercial real estate
|
|
|
116,777
|
|
|
|
127,644
|
|
Construction and land development
|
|
|
140,829
|
|
|
|
145,486
|
|
Loans to financial institutions
|
|
|
6,000
|
|
|
|
-
|
|
Commercial business
|
|
|
10,270
|
|
|
|
488
|
|
Leases
|
|
|
2,767
|
|
|
|
4,240
|
|
Consumer
|
|
|
1,824
|
|
|
|
1,943
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
646,298
|
|
|
|
652,607
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portion of loans-in-process
|
|
|
(54,308
|
)
|
|
|
(73,858
|
)
|
Deferred loan fees (net)
|
|
|
(2,769
|
)
|
|
|
(2,940
|
)
|
Allowance for loan losses
|
|
|
(4,841
|
)
|
|
|
(4,466
|
)
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
584,380
|
|
|
$
|
571,343
|
|
The following table summarizes by loan
segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan
segment at March 31, 2018:
|
|
One-
to-four
family residential
|
|
|
Multi-family
residential
|
|
|
Commercial
real
estate
|
|
|
Construction
and
land development
|
|
|
Loans
to financial
institutions
|
|
|
Commercial
Business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
evaluated for impairment
|
|
|
1,308
|
|
|
|
205
|
|
|
|
1,083
|
|
|
|
1,465
|
|
|
|
62
|
|
|
|
106
|
|
|
|
29
|
|
|
|
97
|
|
|
|
486
|
|
|
|
4,841
|
|
Total ending allowance balance
|
|
$
|
1,308
|
|
|
$
|
205
|
|
|
$
|
1,083
|
|
|
$
|
1,465
|
|
|
$
|
62
|
|
|
$
|
106
|
|
|
$
|
29
|
|
|
$
|
97
|
|
|
$
|
486
|
|
|
$
|
4,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
9,864
|
|
|
$
|
307
|
|
|
$
|
3,581
|
|
|
$
|
8,744
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
|
|
|
|
$
|
22,506
|
|
Collectively evaluated for
impairment
|
|
|
336,622
|
|
|
|
21,038
|
|
|
|
113,196
|
|
|
|
132,085
|
|
|
|
6,000
|
|
|
|
10,270
|
|
|
|
2,767
|
|
|
|
1,814
|
|
|
|
|
|
|
|
623,792
|
|
Total loans
|
|
$
|
346,486
|
|
|
$
|
21,345
|
|
|
$
|
116,777
|
|
|
$
|
140,829
|
|
|
$
|
6,000
|
|
|
$
|
10,270
|
|
|
$
|
2,767
|
|
|
$
|
1,824
|
|
|
|
|
|
|
$
|
646,298
|
|
The following table summarizes by loan
segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan
segment at September 30, 2017:
|
|
One-
to-four
family residential
|
|
|
Multi-family
residential
|
|
|
Commercial
real
estate
|
|
|
Construction and
land development
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Collectively
evaluated for impairment
|
|
|
1,241
|
|
|
|
205
|
|
|
|
1,201
|
|
|
|
1,358
|
|
|
|
4
|
|
|
|
23
|
|
|
|
24
|
|
|
|
410
|
|
|
|
4,466
|
|
Total ending allowance balance
|
|
$
|
1,241
|
|
|
$
|
205
|
|
|
$
|
1,201
|
|
|
$
|
1,358
|
|
|
$
|
4
|
|
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
410
|
|
|
$
|
4,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
8,277
|
|
|
$
|
317
|
|
|
$
|
2,337
|
|
|
$
|
8,724
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
|
|
|
|
$
|
19,665
|
|
Collectively evaluated for
impairment
|
|
|
343,021
|
|
|
|
21,191
|
|
|
|
125,307
|
|
|
|
136,762
|
|
|
|
488
|
|
|
|
4,240
|
|
|
|
1,933
|
|
|
|
|
|
|
|
632,942
|
|
Total loans
|
|
$
|
351,298
|
|
|
$
|
21,508
|
|
|
$
|
127,644
|
|
|
$
|
145,486
|
|
|
$
|
488
|
|
|
$
|
4,240
|
|
|
$
|
1,943
|
|
|
|
|
|
|
$
|
652,607
|
|
The loan portfolio
is segmented at a level that allows management to monitor both risk and performance. Management evaluates for
potential impairment all construction, multi-family, commercial real estate, commercial business loans, loans to financial
institutions and leases and all loans and leases more than 90 days delinquent as to principal and/or interest. Loans are
considered to be impaired when, based on current information and events, it is probable that the Company will be unable to
collect in full the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement.
Once the determination is made that a loan
is impaired, the determination of whether a specific allocation of the allowance is necessary is generally measured by comparing
the recorded investment in the loan to the fair value of the loan using one of the following three methods: (a) the present value
of the expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market
price; or (c) the fair value of the collateral less selling costs. Management primarily utilizes the fair value of collateral method
as a practically expedient alternative. On collateral method evaluations, any portion of the loan deemed uncollectible is charged-off
against the loan loss allowance.
The following table presents impaired loans
by class as of March 31, 2018, segregated by those for which a specific allowance was required and those for which a specific allowance
was not required.
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,864
|
|
|
$
|
9,864
|
|
|
$
|
10,197
|
|
Multi-family residential
|
|
|
-
|
|
|
|
-
|
|
|
|
307
|
|
|
|
307
|
|
|
|
307
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
3,581
|
|
|
|
3,581
|
|
|
|
3,627
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
8,744
|
|
|
|
8,744
|
|
|
|
11,125
|
|
Consumer Loans
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Total loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,506
|
|
|
$
|
22,506
|
|
|
$
|
25,266
|
|
The following table presents impaired loans by class as of September
30, 2017, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.
|
|
|
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
No Specific
|
|
|
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,277
|
|
|
$
|
8,277
|
|
|
$
|
9,245
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
317
|
|
|
|
317
|
|
|
|
317
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
2,337
|
|
|
|
2,337
|
|
|
|
2,449
|
|
Construction and land development
|
|
|
-
|
|
|
|
-
|
|
|
|
8,724
|
|
|
|
8,724
|
|
|
|
11,105
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Total loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,665
|
|
|
$
|
19,665
|
|
|
$
|
23,126
|
|
The following tables present the average recorded investment
in impaired loans and related interest income recognized for the periods indicated:
|
|
Three Months Ended March 31, 2018
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
9,777
|
|
|
$
|
43
|
|
|
$
|
-
|
|
Multi-family residential
|
|
|
311
|
|
|
|
5
|
|
|
|
-
|
|
Commercial real estate
|
|
|
3,316
|
|
|
|
29
|
|
|
|
-
|
|
Construction and land development
|
|
|
8,744
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
22,158
|
|
|
$
|
77
|
|
|
$
|
-
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
Average
Recorded Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
6,086
|
|
|
$
|
32
|
|
|
$
|
33
|
|
Multi-family residential
|
|
|
330
|
|
|
|
6
|
|
|
|
-
|
|
Commercial real estate
|
|
|
2,801
|
|
|
|
17
|
|
|
|
-
|
|
Construction and land development
|
|
|
9,607
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
18,824
|
|
|
$
|
55
|
|
|
$
|
33
|
|
|
|
Six Months Ended March 31, 2018
|
|
|
|
Average
Recorded Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
8,521
|
|
|
$
|
77
|
|
|
$
|
4
|
|
Multi-family residential
|
|
|
316
|
|
|
|
11
|
|
|
|
-
|
|
Commercial real estate
|
|
|
2,942
|
|
|
|
58
|
|
|
|
-
|
|
Construction and land development
|
|
|
8,879
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
20,668
|
|
|
$
|
146
|
|
|
$
|
4
|
|
|
|
Six Months Ended March 31, 2017
|
|
|
|
Average
Recorded
Investment
|
|
|
Income Recognized
on Accrual Basis
|
|
|
Income
Recognized on
Cash Basis
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
5,909
|
|
|
$
|
49
|
|
|
$
|
59
|
|
Multi-family residential
|
|
|
332
|
|
|
|
12
|
|
|
|
-
|
|
Commercial real estate
|
|
|
2,919
|
|
|
|
35
|
|
|
|
12
|
|
Construction and land development
|
|
|
9,834
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
18,994
|
|
|
$
|
96
|
|
|
$
|
71
|
|
Federal regulations and our loan policy require that the Company
utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Company has incorporated
an internal asset classification system, consistent with Federal banking regulations, as a part of its credit monitoring system.
Management currently classifies problem and potential problem assets as “special mention”, “substandard,”
“doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets
include those characterized by the “distinct possibility” that the insured institution will sustain “some loss”
if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those
classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation
in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”
Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the three aforementioned categories but possess weaknesses are
required to be designated “special mention.”
The following tables present the classes
of the loan portfolio in which a formal risk weighting system is utilized summarized by the aggregate “Pass” and the
criticized category of “special mention”, and the classified categories of “substandard”, “doubtful”
and “loss” within the Company’s risk rating system as applied to the loan portfolio. The Company had no loans
classified as “doubtful” or “loss” at either of the dates presented.
|
|
March 31, 2018
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Total
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Loans
|
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
3,322
|
|
|
$
|
3,596
|
|
|
$
|
6,918
|
|
Multi-family residential
|
|
|
21,038
|
|
|
|
-
|
|
|
|
307
|
|
|
|
21,345
|
|
Commercial real estate
|
|
|
113,196
|
|
|
|
1,952
|
|
|
|
1,629
|
|
|
|
116,777
|
|
Construction and land development
|
|
|
132,085
|
|
|
|
-
|
|
|
|
8,744
|
|
|
|
140,829
|
|
Loans to financial institutions
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
Commercial business
|
|
|
10,270
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,270
|
|
Total loans
|
|
$
|
282,589
|
|
|
$
|
5,274
|
|
|
$
|
14,276
|
|
|
$
|
302,139
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
Total
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
-
|
|
|
$
|
1,635
|
|
|
$
|
3,878
|
|
|
$
|
5,513
|
|
Multi-family residential
|
|
|
21,191
|
|
|
|
-
|
|
|
|
317
|
|
|
|
21,508
|
|
Commercial real estate
|
|
|
125,307
|
|
|
|
1,449
|
|
|
|
888
|
|
|
|
127,644
|
|
Construction and land development
|
|
|
136,763
|
|
|
|
-
|
|
|
|
8,723
|
|
|
|
145,486
|
|
Commercial business
|
|
|
488
|
|
|
|
-
|
|
|
|
-
|
|
|
|
488
|
|
Total loans
|
|
$
|
283,749
|
|
|
$
|
3,084
|
|
|
$
|
13,806
|
|
|
$
|
300,639
|
|
The Company evaluates the classification
of one-to-four family residential and consumer loans primarily on a pooled basis. If the Company becomes aware that adverse or
distressed conditions exist that may affect a particular single-family residential loan, the loan is downgraded following the above
definitions of special mention, substandard, doubtful and loss.
The following tables represent loans in
which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily
on delinquency status. Non-performing loans that would be included in the table are those loans greater than 90 days past due as
to principal and/or interest that do not have a designated risk rating.
|
|
March 31, 2018
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Performing
|
|
|
Performing
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
336,622
|
|
|
$
|
2,946
|
|
|
$
|
339,568
|
|
Leases
|
|
|
2,767
|
|
|
|
-
|
|
|
|
2,767
|
|
Consumer
|
|
|
1,824
|
|
|
|
-
|
|
|
|
1,824
|
|
Total loans
|
|
$
|
341,213
|
|
|
$
|
2,946
|
|
|
$
|
344,159
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
Non-
|
|
|
Total
|
|
|
|
Performing
|
|
|
Performing
|
|
|
Loans
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
343,021
|
|
|
$
|
2,764
|
|
|
$
|
345,785
|
|
Leases
|
|
|
4,240
|
|
|
|
-
|
|
|
|
4,240
|
|
Consumer
|
|
|
1,943
|
|
|
|
-
|
|
|
|
1,943
|
|
Total loans
|
|
$
|
349,204
|
|
|
$
|
2,764
|
|
|
$
|
351,968
|
|
Management further monitors the performance
and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment
is due or overdue, as the case may be. The following table presents the loan categories of the loan portfolio summarized by the
aging categories of performing loans, delinquent loans and nonaccrual loans:
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days+
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 Days +
|
|
|
Total
|
|
|
Total
|
|
|
Non-
|
|
|
Past Due
|
|
|
|
Current
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Loans
|
|
|
Accrual
|
|
|
and
Accruing
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
342,040
|
|
|
$
|
1,646
|
|
|
$
|
2,800
|
|
|
$
|
4,446
|
|
|
$
|
346,486
|
|
|
$
|
3,882
|
|
|
$
|
-
|
|
Multi-family residential
|
|
|
21,345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,345
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
115,382
|
|
|
|
-
|
|
|
|
1,395
|
|
|
|
1,395
|
|
|
|
116,777
|
|
|
|
1,395
|
|
|
|
-
|
|
Construction and land development
|
|
|
132,085
|
|
|
|
-
|
|
|
|
8,744
|
|
|
|
8,744
|
|
|
|
140,829
|
|
|
|
8,744
|
|
|
|
-
|
|
Financial institutions
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
Commercial business
|
|
|
10,164
|
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
|
|
10,270
|
|
|
|
-
|
|
|
|
-
|
|
Leases
|
|
|
2,767
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,767
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
1,814
|
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
|
|
1,824
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
631,597
|
|
|
$
|
1,762
|
|
|
$
|
12,939
|
|
|
$
|
14,701
|
|
|
$
|
646,298
|
|
|
$
|
14,021
|
|
|
$
|
-
|
|
|
|
September
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days+
|
|
|
|
|
|
|
30-89 Days
|
|
|
90 Days +
|
|
|
Total
|
|
|
Total
|
|
|
Non-
|
|
|
Past Due
|
|
|
|
Current
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Past
Due
|
|
|
Loans
|
|
|
Accrual
|
|
|
and
Accruing
|
|
|
|
(Dollars in Thousands)
|
|
One-to-four family residential
|
|
$
|
346,877
|
|
|
$
|
1,746
|
|
|
$
|
2,675
|
|
|
$
|
4,421
|
|
|
$
|
351,298
|
|
|
$
|
5,107
|
|
|
$
|
-
|
|
Multi-family residential
|
|
|
21,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,508
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
125,157
|
|
|
|
1,000
|
|
|
|
1,487
|
|
|
|
2,487
|
|
|
|
127,644
|
|
|
|
1,566
|
|
|
|
-
|
|
Construction and land development
|
|
|
136,762
|
|
|
|
-
|
|
|
|
8,724
|
|
|
|
8,724
|
|
|
|
145,486
|
|
|
|
8,724
|
|
|
|
-
|
|
Commercial business
|
|
|
488
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
488
|
|
|
|
-
|
|
|
|
-
|
|
Leases
|
|
|
4,240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,240
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
|
|
|
1,874
|
|
|
|
69
|
|
|
|
-
|
|
|
|
69
|
|
|
|
1,943
|
|
|
|
-
|
|
|
|
-
|
|
Total loans
|
|
$
|
636,906
|
|
|
$
|
2,815
|
|
|
$
|
12,886
|
|
|
$
|
15,701
|
|
|
$
|
652,607
|
|
|
$
|
15,397
|
|
|
$
|
-
|
|
The
allowance for loan losses is established through a provision for loan losses charged to expense. The Company maintains the allowance
at a level believed to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate
at each reporting date. Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent
losses and to assess the overall collection probability for the loan portfolio in view of these inherent losses. For each primary
type of loan, a loss factor is established reflecting an estimate of the known and inherent losses in such loan type contained
in the portfolio using both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes,
among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior
loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the
Company’s loans, the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance,
the number of loans requiring heightened management oversight, local economic conditions and industry experience.
Commercial
real estate loans entail significant additional credit risks compared to owner-occupied one-to-four family residential mortgage
loans, as they generally involve large loan balances concentrated with a single borrower or groups of related borrowers. In addition,
the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related
real estate project and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be
subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial
business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally
dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition,
development and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment
of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability
of permanent financing upon completion of all improvements. These events may adversely affect the sale of the properties, potentially
reducing both the borrowers’ ability to make required payments as well as reducing the value of the collateral property.
Such lending is additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company
potentially will be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of
value proves to be inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount.
If the Company is forced to foreclose on a project prior to completion, there is no assurance that the Company would be able to
recover the entire unpaid portion of the loan.
The
following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for the
both three and six month periods ended March 31, 2018 and 2017:
|
|
Three
Months Ended March 31, 2018
|
|
|
|
One-
to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Financial
institutions
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars
in Thousands)
|
|
ALLL balance at December 31, 2017
|
|
$
|
1,270
|
|
|
$
|
158
|
|
|
$
|
1,064
|
|
|
$
|
1,621
|
|
|
$
|
-
|
|
|
$
|
26
|
|
|
$
|
20
|
|
|
$
|
24
|
|
|
$
|
493
|
|
|
$
|
4,676
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
Recoveries
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Provision
|
|
|
11
|
|
|
|
47
|
|
|
|
19
|
|
|
|
(144
|
)
|
|
|
62
|
|
|
|
80
|
|
|
|
9
|
|
|
|
73
|
|
|
|
(7
|
)
|
|
|
150
|
|
ALLL balance at March 31, 2018
|
|
$
|
1,308
|
|
|
$
|
205
|
|
|
$
|
1,083
|
|
|
$
|
1,465
|
|
|
$
|
62
|
|
|
$
|
106
|
|
|
$
|
29
|
|
|
$
|
97
|
|
|
$
|
486
|
|
|
$
|
4,841
|
|
|
|
Six
Months Ended March 31, 2018
|
|
|
|
One-
to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Financial
institutions
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at September 30, 2017
|
|
$
|
1,241
|
|
|
$
|
205
|
|
|
$
|
1,201
|
|
|
$
|
1,358
|
|
|
$
|
-
|
|
|
$
|
4
|
|
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
410
|
|
|
$
|
4,466
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
Recoveries
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Provision
|
|
|
40
|
|
|
|
-
|
|
|
|
(118
|
)
|
|
|
119
|
|
|
|
62
|
|
|
|
102
|
|
|
|
6
|
|
|
|
73
|
|
|
|
76
|
|
|
|
360
|
|
ALLL balance at March 31, 2018
|
|
$
|
1,308
|
|
|
$
|
205
|
|
|
$
|
1,083
|
|
|
$
|
1,465
|
|
|
$
|
62
|
|
|
$
|
106
|
|
|
$
|
29
|
|
|
$
|
97
|
|
|
$
|
486
|
|
|
$
|
4,841
|
|
|
|
Three Months Ended March
31, 2017
|
|
|
|
One- to
four-family
residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at December 31, 2016
|
|
$
|
1,564
|
|
|
$
|
135
|
|
|
$
|
963
|
|
|
$
|
415
|
|
|
$
|
-
|
|
|
$
|
28
|
|
|
$
|
35
|
|
|
$
|
314
|
|
|
$
|
3,454
|
|
Charge-offs
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,819
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(1,948
|
)
|
Recoveries
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Provision
|
|
|
(126
|
)
|
|
|
(13
|
)
|
|
|
(101
|
)
|
|
|
2,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116
|
|
|
|
50
|
|
|
|
2,365
|
|
ALLL balance at March 31, 2017
|
|
$
|
1,350
|
|
|
$
|
122
|
|
|
$
|
862
|
|
|
$
|
1,035
|
|
|
$
|
-
|
|
|
$
|
28
|
|
|
$
|
135
|
|
|
$
|
364
|
|
|
$
|
3,896
|
|
|
|
Six Months Ended March 31,
2017
|
|
|
|
One-
to
four-family residential
|
|
|
Multi-
family
residential
|
|
|
Commercial
real estate
|
|
|
Construction
and land
development
|
|
|
Commercial
business
|
|
|
Leases
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
ALLL balance at September 30, 2016
|
|
$
|
1,627
|
|
|
$
|
137
|
|
|
$
|
859
|
|
|
$
|
316
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
$
|
10
|
|
|
$
|
298
|
|
|
$
|
3,269
|
|
Charge-offs
|
|
|
(113
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,819
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(1,948
|
)
|
Recoveries
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Provision
|
|
|
(189
|
)
|
|
|
(15
|
)
|
|
|
3
|
|
|
|
2,538
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
141
|
|
|
|
66
|
|
|
|
2,550
|
|
ALLL balance at March 31, 2017
|
|
$
|
1,350
|
|
|
$
|
122
|
|
|
$
|
862
|
|
|
$
|
1,035
|
|
|
$
|
-
|
|
|
$
|
28
|
|
|
$
|
135
|
|
|
$
|
364
|
|
|
$
|
3,896
|
|
The
Company recorded a provision for loan losses in the amount of $150,000 and $360,000 for the three and six months period ended
March 31, 2018, respectively, compared to $2.4 million and $2.6 million for the comparable three and six months periods in 2017.
During the quarter ended March 31, 2018, the Company recorded a charge off of $12,000 and recoveries of $27,000. During the quarter
ended March 31, 2017, the Company recorded a $1.9 million charge off related to Company’s then second largest borrowing
relationship; the remainder of the increase in the provision was due to increased balances of construction and development and
consumer loans.
At
March 31, 2018, the Company had 10 loans aggregating $6.2 million that were classified as troubled debt restructurings (“TDRs”).
Six of such loans aggregating $1.1 million were performing in accordance with the restructured terms as of March 31, 2018 and
accruing interest. Three of the TDRs which are classified as non-accrual totaling $4.9 million are a part of a troubled lending
relationship totaling $10.7 million (after taking into account the previously disclosed $1.9 million write-down recognized during
the quarter ending March 31, 2017 related to this borrowing relationship referenced above). The remaining TDR is also on non-accrual
and consists of a $156,000 loan secured by various commercial and residential properties.
The
Company did not restructure any debt during the three month period ended March 31, 2018; there was one loan restructured during
the six month period ending March 31, 2018. The restructure of the loan entailed extending the maturity date of the loan from
December 2017 to April 2018. The Company did not restructure any debt during the three and six month periods ended March 31, 2017.
|
|
As of and for the Six months Ended March 31, 2018
|
|
(Dollars in Thousands)
|
|
Number of
Loans
|
|
|
Pre- Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
|
1
|
|
|
$
|
77
|
|
|
$
|
77
|
|
Total
|
|
|
1
|
|
|
$
|
77
|
|
|
$
|
77
|
|
No
TDRs defaulted during the period ending March 31, 2018.
Deposits
consist of the following major classifications:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in Thousands)
|
|
Money market deposit accounts
|
|
$
|
65,645
|
|
|
|
9.7
|
%
|
|
$
|
76,272
|
|
|
|
12.0
|
%
|
Interest-bearing checking accounts
|
|
|
53,017
|
|
|
|
7.9
|
|
|
|
54,267
|
|
|
|
8.5
|
|
Non interest-bearing checking accounts
|
|
|
11,904
|
|
|
|
1.8
|
|
|
|
9,375
|
|
|
|
1.5
|
|
Passbook, club and statement savings
|
|
|
101,027
|
|
|
|
15.0
|
|
|
|
101,743
|
|
|
|
16.0
|
|
Certificates maturing in six months or less
|
|
|
119,626
|
|
|
|
17.7
|
|
|
|
154,750
|
|
|
|
24.3
|
|
Certificates maturing in more than six months
|
|
|
323,483
|
|
|
|
47.9
|
|
|
|
239,575
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
674,702
|
|
|
|
100.0
|
%
|
|
$
|
635,982
|
|
|
|
100.0
|
%
|
Certificates
of $250,000 and over totaled $36.6 million as of March 31, 2018 and $28.9 million as of September 30, 2017.
|
7.
|
ADVANCES FROM FEDERAL
HOME LOAN BANK – SHORT TERM
|
As
of March 31, 2018 and September 30, 2017 outstanding balances and related information of short-term borrowings from the FHLB are
summarized follows:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Type
|
|
Maturity Date
|
|
Coupon
|
|
|
Call Date
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fixed Rate - Advances
|
|
6-Oct-17
|
|
|
1.30
|
%
|
|
Not Applicable
|
|
|
|
|
|
$
|
10,000
|
|
Fixed Rate - Advances
|
|
13-Oct-17
|
|
|
1.31
|
%
|
|
Not Applicable
|
|
|
|
|
|
|
10,000
|
|
Weighted average rate
|
|
|
|
|
1.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate - Advances
|
|
6-Apr-18
|
|
|
1.80
|
%
|
|
Not Applicable
|
|
$
|
10,000
|
|
|
|
|
|
Fixed Rate - Advances
|
|
13-Apr-18
|
|
|
1.99
|
%
|
|
Not Applicable
|
|
|
10,000
|
|
|
|
|
|
Weighted average rate
|
|
|
|
|
1.90
|
%
|
|
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
As
of March 31, 2018 and September 30, 2017, $20.0 million consists of two $10.0 million 30 day FHLB advances associated with an
interest rate swap contract with a weighted average effective cost of 125 basis points and 117 basis points respectively.
|
8.
|
ADVANCES FROM FEDERAL
HOME LOAN BANK – LONG TERM
|
Pursuant to collateral
agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Company and qualifying
fixed-income securities and FHLB stock. The long-term advances outstanding as of March 31, 2018 and September 30, 2017 are as
follows:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Type
|
|
Maturity Date
|
|
Coupon
|
|
|
Call Date
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Fixed Rate - Amortizing
|
|
1-Dec-17
|
|
|
1.16
|
%
|
|
Not Applicable
|
|
$
|
-
|
|
|
$
|
505
|
|
Fixed Rate - Amortizing
|
|
18-Nov-19
|
|
|
1.53
|
%
|
|
Not Applicable
|
|
|
2,333
|
|
|
|
3,044
|
|
Fixed Rate - Amortizing
|
|
26-Oct-20
|
|
|
1.94
|
%
|
|
Not Applicable
|
|
|
3,458
|
|
|
|
-
|
|
Fixed Rate - Amortizing
|
|
16-Mar-21
|
|
|
2.64
|
%
|
|
Not Applicable
|
|
|
2,500
|
|
|
|
-
|
|
Fixed Rate - Amortizing
|
|
12-Oct-21
|
|
|
1.99
|
%
|
|
Not Applicable
|
|
|
2,698
|
|
|
|
-
|
|
Fixed Rate - Amortizing
|
|
15-Aug-23
|
|
|
1.94
|
%
|
|
Not Applicable
|
|
|
1,816
|
|
|
|
1,974
|
|
|
|
|
|
|
2.01
|
%
|
|
(a)
|
|
|
12,805
|
|
|
|
5,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate - Advances
|
|
17-Nov-17
|
|
|
1.20
|
%
|
|
Not Applicable
|
|
|
-
|
|
|
|
10,000
|
|
Fixed Rate - Advances
|
|
4-Dec-17
|
|
|
1.15
|
%
|
|
Not Applicable
|
|
|
-
|
|
|
|
2,000
|
|
Fixed Rate - Advances
|
|
19-Mar-18
|
|
|
2.53
|
%
|
|
Not Applicable
|
|
|
-
|
|
|
|
5,029
|
|
Fixed Rate - Advances
|
|
19-Mar-18
|
|
|
2.13
|
%
|
|
Not Applicable
|
|
|
-
|
|
|
|
5,041
|
|
Fixed Rate - Advances
|
|
20-Jun-18
|
|
|
1.86
|
%
|
|
Not Applicable
|
|
|
3,004
|
|
|
|
3,011
|
|
Fixed Rate - Advances
|
|
25-Jun-18
|
|
|
2.09
|
%
|
|
Not Applicable
|
|
|
3,005
|
|
|
|
3,016
|
|
Fixed Rate - Advances
|
|
27-Aug-18
|
|
|
4.15
|
%
|
|
Not Applicable
|
|
|
7,078
|
|
|
|
7,174
|
|
Fixed Rate - Advances
|
|
15-Nov-18
|
|
|
1.89
|
%
|
|
Not Applicable
|
|
|
3,008
|
|
|
|
3,014
|
|
Fixed Rate - Advances
|
|
16-Nov-18
|
|
|
1.40
|
%
|
|
Not Applicable
|
|
|
7,500
|
|
|
|
7,500
|
|
Fixed Rate - Advances
|
|
26-Nov-18
|
|
|
1.81
|
%
|
|
Not Applicable
|
|
|
2,004
|
|
|
|
2,008
|
|
Fixed Rate - Advances
|
|
3-Dec-18
|
|
|
1.54
|
%
|
|
Not Applicable
|
|
|
3,000
|
|
|
|
3,000
|
|
Fixed Rate - Advances
|
|
16-Aug-19
|
|
|
2.66
|
%
|
|
Not Applicable
|
|
|
3,041
|
|
|
|
3,056
|
|
Fixed Rate - Advances
|
|
9-Oct-19
|
|
|
2.54
|
%
|
|
Not Applicable
|
|
|
2,025
|
|
|
|
2,034
|
|
Fixed Rate - Advances
|
|
26-Nov-19
|
|
|
2.35
|
%
|
|
Not Applicable
|
|
|
3,037
|
|
|
|
3,062
|
|
Fixed Rate - Advances
|
|
22-Jun-20
|
|
|
2.60
|
%
|
|
Not Applicable
|
|
|
3,051
|
|
|
|
3,000
|
|
Fixed Rate - Advances
|
|
24-Jun-20
|
|
|
2.85
|
%
|
|
Not Applicable
|
|
|
2,044
|
|
|
|
2,054
|
|
Fixed Rate - Advances
|
|
27-Jul-20
|
|
|
1.38
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
17-Aug-20
|
|
|
3.06
|
%
|
|
Not Applicable
|
|
|
2,056
|
|
|
|
2,068
|
|
Fixed Rate - Advances
|
|
9-Oct-20
|
|
|
2.92
|
%
|
|
Not Applicable
|
|
|
2,051
|
|
|
|
2,061
|
|
Fixed Rate - Advances
|
|
27-Jul-21
|
|
|
1.52
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
28-Jul-21
|
|
|
1.48
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
29-Jul-21
|
|
|
1.42
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
19-Aug-21
|
|
|
1.55
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
7-Oct-21
|
|
|
3.19
|
%
|
|
Not Applicable
|
|
|
2,078
|
|
|
|
2,089
|
|
Fixed Rate - Advances
|
|
12-Oct-21
|
|
|
3.23
|
%
|
|
Not Applicable
|
|
|
2,074
|
|
|
|
2,084
|
|
Fixed Rate - Advances
|
|
20-Oct-21
|
|
|
2.12
|
%
|
|
Not Applicable
|
|
|
4,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
6-Jun-22
|
|
|
2.05
|
%
|
|
Not Applicable
|
|
|
10,000
|
|
|
|
10,000
|
|
Fixed Rate - Advances
|
|
6-Sep-22
|
|
|
1.94
|
%
|
|
Not Applicable
|
|
|
249
|
|
|
|
249
|
|
Fixed Rate - Advances
|
|
22-Sep-22
|
|
|
2.11
|
%
|
|
Not Applicable
|
|
|
5,000
|
|
|
|
5,000
|
|
Fixed Rate - Advances
|
|
12-Oct-22
|
|
|
2.22
|
%
|
|
Not Applicable
|
|
|
3,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
17-Oct-22
|
|
|
2.18
|
%
|
|
Not Applicable
|
|
|
3,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
26-Oct-22
|
|
|
2.29
|
%
|
|
Not Applicable
|
|
|
3,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
31-Oct-22
|
|
|
2.30
|
%
|
|
Not Applicable
|
|
|
2,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
13-Dec-22
|
|
|
2.44
|
%
|
|
Not Applicable
|
|
|
4,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
17-Jan-23
|
|
|
2.58
|
%
|
|
Not Applicable
|
|
|
4,000
|
|
|
|
-
|
|
Fixed Rate - Advances
|
|
27-Mar-23
|
|
|
2.93
|
%
|
|
Not Applicable
|
|
|
4,000
|
|
|
|
-
|
|
|
|
|
|
|
2.39
|
%
|
|
(a)
|
|
|
93,550
|
|
|
|
88,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Weighted average coupon rate
|
|
|
|
|
|
Total
|
|
$
|
106,355
|
|
|
$
|
94,318
|
|
The
Company has contracted with a third party to participate in interest rate swap contracts. Two of the swaps are cash flow hedges
associated with $20.0 million of FHLB advances at March 31, 2018 and September 30, 2017. These interest rate swaps involve the
receipt of variable rate amounts from a counterparty in exchange for the Company making fixed payments. During the quarter ended
March 31, 2018, $6,000 of income was recognized as ineffectiveness through earnings, while $-0- was recognized as ineffectiveness
through earnings during the comparable period in 2017. During the six month period ended March 31, 2018, $48,000 of income was
recognized as ineffectiveness through earnings, while $-0- was recognized as ineffectiveness through earnings during the comparable
period in 2017. There was one interest rate swap designated as a fair value hedge involving the receipt of variable-rate payments
from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements applicable to a $1.1
million commercial loan as of March 31, 2018 and September 30, 2017. For derivatives that are designated and qualify as fair value
hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are
recognized in earnings. During the quarter ended March 31, 2018, $2,000 of income was recognized through earnings, while $-0-
was recognized through earnings during the comparable period in 2017. During the six month period ended March 31, 2018, $15,000
of income was recognized through earnings, while $-0- was recognized through earnings during the comparable period in 2017.
Below
is a summary of the interest rate swap agreements and the terms as of March 31, 2018.
|
|
Notional
|
|
|
Pay
|
|
|
Receive
|
|
|
Maturity
|
|
|
Unrealized
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Rate
|
|
|
Date
|
|
|
Gain
|
|
|
|
(Dollars in Thousands)
|
|
Interest rate swap contract
|
|
$
|
10,000
|
|
|
|
1.15
|
%
|
|
|
1 Month Libor
|
|
|
|
6-Apr-21
|
|
|
$
|
360
|
|
Interest rate swap contract
|
|
|
10,000
|
|
|
|
1.18
|
%
|
|
|
1 Month Libor
|
|
|
|
13-Jun-21
|
|
|
|
378
|
|
Interest rate swap contract
|
|
|
1,100
|
|
|
|
4.10
|
%
|
|
|
1 Month Libor +276 bp
|
|
|
|
1-Aug-26
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
738
|
|
Below is a summary of the interest
rate swap agreements and the terms as of September 30, 2017.
|
|
Notinal
|
|
|
Pay
|
|
|
Receive
|
|
Maturity
|
|
|
Unrealized
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Rate
|
|
Date
|
|
|
Gain
|
|
|
|
(Dollar in thousands)
|
|
Interest rate swap contract
|
|
$
|
10,000
|
|
|
|
1.15
|
%
|
|
1 Mth Libor
|
|
|
6-Apr-21
|
|
|
$
|
217
|
|
Interest rate swap contract
|
|
|
10,000
|
|
|
|
1.18
|
%
|
|
1 Mth Libor
|
|
|
13-Jun-21
|
|
|
|
223
|
|
Interest rate swap contract
|
|
|
1,100
|
|
|
|
4.10
|
%
|
|
1 Mth Libor +276 bp
|
|
|
1-Aug-26
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
502
|
|
All
three interest swaps are carried at fair value in accordance with FASB ASC 815 “Derivatives and Hedging.”
Items
that gave rise to significant portions of deferred income taxes are as follows:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Dollars in Thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,354
|
|
|
$
|
1,675
|
|
Nonaccrual interest
|
|
|
276
|
|
|
|
349
|
|
Accrued vacation
|
|
|
7
|
|
|
|
12
|
|
Capital loss carryforward
|
|
|
300
|
|
|
|
476
|
|
Split dollar life insurance
|
|
|
10
|
|
|
|
15
|
|
Post-retirement benefits
|
|
|
59
|
|
|
|
98
|
|
Unrealized losses on available for sale securities
|
|
|
1,339
|
|
|
|
569
|
|
Deferred compensation
|
|
|
886
|
|
|
|
1,439
|
|
Goodwill
|
|
|
86
|
|
|
|
148
|
|
Purchse accounting adjustments
|
|
|
198
|
|
|
|
731
|
|
Other
|
|
|
50
|
|
|
|
254
|
|
Employee benefit plans
|
|
|
25
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
4,590
|
|
|
|
5,856
|
|
Valuation allowance
|
|
|
(239
|
)
|
|
|
(378
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
|
4,351
|
|
|
|
5,478
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property
|
|
|
166
|
|
|
|
332
|
|
Unrealized gains on interest rate swaps
|
|
|
155
|
|
|
|
171
|
|
Deferred loan fees
|
|
|
475
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
796
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,555
|
|
|
$
|
4,091
|
|
The
Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets
is not likely to be fully realized through future reversals of existing taxable temporary differences, and/or to a lesser extent,
future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the Bank and the subsequent
impairment charge on the assets acquired through the redemption in kind are considered capital losses and can only be utilized
to the extent of capital gains recognized over a five year period, resulting in the establishment of a valuation allowance for
the carryforward period. The valuation allowance totaled $239,000 and $378,000 at March 31, 2018, and September 30, 2017, respectively.
For
the six-month period ended March 31, 2018, the Company recorded income tax expense of $2.9 million, which included a $1.8 million
one-time non-cash charge related to a re-evaluation of the Company’s deferred tax assets as a result of the enactment of
the Tax Cuts and Jobs Act in December 2017, compared to income tax benefit of $801,000 for the same period in 2017. The reevaluation
reflected the effect of the significant decline in the federal corporate income tax rate applicable to the Company. During fiscal
2018, commencing with the quarter ended December 31, 2017, the Company’s statutory income tax rate will be 24.25% as compared
to companies which are calendar year tax reporting companies whose statutory rate will decrease to 21% starting January 1, 2018.
Effective October 1, 2018, the Company’s statutory tax rate will be reduced to 21%.
The
income tax expense differs from that computed at the statutory federal corporate tax rate as follows:
|
|
For The Six Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
of Pretax
|
|
|
|
|
|
of Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(Dollars in Thousands)
|
|
Tax expense (benefit) at statutory rate
|
|
$
|
1,230
|
|
|
|
24.25
|
%
|
|
$
|
(751
|
)
|
|
|
(34.00
|
)%
|
Adjustments resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of deferred tax asset
|
|
|
1,756
|
|
|
|
34.61
|
|
|
|
-
|
|
|
|
-
|
|
Non deductible merger expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
2.64
|
|
Tax exempt income
|
|
|
(67
|
)
|
|
|
(1.32
|
)
|
|
|
(28
|
)
|
|
|
(1.26
|
)
|
Income from bank owned life insurance
|
|
|
(78
|
)
|
|
|
(1.54
|
)
|
|
|
(115
|
)
|
|
|
(5.19
|
)
|
Employee benefit plans
|
|
|
32
|
|
|
|
0.63
|
|
|
|
46
|
|
|
|
2.08
|
|
Other
|
|
|
10
|
|
|
|
0.19
|
|
|
|
2
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
2,883
|
|
|
|
56.82
|
%
|
|
$
|
(801
|
)
|
|
|
(36.24
|
)%
|
There
is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable,
interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of
Operations as a component of income tax expense. During fiscal 2017, the Internal Revenue Service conducted an audit of the Company’s
tax return for the year ended September 30, 2014, and no adverse findings were reported. The Company’s federal and state
income tax returns for taxable years through September 30, 2014 have been closed for purposes of examination by the Internal Revenue
Service and the Pennsylvania Department of Revenue.
|
11.
|
STOCK COMPENSATION PLANS
|
The
Company maintains the 2008 RRP which is administered by a committee of the Board of Directors of the Company. The RRP provides
for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the
grant of shares under the RRP, the 2008 RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock
in the open market for an aggregating cost of approximately $2.5 million, at an average purchase price per share of $11.49. The
Company made sufficient contributions to the 2008 RRP to fund these purchases. Shares subject to awards under the 2008 RRP generally
vest at the rate of 20% per year over five years. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the
“2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock
awards or units, of which 233,500 shares were awarded during February 2015. In August 2016, the Company granted 7,473 shares under
the 2008 RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted 17,128 shares under the 2014 SIP. In March
2018, the Company granted 8,209 shares under the 2008 RRP and 18,291 shares under the 2014 SIP.
Compensation
expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period
in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three
and six months ended March 31, 2018, an aggregate of $99,000 and $250,000, respectively, was recognized in compensation expense
for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. During the three and six months ended March 31,
2017, $145,000 and $280,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and
the grants pursuant to the 2014 SIP. At March 31, 2018, approximately $1.7 million in additional compensation expense for shares
awarded related to the 2008 RRP and 2014 SIP remained unrecognized.
A
summary of the Company’s non-vested stock award activity for the six months ended March 31, 2018 and 2017 is presented in
the following tables:
|
|
Six Months Ended
March 31, 2018
|
|
|
|
Number of
Shares (1)
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
|
|
|
|
|
|
Nonvested stock awards at October 1, 2017
|
|
|
142,594
|
|
|
$
|
12.79
|
|
Granted
|
|
|
26,500
|
|
|
|
18.46
|
|
Forfeited
|
|
|
4,636
|
|
|
|
11.91
|
|
Vested
|
|
|
(44,647
|
)
|
|
|
12.06
|
|
Nonvested stock awards at the March 31, 2018
|
|
|
129,083
|
|
|
$
|
14.17
|
|
|
|
Six Months Ended
March 31, 2017
|
|
|
|
Number of Shares
|
|
|
Weighted
Average
Grant Date Fair Value
|
|
|
|
|
|
|
|
|
Nonvested stock awards at October 1, 2016
|
|
|
172,788
|
|
|
$
|
12.03
|
|
Granted
|
|
|
17,128
|
|
|
|
17.43
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(43,018
|
)
|
|
|
11.61
|
|
Nonvested stock awards at the March 31, 2017
|
|
|
146,898
|
|
|
$
|
12.78
|
|
The
Company maintains the 2008 Stock Option Plan (the “2008 Option Plan”) which authorizes the grant of stock options
to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to
the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20%
per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares
of common stock were approved for future issuance pursuant to the 2008 Option Plan. As of March 31, 2018, all of the options had
been awarded under the 2008 Option Plan. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options
to purchase 605,000 shares were awarded during February 2015. During August 2016, the Company granted 18,867 shares under the
2008 Option Plan and 8,633 shares under the 2014 SIP. In March 2017, the Company granted 22,828 shares under the 2014 SIP. In
May 2017, the Company granted 24,717 shares under the 2014 SIP and 283 shares under the 2008 Option Plan. In March 2018, the Company
granted 159,265 shares under the 2014 SIP and 18,235 shares under the 2008 Option Plan.
A
summary of the status of the Company’s stock options under the 2008 Option Plan and the 2014 SIP as of March 31, 2018 and
2017 are presented below:
|
|
Six Months Ended March 31, 2018
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2017
|
|
|
922,564
|
|
|
$
|
12.04
|
|
Granted
|
|
|
177,500
|
|
|
|
18.46
|
|
Exercised
|
|
|
(37,171
|
)
|
|
|
11.50
|
|
Forfeited
|
|
|
(12,234
|
)
|
|
|
11.90
|
|
Outstanding at March 31, 2018
|
|
|
1,050,659
|
|
|
$
|
13.15
|
|
Exercisable at March 31, 2018
|
|
|
595,385
|
|
|
$
|
11.53
|
|
|
|
Six Months Ended March 31, 2017
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding at October 1, 2016
|
|
|
921,909
|
|
|
$
|
11.70
|
|
Granted
|
|
|
22,828
|
|
|
|
11.43
|
|
Exercised
|
|
|
(32,224
|
)
|
|
|
11.50
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2017
|
|
|
912,513
|
|
|
$
|
11.85
|
|
Exercisable at March 31, 2017
|
|
|
579,078
|
|
|
$
|
11.43
|
|
The
weighted average remaining contractual term was approximately 4.0 years for options outstanding as of March 31, 2018.
The
estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010,
$3.34 for options granted during fiscal 2013, $4.67 for the options granted during fiscal 2014, $4.58 for options granted during
fiscal 2015, $2.13 for options granted during fiscal 2016, $3.18 for options granted during fiscal 2017 and $3.63 for options
granted in fiscal 2018. The fair value for grants made in fiscal 2017 was estimated on the date of grant using the Black-Scholes
pricing model with the following assumptions: an exercise price range from $17.43 to $18.39, expected term of seven years, volatility
of 14.37%, interest rate of 2.22% and a yield of 0.69%. The fair value for grants made in March 2018 was estimated on the date
of grant using the Black-Scholes pricing model with the following assumptions: an exercise price of $18.46, expected term of seven
years, volatility of 15.9%, interest rate of 2.82% and a yield of 1.08%.
During
the three and six months ended March 31, 2018, $102,000 and $239,000, respectively, was recognized in compensation expense for
options granted pursuant to the 2008 Option Plan and the 2014 SIP. During the three and six months ended March 31, 2017, $138,000
and $268,000, respectively, was recognized in compensation expense for options granted pursuant to the 2008 Option Plan and the
2014 SIP.
At
March 31, 2018, there was approximately $1.7 million in additional compensation expense to be recognized for awarded options which
remained outstanding and unvested at such date. The weighted average period over which this expense will be recognized is approximately
2.5 years.
|
12.
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
At
March 31, 2018, the Company had $74.4 million in outstanding commitments to originate fixed-rate loans with market interest rates
ranging from 4.00% to 5.75%. At September 30, 2017, the Company had $45.9 million in outstanding commitments to originate
fixed-rate loans with market interest rates ranging from 3.75% to 5.25%. The aggregate undisbursed portion of loans-in-process
amounted to $54.3 million at March 31, 2018 and $73.9 million at September 30, 2017.
The
Company also had commitments under unused lines of credit of $57.3 million as of March 31, 2018 and $7.4 million as of September
30, 2017 and letters of credit outstanding of $1.7 million as of March 31, 2018 and $1.4 million as of September 30, 2017. The
increase in unused commitments as of March 31, 2018 was primarily the result of five loans with unused commitments totaling $46.3
million, as of March 31, 2018.
Among
the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s
sales of whole loans and participation interests. At March 31, 2018, the exposure, which represents a portion of credit risk associated
with the interests sold, amounted to $1.7 million related to loans sold to the FHLB. This exposure is for the life of the related
loans and payables, on our proportionate share, as actual losses are incurred. These loans are seasoned loans and remain performing.
The
Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based
on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial
condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings
to which the Company is a party will not be decided adversely to the Company's interests and not have a material adverse effect
on the financial condition and operations of the Company.
|
13.
|
FAIR
VALUE MEASUREMENT
|
The
fair value estimates presented herein are based on pertinent information available to management as of March 31, 2018 and September
30, 2017, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts,
such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore,
current estimates of fair value may differ significantly from the amounts presented herein.
Generally
accepted accounting principles used in the United States establish a fair value hierarchy which requires an entity to maximize
the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value.
The three broad levels
of hierarchy are as follows:
|
Level 1
|
Quoted prices in active markets
for identical assets or liabilities.
|
|
Level 2
|
Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
Level 3
|
Unobservable inputs that
are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3
assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment
or estimation.
|
Those assets as of March 31,
2018 which are to be measured at fair value on a recurring basis are as follows:
|
|
Category Used for Fair Value Measurement
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
-
|
|
|
$
|
24,765
|
|
|
$
|
-
|
|
|
$
|
24,765
|
|
Mortgage-backed securities - U.S. Government agencies
|
|
|
-
|
|
|
|
132,115
|
|
|
|
-
|
|
|
|
132,115
|
|
Corporate bonds
|
|
|
-
|
|
|
|
62,187
|
|
|
|
-
|
|
|
|
62,187
|
|
FHLMC preferred stock
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36
|
|
Interest rate swap contracts
|
|
|
-
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
Total
|
|
$
|
36
|
|
|
$
|
219,867
|
|
|
$
|
-
|
|
|
$
|
219,903
|
|
Those assets as of September
30, 2017 which are measured at fair value on a recurring basis are as follows:
|
|
Category Used for Fair Value Measurement
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
-
|
|
|
$
|
25,799
|
|
|
$
|
-
|
|
|
$
|
25,799
|
|
Mortgage-backed securities - U.S. Government agencies
|
|
|
-
|
|
|
|
118,127
|
|
|
|
-
|
|
|
|
118,127
|
|
Corporate bonds
|
|
|
-
|
|
|
|
34,400
|
|
|
|
-
|
|
|
|
34,400
|
|
FHLMC preferred stock
|
|
|
76
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76
|
|
Interest rate swap contracts
|
|
|
-
|
|
|
|
502
|
|
|
|
-
|
|
|
|
502
|
|
Total
|
|
$
|
76
|
|
|
$
|
178,828
|
|
|
$
|
-
|
|
|
$
|
178,904
|
|
Certain assets are measured at
fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject
to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired
loans and real estate owned at fair value on a non-recurring basis.
Impaired Loans
The Company considers loans to
be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest)
in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value
of the collateral which is based on appraisals and would be categorized as Level 2 measurement. In some cases, adjustments
are made to the appraised values for various factors including the age of the appraisal, age of the comparables included in the
appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore,
the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written
down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had
a fair value in excess of $22.5 million as of March 31, 2018.
Real Estate Owned
Once an asset is determined to
be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed
assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals,
less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values
for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the market
and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement
has been categorized as a Level 3 measurement.
Summary of Non-Recurring Fair Value Measurements
|
|
At March 31, 2018
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,506
|
|
|
$
|
22,506
|
|
Real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
85
|
|
|
|
85
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,591
|
|
|
$
|
22,591
|
|
|
|
At September 30, 2017
|
|
|
|
(Dollars in Thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Impaired loans
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,665
|
|
|
$
|
19,665
|
|
Real estate owned
|
|
|
-
|
|
|
|
-
|
|
|
|
192
|
|
|
|
192
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,857
|
|
|
$
|
19,857
|
|
The following table provides information describing the valuation
processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:
|
|
At March 31, 2018
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Valuation
|
|
|
|
Range/
|
|
|
Fair Value
|
|
|
Technique
|
|
Unobservable Input
|
|
Weighted Ave.
|
Impaired loans
|
|
$
|
22,506
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
6% to 48% discount/ 10%
|
Real estate owned
|
|
$
|
85
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
10% discount
|
|
|
At September 30, 2017
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Valuation
|
|
|
|
Range/
|
|
|
Fair Value
|
|
|
Technique
|
|
Unobservable Input
|
|
Weighted Ave.
|
Impaired loans
|
|
$
|
19,665
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
6% to 57% discount/ 7%
|
Real estate owned
|
|
$
|
192
|
|
|
Property appraisals (1)(3)
|
|
Management discount for selling costs, property type and market volatility (2)
|
|
10% discount
|
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally includes various
Level 3 inputs, which are not identifiable.
|
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
|
|
(3)
|
Includes qualitative adjustments by management and estimated
liquidation expenses.
|
The fair value of financial instruments
has been determined by the Company using available market information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,108
|
|
|
$
|
18,108
|
|
|
$
|
18,108
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificates of deposit
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
-
|
|
|
|
-
|
|
Investment and mortgage-backed securities available for sale
|
|
|
219,103
|
|
|
|
219,103
|
|
|
|
36
|
|
|
|
219,067
|
|
|
|
-
|
|
Investment and mortgage-backed securities held to maturity
|
|
|
63,026
|
|
|
|
60,137
|
|
|
|
-
|
|
|
|
60,137
|
|
|
|
-
|
|
Loans receivable, net
|
|
|
584,380
|
|
|
|
581,704
|
|
|
|
-
|
|
|
|
-
|
|
|
|
581,704
|
|
Accrued interest receivable
|
|
|
3,439
|
|
|
|
3,439
|
|
|
|
3,439
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
6,759
|
|
|
|
6,759
|
|
|
|
6,759
|
|
|
|
-
|
|
|
|
-
|
|
Bank owned life insurance
|
|
|
28,370
|
|
|
|
28,370
|
|
|
|
28,370
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap contracts
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
|
64,921
|
|
|
|
64,921
|
|
|
|
64,921
|
|
|
|
-
|
|
|
|
-
|
|
Money market deposit accounts
|
|
|
65,645
|
|
|
|
65,645
|
|
|
|
65,645
|
|
|
|
-
|
|
|
|
-
|
|
Passbook, club and statement savings accounts
|
|
|
101,027
|
|
|
|
101,027
|
|
|
|
101,027
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposit
|
|
|
443,109
|
|
|
|
447,383
|
|
|
|
-
|
|
|
|
-
|
|
|
|
447,383
|
|
Advances from FHLB short-term
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
-
|
|
Advances from FHLB long-term
|
|
|
106,355
|
|
|
|
104,757
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,757
|
|
Accrued interest payable
|
|
|
1,328
|
|
|
|
1,328
|
|
|
|
1,328
|
|
|
|
-
|
|
|
|
-
|
|
Advances from borrowers for taxes and insurance
|
|
|
2,490
|
|
|
|
2,490
|
|
|
|
2,490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,903
|
|
|
$
|
27,903
|
|
|
$
|
27,903
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificates of deposit
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
1,604
|
|
|
|
-
|
|
|
|
-
|
|
Investment and mortgage-backed securities available for sale
|
|
|
178,402
|
|
|
|
178,402
|
|
|
|
76
|
|
|
|
178,326
|
|
|
|
-
|
|
Investment and mortgage-backed securities held to maturity
|
|
|
61,284
|
|
|
|
60,179
|
|
|
|
-
|
|
|
|
60,179
|
|
|
|
-
|
|
Loans receivable, net
|
|
|
571,343
|
|
|
|
575,876
|
|
|
|
-
|
|
|
|
-
|
|
|
|
575,876
|
|
Accrued interest receivable
|
|
|
2,825
|
|
|
|
2,825
|
|
|
|
2,825
|
|
|
|
-
|
|
|
|
-
|
|
Federal Home Loan Bank stock
|
|
|
6,002
|
|
|
|
6,002
|
|
|
|
6,002
|
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap contracts
|
|
|
502
|
|
|
|
502
|
|
|
|
-
|
|
|
|
502
|
|
|
|
-
|
|
Bank owned life insurance
|
|
|
28,048
|
|
|
|
28,048
|
|
|
|
28,048
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
|
63,642
|
|
|
|
63,642
|
|
|
|
63,642
|
|
|
|
-
|
|
|
|
-
|
|
Money market deposit accounts
|
|
|
76,272
|
|
|
|
76,272
|
|
|
|
76,272
|
|
|
|
-
|
|
|
|
-
|
|
Passbook, club and statement savings accounts
|
|
|
101,743
|
|
|
|
101,743
|
|
|
|
101,743
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposit
|
|
|
394,325
|
|
|
|
398,078
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398,078
|
|
Advances from FHLB -short-term
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Advances from FHLB -long-term
|
|
|
94,318
|
|
|
|
93,579
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,579
|
|
Accrued interest payable
|
|
|
1,933
|
|
|
|
1,933
|
|
|
|
1,933
|
|
|
|
-
|
|
|
|
-
|
|
Advances from borrowers for taxes and insurance
|
|
|
2,207
|
|
|
|
2,207
|
|
|
|
2,207
|
|
|
|
-
|
|
|
|
-
|
|
Cash and Cash Equivalents
—For
cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Investments and Mortgage-Backed
Securities
—
The fair value of investment securities and mortgage-backed securities is based on quoted market
prices, dealer quotes, and prices obtained from independent pricing services.
Loans Receivable
—
The
fair value of loans is estimated based on present value using the current market rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The carrying value that fair value is compared to
is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in
evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.
Accrued Interest Receivable
–
For accrued interest receivable, the carrying amount is a reasonable estimate of fair value.
Federal Home Loan Bank
(FHLB) Stock
—
Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not
have a readily determinable fair value as its ownership is restricted and it lacks a market. The estimated fair value approximates
the carrying amount.
Interest Rate Swaps –
The fair values of the interest rate swap contracts are based upon the estimated amount the Company would receive or pay, as applicable,
to terminate the contracts.
Bank Owned Life Insurance
—
The
fair value of bank owned life insurance is based on the cash surrender value obtained from an independent advisor that is derivable
from observable market inputs.
Checking Accounts, Money
Market Deposit Accounts, Passbook Accounts, Club Accounts, Statement Savings Accounts, and Certificates of Deposit
—
The
fair value of passbook accounts, club accounts, statement savings accounts, checking accounts, and money market deposit accounts
is the amount reported in the financial statements. The fair value of certificates of deposit is estimated using a discounted cash
flow calculation that applies market rates currently offered for deposits of similar remaining maturity.
Short-term advances from
Federal Home Loan Bank
—
The fair value of advances from FHLB is the amount payable on demand at the reporting
date.
Long-term advances from Federal Home Loan
Bank —
The fair value of advances from FHLB is estimated based on market rates currently offered for advances with
similar remaining maturities.
Accrued Interest Payable
–
For accrued interest payable, the carrying amount is a reasonable estimate of fair value.
Advances from Borrowers
for Taxes and Insurance –
For advances from borrowers for taxes and insurance, the carrying amount is a reasonable
estimate of fair value.
Commitments to Extend
Credit and Letters of Credit
—
The majority of the Company’s commitments to extend credit and letters
of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit
are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The estimated
fair value approximates the recorded deferred fee amounts, which are not significant.
14.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company’s goodwill
and intangible assets are related to the acquisition of Polonia Bancorp on January 1, 2017.
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
October 1,
|
|
|
Additions/
|
|
|
|
|
|
March 31,
|
|
|
Amortization
|
|
|
|
2017
|
|
|
Adjustments
|
|
|
Amortization
|
|
|
2018
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,102
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,102
|
|
|
|
|
|
Core deposit intangible
|
|
|
710
|
|
|
|
-
|
|
|
|
(71
|
)
|
|
|
639
|
|
|
|
10 years
|
|
|
|
$
|
6,812
|
|
|
$
|
-
|
|
|
$
|
(71
|
)
|
|
$
|
6,741
|
|
|
|
|
|
As of March 31, 2018, the current fiscal
year and the future fiscal periods amortization expense for the core deposit intangible is:
(In Thousands)
|
|
|
|
|
|
|
|
2018
|
|
$
|
67
|
|
2019
|
|
|
123
|
|
2020
|
|
|
108
|
|
2021
|
|
|
93
|
|
2022
|
|
|
78
|
|
Thereafter
|
|
|
170
|
|
Total
|
|
$
|
639
|
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with our unaudited consolidated financial statements included elsewhere in this Form 10-Q and with our Annual Report
on Form 10-K for the year ended September 30, 2017 (the “Form 10-K”).
Overview.
Prudential Bancorp, Inc.
(the “Company”) was formed by Prudential Bancorp, Inc. of Pennsylvania to become the successor holding company for
Prudential Bank (the “Bank”) as a result of the second-step conversion of the Bank completed in October 2013. The Company’s
results of operations are primarily dependent on the results of the Bank, which is a wholly owned subsidiary of the Company. The
Company’s results of operations depend to a large extent on net interest income, which primarily is the difference between
the income earned on its loan and securities portfolios and the cost of funds, which is the interest paid on deposits and borrowings.
Results of operations are also affected by our provision for loan losses, non-interest income (which includes impairment charges)
and non-interest expense. Non-interest expense principally consists of salaries and employee benefits, office occupancy expense,
depreciation, data processing expense, payroll taxes and other expense. Our results of operations are also significantly affected
by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory
authorities. Future changes in applicable laws, regulations or government policies may materially impact our financial condition
and results of operations. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (the “FDIC”)
and the Pennsylvania Department of Banking and Securities (the “Department”). The Bank’s main office is in Philadelphia,
Pennsylvania (which includes a branch), with nine additional financial centers located in Philadelphia, Montgomery and Delaware
Counties in Pennsylvania. The Bank’s primary business consists of attracting deposits from the general public and using those
funds together with borrowings to originate loans and to invest primarily in U.S. Government and agency securities and mortgage-backed
securities. In November 2005, the Bank formed PSB Delaware, Inc., a Delaware corporation, as a subsidiary of the Bank. In March
2006, all mortgage-backed securities then owned by the Company’s predecessor were transferred to PSB Delaware, Inc. PSB Delaware,
Inc.’s activities are included as part of the consolidated financial statements.
Critical Accounting Policies.
In
reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting
policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our unaudited consolidated
financial statements included in Item 1 hereof as well as in Note 2 of the notes to our audited consolidated financial statements
included in the Form 10-K. The accounting and financial reporting policies of the Company conform to accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and to general practices within the banking industry. Accordingly,
the financial statements require certain estimates, judgments and assumptions, which are believed to be reasonable, based upon
the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as well as contingent
assets and contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during
the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in
fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions
that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition
for the period or in future periods.
Allowance for Loan Losses
. The allowance
for loan losses is established through a provision for loan losses charged to expense. Losses are charged against the allowance
for loan losses when management believes that the collectability in full of the principal of a loan is unlikely. Subsequent recoveries
are added to the allowance. The allowance for loan losses is maintained at a level that management considers adequate to provide
for estimated losses and impairments based upon an evaluation of known and inherent losses in the loan portfolio that are both
probable and reasonable to estimate. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable
value. It is the policy of management to provide for losses on unidentified loans in its portfolio in addition to criticized and
classified loans.
Management monitors its allowance for loan
losses at least quarterly and makes adjustments to the allowance through the provision for loan losses as economic conditions and
other pertinent factors indicate. The quarterly review and adjustment of the qualitative factors employed in the allowance methodology
and the updating of historic loss experience allow for timely reaction to emerging conditions and trends. In this context,
a series of qualitative factors are used in a methodology as a measurement of how current circumstances are affecting the loan
portfolio. Included in these qualitative factors are:
|
·
|
Levels of past due, classified, criticized and non-accrual loans, troubled debt restructurings and loan modifications;
|
|
·
|
Nature and volume of loans;
|
|
·
|
Changes in lending policies and procedures, underwriting standards, collections, charge-offs and recoveries and for commercial
loans, the level of loans being approved with exceptions to the Bank’s lending policy;
|
|
·
|
Experience, ability and depth of management and staff;
|
|
·
|
National and local economic and business conditions, including various market segments;
|
|
·
|
Quality of the Company’s loan review system and the degree of Board oversight;
|
|
·
|
Concentrations of credit and changes in levels of such concentrations; and
|
|
·
|
Effect of external factors on the level of estimated credit losses in the current portfolio.
|
In determining the allowance for loan losses,
management has established a general pooled allowance. Values assigned to the qualitative factors and those developed from historic
loss experience provide a dynamic basis for the calculation of reserve factors for both pass-rated loans (the general pooled allowance)
and those for criticized and classified loans. The amount of the specific allowance is determined through an individual loan analysis
of certain large dollar commercial real estate loans, construction and land development loans and multi-family loans. Under most
circumstances, if a specific impairment is warranted then that portion of the loan will be immediately charged-off. Loans not individually
reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors
described above. In determining the appropriate level of the general pooled allowance, management makes estimates based on internal
risk ratings, which take into account such factors as debt service coverage, loan-to-value ratios and external factors. Estimates
are periodically measured against actual loss experience.
This evaluation is inherently subjective
as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows
on impaired loans, value of collateral, estimated losses on our commercial, construction and residential loan portfolios and historical
loss experience. All of these estimates may be susceptible to significant change.
While management uses the best information
available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and
other conditions or changes in accounting guidance. In addition, the Department and the FDIC, as an integral part of their examination
processes, periodically review our allowance for loan losses. The Department and the FDIC may require the recognition of adjustments
to the allowance for loan losses based on their judgment of information available to them at the time of their examination. To
the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses
may be required that would adversely affect earnings in future periods.
Investment and mortgage-backed securities
available for sale.
Where quoted prices are available in an active market, securities are classified within Level 1 of
the valuation hierarchy. If quoted market prices are not available, then fair values are estimated using quoted prices of securities
with similar characteristics or discounted cash flows and are classified within Level 2 of the fair value hierarchy. In certain
cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level
3 of the valuation hierarchy. There were no securities with a Level 3 classification as of March 31, 2018 or September 30, 2017.
Management evaluates securities for other-than-temporary
impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable,
and the continuing performance of the securities. In addition, the Company also considers the likelihood that the security will
be required to be sold because of regulatory concerns, our internal intent not to dispose of the security prior to maturity and
whether the entire cost basis of the security is expected to be recovered. In determining whether the cost basis will be recovered,
management evaluates other facts and circumstances that may be indicative of an “other-than-temporary” impairment condition. This
includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been
less than cost, and near-term prospects of the issuer.
In addition, certain assets are measured
at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject
to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired
loans and real estate owned at fair value on a nonrecurring basis.
Valuation techniques and models utilized
for measuring financial assets and liabilities are reviewed and validated by the Company at least quarterly.
Income Taxes.
The Company accounts
for income taxes in accordance with U.S. GAAP. The Company records deferred income taxes that reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting
tax assets and liabilities. The judgments and estimates required for the evaluation are updated based upon changes in business
factors and the tax laws. If actual results differ from the assumptions and other considerations used in estimating the amount
and timing of tax recognized, there can be no assurance that additional expenses will not be required in future periods.
In evaluating our ability to recover deferred
tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of
future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal
of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to
make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business. Any
reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax
assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant
impact on our future earnings.
U.S. GAAP prescribes a minimum probability
threshold that a tax position must meet before a financial statement benefit is recognized. The Company recognizes, when applicable,
interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. Assessment
of uncertain tax positions requires careful consideration of the technical merits of a position based on management's analysis
of tax regulations and interpretations. Significant judgment may be involved in the assessment of the tax position.
Forward-looking Statements
. This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business
performance, conditions relating to the Company or other effects of the merger of the Company and Polonia Bancorp. These forward-looking
statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors
(some of which are beyond the Company’s control). The words “may,” “could,” “should,”
“would,” “will,” “believe,” “anticipate,” “estimate,” “expect,”
“intend,” “plan” and similar expressions are intended to identify forward-looking statements.
In addition to factors previously disclosed
in the reports filed by the Company with the Securities and Exchange commission (“SEC”) and those identified elsewhere
in this Form 10-Q, the following factors, among others, could cause actual results to differ materially from forward looking statements
or historical performance: the strength of the United States economy in general and the strength of the local economies in which
the Company conducts its operations; general economic conditions; legislative and regulatory changes; monetary and fiscal policies
of the federal government; changes in tax policies, rates and regulations of federal, state and local tax authorities; changes
in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes
in the quality or composition of the Company's loan, investment and mortgage-backed securities portfolios; changes in accounting
principles, policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company’s
operations, markets, products, services and fees; and the success of the Company at managing the risks involved in the foregoing.
The Company does not undertake to update
any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company to reflect
events or circumstances occurring after the date of this Form 10-Q.
For a complete discussion of the assumptions,
risks and uncertainties related to our business, readers are encouraged to review the Company’s filings with the SEC, including
the “Risk Factors” section in the Company’s Form 10-K, as supplemented by its quarterly or other reports subsequently
filed with the SEC.
Market Overview.
The economy has continued to improve
during 2018 and 2017. The local market for commercial real estate and construction remain strong. The Federal Reserve Bank raised
the discount rate by 25 basis points on two occasions in fiscal 2018 which has allowed the Company to realize higher rates on some
loans, but has also led to an increase in our cost of funds in a competitive market.
The Company continues to focus on the credit
quality of its customers, closely monitoring the financial status of borrowers throughout the Company’s markets, gathering
information, working on early detection of potential problems, taking pre-emptive steps where necessary and performing the analysis
required to maintain adequate reserves for loan losses.
The Company continues to maintain capital
well in excess of regulatory requirements, allowing it to withstand unfavorable market or economic conditions.
The following discussion provides further
details on the financial condition of the Company at March 31, 2018 and September 30, 2017, and the results of operations for the
three and six months ended March 31, 2018 and 2017.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2018 AND SEPTEMBER
30, 2017
At March 31, 2018, the Company had total
assets of $944.4 million, as compared to $899.5 million at September 30, 2017, an increase of 5.0%. At March 31, 2018, the investment
portfolio increased by $42.4 million primarily as a result of the purchase of investment grade corporate bonds and U.S. government
agency mortgage-backed securities. Net loans receivable increased $13.0 million to $584.4 million at March 31, 2018 from $571.3
million at September 30, 2017. These increases were partially offset by a $9.8 million decrease in cash and cash equivalents as
available cash was redeployed into higher yielding assets.
Total liabilities increased by $49.0 million
to $812.3 million at March 31, 2018 from $763.4 million at September 30, 2017. Total deposits increased $38.7 million, consisting
primarily of short-term certificates of deposit which were used to fund asset growth as well as meet short-term liquidity needs.
At March 31, 2018, the Company had FHLB advances outstanding of $126.4 million, as compared to $114.3 million at September 30,
2017. The increase in the level of borrowings was primarily due to match funding of loan originations and purchases of investment
securities in order to lock in the yield with minimal interest rate risk as part of the Company’s asset/liability management.
All of the borrowings had maturities of less than six years.
Total stockholders’ equity decreased
by $4.1 million to $132.1 million at March 31, 2018 from $136.2 million at September 30, 2017. The decrease was a primarily due
to a reduction in the fair market value of available for sale securities due to rising market rates of interest. Also contributing
to the decrease were dividend payments aggregating $2.2 million consisting of both regular quarterly dividends totaling $0.10 per
share as well as a special dividend of $0.15 per share.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED MARCH 31, 2018 AND 2017
Net income.
The Company reported net income of $2.2 million, or $0.24 per basic and diluted share, for the quarter ended March 31, 2018 as
compared to a loss of $2.1 million, or $(0.27) per basic and diluted share, respectively, for the same quarter in fiscal 2017.
The loss in the 2017 period reflected the effects of a one-time $2.7 million expense charge related to the Polonia Bancorp acquisition
completed on January 1, 2017 as well as a $1.9 million non-cash charge-off associated with a large lending relationship (further
discussion below). For the six months ended March 31, 2018, the Company recognized net income of $2.2 million, or $0.25 per basic
and $0.24 per diluted share as compared to a net loss of $1.4 million, or $(0.18) per basic and diluted share, for the same period
in fiscal 2017
with the loss experienced for the six months ended March 31, 2017 primarily due to
the aforementioned merger expenses and loan charge-off
.
Net interest income.
For the three months ended March 31, 2018, net interest income increased to $6.2 million as compared to $5.3 million for the
same period in fiscal 2017. The increase reflected a $1.7 million, or 25.2%, increase in interest income, partially offset by an
increase of $755,000, or 55.0%, in interest paid on deposits and borrowings. The increase in net interest income between the periods
was primarily due to the increase in the weighted average balance of earning assets along with the shift in emphasis to commercial
and construction loans, which generally produce higher yields than those obtained on residential loans. The average balance of
interest-earning assets increased by $115.8 million, or 14.9% from the comparable period in 2017. The weighted average yield on
interest-earning assets increased by 31 basis points, to 3.79% for the quarter ended March 31, 2018 from the comparable period
in 2017. The weighted average cost of borrowings and deposits increased to 1.08% during the quarter ended March 31, 2018 from 0.81%
during the comparable period in 2017 due to increases in market rates of interest. For the six months ended March 31, 2018, net
interest income increased to $12.4 million as compared to $8.9 million for the same period in fiscal 2017. The increase reflected
a $5.2 million, or 46.7%, increase in interest income, partially offset by an increase of $1.8 million, or 80.7%, in interest paid
on deposits and borrowings. The increase in interest income was again primarily due to the increase in the weighted average balances
of earning assets, the shift in emphasis to commercial and construction loans and a rising interest rate environment. The average
balance of interest-earning assets increased by $224.6 million, or 34.1% from the comparable period in 2017. The weighted average
yield on interest-earning assets increased by 32 basis points, to 3.72% for the six months ended March 31, 2018 from the comparable
period in 2017. The weighted average cost of borrowings and deposits increased to 1.03% during the six months ended March 31, 2018
from 0.80% during the comparable period in 2017 primarily due to increases in market rates of interest.
For the three and six
months ended March 31, 2018, the net interest margin was 2.83% and 2.81%, respectively compared to 2.76% and 2.73% for the same
periods in fiscal 2017, respectively. The margin improvement in the 2018 periods reflected in large part the increase in the weighted
average balances noted above as well, to a lesser degree, the increase in the weighted average yield on earning assets.
Average balances, net interest income,
and yields earned and rates paid.
The following table shows for the periods indicated the total dollar amount of interest earned
from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities
and the resulting costs, expressed both in dollars and rates, the interest rate spread and the net interest margin. Average yields
and rates have been annualized. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. All average balances
are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages
would be.
|
|
Three Months
|
|
|
|
Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
(1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
(1)
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
$
|
149,235
|
|
|
$
|
1,159
|
|
|
|
3.15
|
%
|
|
$
|
125,568
|
|
|
$
|
759
|
|
|
|
2.45
|
%
|
Mortgage-backed securities
|
|
|
139,264
|
|
|
|
851
|
|
|
|
2.48
|
|
|
|
109,393
|
|
|
|
806
|
|
|
|
2.99
|
|
Loans receivable(2)
|
|
|
583,319
|
|
|
|
6,261
|
|
|
|
4.35
|
|
|
|
511,022
|
|
|
|
5,090
|
|
|
|
4.04
|
|
Other
interest-earning assets
|
|
|
21,797
|
|
|
|
84
|
|
|
|
1.56
|
|
|
|
31,836
|
|
|
|
16
|
|
|
|
0.20
|
|
Total
interest-earning assets
|
|
|
893,615
|
|
|
|
8,355
|
|
|
|
3.79
|
|
|
|
777,819
|
|
|
|
6,671
|
|
|
|
3.48
|
|
Cash and non interest-bearing
balances
|
|
|
2,460
|
|
|
|
|
|
|
|
|
|
|
|
3,194
|
|
|
|
|
|
|
|
|
|
Other
non interest-earning assets
|
|
|
50,774
|
|
|
|
|
|
|
|
|
|
|
|
52,208
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
946,849
|
|
|
|
|
|
|
|
|
|
|
$
|
833,221
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
112,490
|
|
|
|
17
|
|
|
|
0.06
|
|
|
$
|
106,950
|
|
|
|
12
|
|
|
|
0.05
|
|
Money market deposit and
NOW accounts
|
|
|
121,529
|
|
|
|
52
|
|
|
|
0.17
|
|
|
|
153,524
|
|
|
|
93
|
|
|
|
0.25
|
|
Certificates of deposit
|
|
|
433,877
|
|
|
|
1,501
|
|
|
|
1.40
|
|
|
|
303,940
|
|
|
|
888
|
|
|
|
1.18
|
|
Total deposits
|
|
|
667,896
|
|
|
|
1,570
|
|
|
|
0.95
|
|
|
|
564,414
|
|
|
|
993
|
|
|
|
0.71
|
|
Advances from Federal
Home Loan Bank
|
|
|
131,187
|
|
|
|
556
|
|
|
|
1.72
|
|
|
|
116,572
|
|
|
|
377
|
|
|
|
1.31
|
|
Advances from borrowers
for taxes and insurance
|
|
|
2,667
|
|
|
|
1
|
|
|
|
0.15
|
|
|
|
2,508
|
|
|
|
2
|
|
|
|
0.32
|
|
Total
interest-bearing liabilities
|
|
|
801,750
|
|
|
|
2,127
|
|
|
|
1.08
|
|
|
|
683,494
|
|
|
|
1,372
|
|
|
|
0.81
|
|
Non interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-bearing demand
accounts
|
|
|
11,384
|
|
|
|
|
|
|
|
|
|
|
|
10,187
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
|
|
7,610
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
815,083
|
|
|
|
|
|
|
|
|
|
|
|
701,291
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
131,766
|
|
|
|
|
|
|
|
|
|
|
|
131,930
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
946,849
|
|
|
|
|
|
|
|
|
|
|
$
|
833,221
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets
|
|
$
|
91,865
|
|
|
|
|
|
|
|
|
|
|
$
|
94,325
|
|
|
|
|
|
|
|
|
|
Net
interest income; interest rate spread
|
|
|
|
|
|
$
|
6,228
|
|
|
|
2.72
|
%
|
|
|
|
|
|
$
|
5,299
|
|
|
|
2.62
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.83
|
%
|
|
|
|
|
|
|
|
|
|
|
2.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
111.46
|
%
|
|
|
|
|
|
|
|
|
|
|
113.80
|
%
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
(1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
(1)
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
|
|
$
|
143,353
|
|
|
$
|
2,145
|
|
|
|
3.00
|
%
|
|
$
|
97,487
|
|
|
$
|
1,320
|
|
|
|
2.72
|
%
|
Mortgage-backed securities
|
|
|
136,619
|
|
|
|
1,693
|
|
|
|
2.49
|
|
|
|
110,694
|
|
|
|
1,377
|
|
|
|
2.49
|
|
Loans receivable(2)
|
|
|
579,789
|
|
|
|
12,368
|
|
|
|
4.28
|
|
|
|
428,624
|
|
|
|
8,415
|
|
|
|
3.94
|
|
Other
interest-earning assets
|
|
|
23,253
|
|
|
|
185
|
|
|
|
1.60
|
|
|
|
21,620
|
|
|
|
64
|
|
|
|
0.59
|
|
Total
interest-earning assets
|
|
|
883,014
|
|
|
|
16,391
|
|
|
|
3.72
|
|
|
|
658,425
|
|
|
|
11,176
|
|
|
|
3.40
|
|
Cash and non interest-bearing
balances
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
Other
non interest-earning assets
|
|
|
53,260
|
|
|
|
|
|
|
|
|
|
|
|
32,926
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
938,634
|
|
|
|
|
|
|
|
|
|
|
$
|
693,726
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
107,414
|
|
|
|
36
|
|
|
|
0.07
|
|
|
$
|
89,394
|
|
|
|
30
|
|
|
|
0.07
|
|
Money market deposit and
NOW accounts
|
|
|
124,287
|
|
|
|
101
|
|
|
|
0.16
|
|
|
|
122,206
|
|
|
|
126
|
|
|
|
0.21
|
|
Certificates of deposit
|
|
|
421,450
|
|
|
|
2,843
|
|
|
|
1.35
|
|
|
|
262,450
|
|
|
|
1,529
|
|
|
|
1.17
|
|
Total deposits
|
|
|
653,151
|
|
|
|
2,980
|
|
|
|
0.92
|
|
|
|
474,050
|
|
|
|
1,685
|
|
|
|
0.71
|
|
Advances from Federal
Home Loan Bank
|
|
|
129,474
|
|
|
|
1,044
|
|
|
|
1.62
|
|
|
|
83,413
|
|
|
|
542
|
|
|
|
1.30
|
|
Advances from borrowers
for taxes and insurance
|
|
|
2,470
|
|
|
|
3
|
|
|
|
0.24
|
|
|
|
2,284
|
|
|
|
2
|
|
|
|
0.18
|
|
Total
interest-bearing liabilities
|
|
|
785,095
|
|
|
|
4,027
|
|
|
|
1.03
|
|
|
|
559,747
|
|
|
|
2,229
|
|
|
|
0.80
|
|
Non interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-bearing demand
accounts
|
|
|
10,976
|
|
|
|
|
|
|
|
|
|
|
|
6,913
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
9,113
|
|
|
|
|
|
|
|
|
|
|
|
4,344
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
805,184
|
|
|
|
|
|
|
|
|
|
|
|
571,004
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
133,450
|
|
|
|
|
|
|
|
|
|
|
|
122,722
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
938,634
|
|
|
|
|
|
|
|
|
|
|
$
|
693,726
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets
|
|
$
|
97,919
|
|
|
|
|
|
|
|
|
|
|
$
|
98,678
|
|
|
|
|
|
|
|
|
|
Net
interest income; interest rate spread
|
|
|
|
|
|
$
|
12,364
|
|
|
|
2.69
|
%
|
|
|
|
|
|
$
|
8,947
|
|
|
|
2.61
|
%
|
Net interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.81
|
%
|
|
|
|
|
|
|
|
|
|
|
2.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
interest-earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
112.47
|
%
|
|
|
|
|
|
|
|
|
|
|
117.63
|
%
|
|
|
|
|
|
(1)
|
Yields and rates for the three and six month periods are
annualized.
|
|
(2)
|
Includes non-accrual loans. Calculated net of unamortized
deferred fees, undisbursed portion of loans-in-process and the allowance for loan losses.
|
|
(3)
|
Equals net interest income divided by average interest-earning
assets.
|
Provision for loan losses.
The Company
recorded a provision for loan losses in the amount of $150,000 and $360,000 for the three and six months ended March 31, 2018,
respectively, compared to a provision for loan losses of $2.4 million and $2.6 million, respectively, for the same periods in 2017
primarily due a $1.9 million charge-off related to the aforementioned borrower who planned to develop 169 residential lots, as
discussed below. During the three months ended March 31, 2018, the Company recorded a charge off of $12,000 and recoveries of $27,000.
As discussed below, the Bank and the borrower are in litigation and no resolution of the situation has been arrived at as of the
date hereof. In light of the litigation status and the status of construction of the project, the Company determined it was prudent
to have all of the borrower’s collateral pledged for the borrowing relationship re-appraised, specifically evaluating the
fair value collateral of the loans related to the project on a “liquidation value” basis and not on a “performing
project value” basis that has been previously used. Based on the new appraisals and the uncertainty the development of the
project will recommence in the near future, the Company recorded a $1.9 million non-cash charge-off. The remaining portion of the
provision recorded was related to an increase in the outstanding balance of the loan portfolio. The allowance for loan losses totaled
$4.8 million, or 0.8% of total loans and 34.5% of total non-performing loans (which included loans acquired from Polonia Bancorp
at their fair value) at March 31, 2018 as compared to $4.5 million, or 0.8% of total loans and 29.0% of total non-performing loans
at September 30, 2017. The Company believes that the allowance for loan losses at March 31, 2018 was sufficient to cover all inherent
and known losses associated with the loan portfolio at such date.
The Company’s methodology for assessing
the adequacy of the allowance establishes both specific and general pooled allocations of the allowance. Loans are assigned
ratings, either individually for larger credits or in homogeneous pools, based on an internally developed grading system. The
resulting determinations are reviewed and approved by senior management.
At March 31, 2018, the Company’s
non-performing assets totaled $14.1 million or 1.5% of total assets as compared to $15.6 million or 1.7% of total assets at September
30, 2017. Non-performing assets at March 31, 2018 included five construction loans aggregating $8.7 million, 27 one-to-four family
residential loans aggregating $3.7 million, one single-family residential investment property loan in the amount of $156,000 and
three commercial real estate loans aggregating $1.4 million. Non-performing assets also included at March 31, 2018 real estate
owned consisting of one single-family residential property with an aggregate carrying value of $85,000. At March 31, 2018, the
Company had 10 loans aggregating $6.2 million that were classified as troubled debt restructurings (“TDRs”). Six of
such loans aggregating $1.1 million were performing in accordance with the restructured terms as of March 31, 2018 and accruing
interest. One TDR is on non-accrual and consists of a $156,000 loan secured by various commercial and residential properties. The
three remaining TDRs totaling $4.9 million are also classified as non-accrual and are a part of a troubled lending relationship
totaling $10.7 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter
ending March 31, 2017 related to this borrowing relationship). The primary project of the borrower (the development of a 169-unit
townhouse project in Bristol Borough, Pennsylvania) is the subject of litigation between the Bank and the borrower and as a result,
the project currently is not proceeding. Subsequent to the commencement of the litigation previously disclosed, the borrower filed
for bankruptcy under Chapter 11 (Reorganization) of the federal bankruptcy code in June 2017. The Bank has moved the underlying
litigation noted above with the borrower and the Bank from state court to the federal bankruptcy court in which the bankruptcy
proceeding is being heard. The state litigation is stayed pending the resolution of the bankruptcy proceedings. As of March 31,
2018, the Company had reviewed $22.5 million of loans for possible impairment compared to $19.7 million reviewed for possible impairment
as of September 30, 2017.
At March 31, 2018, the Company had $1.8
million of loans delinquent 30-89 days as to interest and/or principal. Such amount consisted of 13 one-to-four family residential
loans totaling $1.6 million, one commercial real estate loan in the amount of $106,000 and one consumer loan in the amount of $10,000.
At March 31, 2018, we also had a total
of twenty-seven loans aggregating $5.3 million that had been designated “special mention”. These loans consist of nineteen
one-to-four family residential loans totaling $3.3 million and eight commercial real estate loans totaling $2.0 million. At September
30, 2017, we had a total of nine loans aggregating $3.1 million designated as “special mention”.
The following table shows the amounts of non-performing assets
(defined as non-accruing loans, accruing loans 90 days or more past due as to principal and/or interest and real estate owned)
as of March 31, 2018 and September 30, 2017. At neither date did the Company have any accruing loans 90 days or more past due that
were accruing.
|
|
March 31,
2018
|
|
|
September 30,
2017
|
|
|
|
(Dollars in Thousands)
|
|
Non-accruing loans:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
3,882
|
|
|
$
|
5,107
|
|
Commercial real estate
|
|
|
1,395
|
|
|
|
1,566
|
|
Construction and land development
|
|
|
8,744
|
|
|
|
8,724
|
|
Total non-accruing loans
|
|
|
14,021
|
|
|
|
15,397
|
|
Real estate owned, net: (1)
|
|
|
85
|
|
|
|
192
|
|
Total non-performing assets
|
|
$
|
14,106
|
|
|
$
|
15,589
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans as a percentage of loans, net
|
|
|
2.40
|
%
|
|
|
2.67
|
%
|
Total non-performing loans as a percentage of total assets
|
|
|
1.48
|
%
|
|
|
1.71
|
%
|
Total non-performing assets as a percentage of total assets
|
|
|
1.49
|
%
|
|
|
1.73
|
%
|
|
(1)
|
Real estate owned balances are shown net of related loss allowances and consist solely of real property.
|
Non-interest income
.
Non-interest income amounted to $567,000 and $982,000 for the three and six month periods ended March 31, 2018, respectively compared
to $518,000 and $876,000, respectively, for the comparable periods in fiscal 2017. The increase experienced in both of the 2018
periods was primarily attributable to the recognition during the second fiscal quarter of 2018 of income associated with a risk
participation agreement in a lending relationship, that was not applicable to the 2017 periods.
Non-interest expense.
For the three and six month periods ended March 31, 2018, non-interest expense decreased $2.9 million or 42.8% and $1.6 million
or 16.6%, respectively, compared to the same periods in the prior fiscal year. The primary reason for the decreases from the higher
levels of non-interest expense experienced during the three and six month periods ended March 31, 2017 were the one-time merger-related
charge of approximately $2.7 million, pre-tax, incurred in connection with the completion of the Polonia Bancorp acquisition in
2017.
Partially offsetting the decrease was an increase in professional services expense for
the six month period ending March 31, 2018 as compared to the comparable period in 2017. The increase was primarily attributable
to legal fees associated with the bankruptcy claim mentioned above.
Income tax expense
.
For the three month period ended March 31, 2018, the Company recorded a tax expense of $619,000, compared to a tax benefit of $1.2
million for the same period in fiscal 2017. For the six month period ended March 31, 2018, the Company recorded an income tax expense
of $2.9 million as compared to a tax benefit of $801,000 for the same period in fiscal 2017. The $2.9 million tax expense for fiscal
2018 includes a one-time non-cash charge of $1.8 million related to a re-evaluation of the Company’s deferred tax assets
due to the recently enacted tax legislation that reduced the statutory tax rate from 35% to 21%. The Company’s tax obligation
for both the three and six month periods in fiscal 2017 was greatly reduced due to the one-time expenses recorded during the three
months ended March 31, 2017.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s liquidity, represented
by cash and cash equivalents, is a product of its operating, investing and financing activities. Our primary sources of funds are
deposits, scheduled principal and interest payments on loans, loan prepayments and the maturity of loans, mortgage-backed securities
and other investments, and other funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed
securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan and securities
prepayments can be greatly influenced by market rates of interest, economic conditions and competition. We also maintain excess
funds in short-term, interest-earning assets that provide additional liquidity. At March 31, 2018, our cash and cash equivalents
amounted to $18.1 million. In addition, our available-for-sale investment securities amounted to an aggregate of $219.1 million
at such date.
We use our liquidity to fund existing and
future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning
assets, and to meet operating expenses. At March 31, 2018, the Company had $74.4 million in outstanding commitments to originate
fixed loans, not including loans in process. The Company also had commitments under unused lines of credit of $57.3 million and
letters of credit outstanding of $1.7 million at March 31, 2018. Certificates of deposit as of March 31, 2018 that are maturing
in one year or less totaled $340.9 million. Based upon historical experience, we anticipate that a significant portion of the maturing
certificates of deposit will be redeposited with us.
In addition to cash flows from loan and
securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity
available to fund liquidity needs should the need arise. Our borrowings consist solely of advances from the Federal Home Loan Bank
of Pittsburgh (“FHLB”), of which we are a member. Under terms of the collateral agreement with the FHLB, we pledge
residential mortgage loans as well as our stock in the FHLB as collateral for such advances. At March 31, 2018, we had $126.4 million
in outstanding FHLB advances and had the ability to obtain an additional $261.4 million in FHLB advances. Additional borrowing
capacity with the FHLB could be obtained with the pledging of certain investment securities. The Bank has also obtained approval
to borrow from the Federal Reserve Bank discount window.
We anticipate that we will continue to
have sufficient funds and alternative funding sources to meet our current commitments.
The following table summarizes the Company’s
and Bank’s regulatory capital ratios as of March 31, 2018 and September 30, 2017 and compares them to current regulatory
guidelines. The Company is not subject to capital ratios imposed by Basel III on bank holding companies because the Company is
deemed to be a small bank holding company.
|
|
|
|
|
|
|
|
To Be
|
|
|
|
|
|
|
|
|
|
Well Capitalized
|
|
|
|
|
|
|
Required for
|
|
|
Under Prompt
|
|
|
|
|
|
|
Capital Adequacy
|
|
|
Corrective Action
|
|
|
|
Actual Ratio
|
|
|
Purposes
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
13.80
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
13.09
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
21.42
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
20.21
|
%
|
|
|
5.1
|
%(a)
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
21.42
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
20.21
|
%
|
|
|
6.6
|
%(a)
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
22.26
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
21.05
|
%
|
|
|
8.6
|
%(a)
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
14.81
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
13.59
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
|
|
|
23.94
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The Bank
|
|
|
21.97
|
%
|
|
|
4.5
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
23.94
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
21.97
|
%
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
24.83
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Bank
|
|
|
22.86
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
(a) Includes intial phase-in of capital conservation buffer.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements, accompanying
notes, and related financial data of the Company presented herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially
all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant
impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the price of goods and services, since such prices are affected by inflation
to a larger extent than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Company's
assets and liabilities are critical to the maintenance of acceptable performance levels.
How We Manage Market Risk
. Market
risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk
which is inherent in our lending, investment and deposit gathering activities. To that end, management actively monitors and manages
interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage
credit risk through our loan underwriting and oversight policies.
The principal objective of our interest
rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level
of risk appropriate given our business strategy, operating environment, capital and liquidity requirements and performance objectives,
and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates
while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating
strategies. We have established an Asset/Liability Committee which is comprised of our Chief Operating Officer, Chief Financial
Officer, Chief Lending Officer, Chief Credit Officer, Chief Risk Officer and Controller. The Asset/Liability Committee meets on
a regular basis and is responsible for reviewing our asset/liability policies and interest rate risk position. Both the extent
and direction of shifts in interest rates are uncertainties that could have a negative impact on future earnings.
In recent years, as a part of our asset/liability
management strategy we primarily have reduced our investment in longer term fixed-rate callable agency bonds, increased our origination
of short-term commercial and construction loans and increased our portfolio of step-up callable agency bonds and agency issued
collaterized mortgage-backed securities (“CMOs”) with short effective lives. In addition, we implemented two interest
rate swaps to reduce our funding costs for a five-year period. However, notwithstanding the foregoing steps, we remain subject
to a significant level of interest rate risk in a low interest rate environment due to the high proportion of our loan portfolio
that consists of fixed-rate loans as well as our decision in prior periods to invest a significant amount of our assets in long-term,
fixed-rate investment and mortgage-backed securities.
Gap Analysis.
The matching of assets
and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive”
and by monitoring a Company’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend
to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income.
The following table sets forth the amounts of our interest-earning
assets and interest-bearing liabilities outstanding at March 31, 2018, which we expect, based upon certain assumptions, to reprice
or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amounts of assets
and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term
to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing
of assets and liabilities at March 31, 2018, on the basis of contractual maturities, anticipated prepayments, and scheduled rate
adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal
balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate
loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for
variable-rate and fixed-rate single-family and multi-family residential and commercial mortgage loans are assumed to range from
5.3% to 31.6%. The annual prepayment rate for mortgage-backed securities is assumed to range from 0.5% to 19.5%. For savings accounts,
checking accounts and money markets, the decay rates vary on an annual basis over a ten year period.
|
|
|
|
|
More than
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
3 Months
|
|
|
3 Months
|
|
|
1 Year
|
|
|
3 Years
|
|
|
More than
|
|
|
Total
|
|
|
|
or Less
|
|
|
to 1 Year
|
|
|
to 3 Years
|
|
|
to 5 Years
|
|
|
5 Years
|
|
|
Amount
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
and mortgage-backed securities(2)
|
|
$
|
11,735
|
|
|
$
|
23,148
|
|
|
$
|
45,508
|
|
|
$
|
54,776
|
|
|
$
|
153,339
|
|
|
$
|
288,506
|
|
Loans receivable(3)
|
|
|
119,328
|
|
|
|
96,074
|
|
|
|
148,402
|
|
|
|
88,800
|
|
|
|
131,776
|
|
|
|
584,380
|
|
Other
interest-earning assets(4)
|
|
|
15,388
|
|
|
|
-
|
|
|
|
249
|
|
|
|
1,355
|
|
|
|
-
|
|
|
|
16,992
|
|
Total
interest-earning assets
|
|
$
|
146,451
|
|
|
$
|
119,222
|
|
|
$
|
194,159
|
|
|
$
|
144,931
|
|
|
$
|
285,115
|
|
|
$
|
889,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
2,845
|
|
|
$
|
8,225
|
|
|
$
|
13,756
|
|
|
$
|
13,266
|
|
|
$
|
62,935
|
|
|
$
|
101,027
|
|
Money market deposit and
NOW accounts
|
|
|
3,772
|
|
|
|
11,313
|
|
|
|
19,233
|
|
|
|
15,839
|
|
|
|
68,505
|
|
|
|
118,662
|
|
Certificates of deposit
|
|
|
103,982
|
|
|
|
187,217
|
|
|
|
106,318
|
|
|
|
45,592
|
|
|
|
-
|
|
|
|
443,109
|
|
Advances from FHLB
|
|
|
27,119
|
|
|
|
26,446
|
|
|
|
24,258
|
|
|
|
48,385
|
|
|
|
147
|
|
|
|
126,355
|
|
Advances
from borrowers for taxes and insurance
|
|
|
2,490
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,490
|
|
Total
interest-bearing liabilities
|
|
$
|
140,208
|
|
|
$
|
233,201
|
|
|
$
|
163,565
|
|
|
$
|
123,082
|
|
|
$
|
131,587
|
|
|
$
|
791,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets less interest-bearing liabilities
|
|
$
|
6,243
|
|
|
$
|
(
113,979
|
)
|
|
$
|
30,594
|
|
|
$
|
21,849
|
|
|
$
|
153,528
|
|
|
$
|
98,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-rate sensitivity gap (5)
|
|
$
|
6,243
|
|
|
$
|
(
107,736
|
)
|
|
$
|
(
77,142
|
)
|
|
$
|
(
55,293
|
)
|
|
$
|
98,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-rate gap as a percentage of total assets at March 31 , 2018
|
|
|
0.93
|
%
|
|
|
-11.15
|
%
|
|
|
-7.91
|
%
|
|
|
-5.60
|
%
|
|
|
10.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
interest-earning assets as a percentage of cumulative interest-bearing liabilities at March 31, 2018
|
|
|
104.45
|
%
|
|
|
71.15
|
%
|
|
|
85.63
|
%
|
|
|
91.62
|
%
|
|
|
112.41
|
%
|
|
|
|
|
|
(1)
|
Interest-earning assets are included in the period in which
the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments
and contractual maturities.
|
|
(2)
|
For purposes of the gap analysis, investment securities
are reflected at amortized cost.
|
|
(3)
|
For purposes of the gap analysis, loans receivable includes
non-performing loans and is gross of the allowance for loan losses and unamortized deferred loan fees, but net of the undisbursed
portion of loans-in-process.
|
|
(5)
|
Cumulative interest-rate sensitivity gap represents the
difference between interest-earning assets and interest-bearing liabilities.
|
Certain shortcomings are inherent in the
method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, certain assets, such as variable-rate loans, have features which restrict
changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally,
the ability of many borrowers to service their variable-rate loans may be adversely affected in the event of an interest rate increase.
Net Portfolio Value Analysis.
Our
interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in
our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as
the NPV in that scenario divided by the market value of assets in the same scenario. The “Sensitivity Measure” is the
decline in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates, whichever produces a larger decline. The
following table sets forth our NPV as of March 31, 2018 and reflects the changes to NPV as a result of immediate and sustained
changes in interest rates as indicated.
Change in
|
|
|
|
|
|
|
Interest Rates
|
|
|
|
|
NPV as % of Portfolio
|
|
In Basis Points
|
|
Net Portfolio Value
|
|
|
Value of Assets
|
|
(Rate Shock)
|
|
Amount
|
|
|
$ Change
|
|
|
% Change
|
|
|
NPV Ratio
|
|
|
Change
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
$
|
109,751
|
|
|
$
|
(49,035
|
)
|
|
|
(30.88
|
)%
|
|
|
13.06
|
%
|
|
|
(3.89
|
)%
|
200
|
|
|
124,877
|
|
|
|
(33,909
|
)
|
|
|
(21.36
|
)%
|
|
|
14.35
|
%
|
|
|
(2.60
|
)%
|
100
|
|
|
140,349
|
|
|
|
(18,437
|
)
|
|
|
(11.61
|
)%
|
|
|
15.57
|
%
|
|
|
(1.38
|
)%
|
Static
|
|
|
158,786
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16.95
|
%
|
|
|
-
|
|
(100)
|
|
|
169,726
|
|
|
|
10,940
|
|
|
|
6.89
|
%
|
|
|
17.59
|
%
|
|
|
0.64
|
%
|
(200)
|
|
|
170,275
|
|
|
|
11,489
|
|
|
|
7.24
|
%
|
|
|
17.33
|
%
|
|
|
0.38
|
%
|
(300)
|
|
|
170,862
|
|
|
|
12,076
|
|
|
|
7.61
|
%
|
|
|
17.12
|
%
|
|
|
0.17
|
%
|
At September 30, 2017, the Company’s
NPV was $167.7 million or 18.6% of the market value of assets. Following a 200 basis point increase in interest rates, the Company’s
“post shock” NPV would be $133.6 million or 16.0% of the market value of assets.
As is the case with the GAP table, certain
shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV requires
the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in
market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change
in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular
point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest
rates on net interest income and will differ from actual results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
At March 31, 2018, there had not been any
material change to the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the year ended September
30, 2017, set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation
–Exposure to Changes in Interest Rates.”
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief
Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on
such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of period covered by
this report, our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as
defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings
As previously disclosed in the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, on March 31, 2016, Island View Properties, Inc., trading as
Island View Crossing II, LP, and Renato J. Gualtieri (collectively, the “Gualtieri Parties”) filed suit (the “Philadelphia
Litigation”) in the Court of Common Pleas, Philadelphia, Pennsylvania (the “Court”), against the Bank seeking
damages in an amount in excess of $27.0 million. The lawsuit asserts allegations related to a loan granted by the Bank to the Gualtieri
Parties to develop a 169-unit townhouse and condominium project located in Bristol Borough in Bucks County, Pennsylvania (the “Project”).
In May 2016, the Bank filed a motion with
the court seeking to dismiss the majority of claims asserted in the Philadelphia Litigation. In August 2016, the Court dismissed
a majority of the Gualtieri Parties’ claims. The Bank has also counterclaimed against the Gualtieri Parties for failure to
satisfy the nine loans extended thereto and for failure to complete the Project. In February 2017, the Court stayed the Philadelphia
Litigation pending possible resolution of the Philadelphia Litigation. No resolution was obtained and the stay has expired.
Since commencement of the Philadelphia
Litigation, the Bank has filed Complaints for Confession against the Gualtieri Parties and certain other entities affiliated with
Renato J. Gualtieri (“Gualtieri Parties and Affiliated Entities”) based on the claimed defaults under the nine loans
issued by the Bank. These actions have been stayed pending the resolution of the Philadelphia Litigation. The Bank has also filed
foreclosure actions with regard to the commercial properties collateralizing the loans issued to the Gualtieri Parties and Affiliated
Entities.
Shortly after the Court lifted the stay
in the Philadelphia Litigation, four of the Gualtieri Parties and Affiliated Entities (One State Street Associates, LP (“State
Street”), Island View Crossing II, L.P. (“Island View”), Calnshire Estates, LLC (“Calnshire”) and
Steeple Run, L.P. (“Steeple Run” or collectively with State Street, Island View and Calnshire, the “Debtors”)
filed for bankruptcy under Chapter 11. The Bank has moved the underlying Philadelphia Litigation from state court to the federal
bankruptcy court, in which the bankruptcy case is being heard. As the Philadelphia Litigation is in its early stages, no prediction
can be made as to the outcome thereof. However, the Bank believes that it has meritorious defenses to the remaining claims under
the Philadelphia Litigation and it intends to vigorously defend the case.
From the outset, the Bank believed that
it had meritorious challenges to the Chapter 11 bankruptcies filed by the Debtors and early in the case, the Bank filed a motion
to convert the bankruptcy cases to Chapter 7 or to appoint a Chapter 11 Trustee to preserve the assets securing the Bank’s
loans with the Gualtieri Parties and Affiliated Entities (the “Conversion Motion”). On December 18, 2017, the Bankruptcy
Court Granted the Conversion Motion in part and converted the Chapter 11 cases of Calnshire and Steeple Run to Chapter 7 cases,
appointed a Chapter 11 Trustee in the Island View case and left State Street in Chapter 11.
In addition to the lawsuits noted above, the Company is involved
in various other legal actions arising in the ordinarycourse of its business. All such actions in the aggregate involve amounts
that are believed by management to beimmaterial to the financial condition and results of operations of the Company.
Item 1A. Risk Factors
In addition to the other information set
forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the
Company’s Annual Report on Form 10-K for the year ended September 30, 2017, as such factors could materially affect the Company’s
business, financial condition, or future results of operations. As of March 31, 2018, no material changes have occurred to the
risk factors of the Company as reported in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,
2017. The risks described in the 2017 Annual Report on Form 10-K are not the only risks that the Company faces. Additional risks
and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material
adverse impact on the Company’s business, financial conditions, or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
(a)
and (b) Not applicable
Period
|
|
Total Number
of Shares
Purchased
|
|
|
Average
Price Paid
Per Share
|
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)
|
|
|
Maximum Number of
Shares that May Yet
Purchased Under
Plans or Programs (1)
|
|
January 1 - 31, 2018
|
|
|
439
|
|
|
$
|
18.14
|
|
|
|
-
|
|
|
|
188,159
|
|
February 1 - 28, 2018
|
|
|
17,505
|
|
|
|
17.44
|
|
|
|
17,505
|
|
|
|
170,654
|
|
March 1 - 31, 2018
|
|
|
32,945
|
|
|
|
18.00
|
|
|
|
19,600
|
|
|
|
151,054
|
|
|
|
|
50,889
|
|
|
$
|
17.81
|
|
|
|
|
|
|
|
|
|
(1) On July 15, 2015, the Company announced that
the Board of Directors had approved a second stock repurchase program authorizing the Company to repurchase up 850,000 shares
of common stock, approximately 10% of the Company's then outstanding shares.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PRUDENTIAL BANCORP, INC.
Date: May 10, 2018
|
By:
/s/ Dennis Pollack
|
|
|
|
Dennis Pollack
|
|
President and Chief Executive Officer
|
|
|
|
|
Date: May 10, 2018
|
By:
/s/ Jack E. Rothkopf
|
|
|
|
Jack E. Rothkopf
|
|
Senior Vice President, Chief Financial Officer
and Treasurer
|
Prudenital Bancorp Inc o... (NASDAQ:PBIP)
Historical Stock Chart
From Apr 2024 to May 2024
Prudenital Bancorp Inc o... (NASDAQ:PBIP)
Historical Stock Chart
From May 2023 to May 2024