UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 20172019
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________
Commission File No. 001-37506
MSB FINANCIAL CORP.
(Exact name of Registrant as specified in its Charter)

Maryland 34-1981437
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer Identification No.)

1902 Long Hill Road, Millington, New Jersey 07946-0417
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: 908-647-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.01 par value The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [  ] NO [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES [  ] NO [X]
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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," a "smaller reporting company," or an "emerging growth company in Rule 12b-2 of the Exchange Act.
 Large accelerated filer ☐ Accelerated filer
 
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 us 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 by Rule 12b-2 of the Exchange Act). YES [  ] NO [X]
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant's common stock as quoted on the Nasdaq Stock Market LLC on June 30, 2017,28, 2019, was approximately $71.8$60.0 million.




As of March 2, 201813, 2020 there were 5,686,7325,184,914 shares outstanding of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE


1.Portions of the proxy statement for the 2017 annual meeting of shareholdersNone.




MSB FINANCIAL CORP.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20172019

INDEX

PART 1 Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
   
PART II  
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
   
PART III  
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
   
PART IV  
Item 15.
Item 16.
 

i



PART I
Forward-Looking Statements
The Company may from time to time make written or oral "forward-looking statements," including statements contained in the Company's filings with the Securities and Exchange Commission (including this Annual Report on Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the private securities litigation reform act of 1995.
These forward-looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: The strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System ("Federal Reserve"), inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Company's products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; market volatility; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important factors is not exclusive. 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.
Item 1. Business
General
MSB Financial Corp. (the "Company") is a Maryland-chartered corporation organized in 2014 to be the successor to MSB Financial Corp., a federal corporation ("Old MSB") upon completion of the second-step conversion of Millington Bank (the "Bank") from the two-tier mutual holding company structure to the stock holding company structure. MSB Financial, MHC (the "MHC") was the former mutual holding company for Old MSB prior to completion of the second-step conversion.  In conjunction with the second-step conversion, each of the MHC and Old MSB ceased to exist.  The second-step conversion was completed on July 16, 2015 at which time the Company sold 3,766,592 shares of its common stock (including 150,663 shares purchased by the Bank's employee stock ownership plan) at $10.00 per share for gross proceeds of approximately $37.7 million. Expenses related to the stock offering totaled $1.5 million and were netted against proceeds. As part of the second-step conversion, each of the outstanding shares of common stock of Old MSB held by persons other than the MHC were converted into 1.1397 shares of Company common stock with cash paid in lieu of fractional shares.  As a result, a total of 2,187,242 shares were issued in exchange for Old MSB shares in the second-step conversion.
The Company's principal business is the ownership and operation of the Bank. The Bank is a New Jersey-chartered stock savings bank and its deposits are insured by the Federal Deposit Insurance Corporation. The primary business of the Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. The Bank's loan portfolio primarily consists of one-to-four family and home equity residential loans, commercial loans, and construction loans. It also invests in U.S. government obligations and mortgage-backed securities. The Bank is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the "Federal Reserve") regulates the Company as a bank holding company.
In accordance with the provisions of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company is the successor issuer to Old MSB and all financial data included herein up through the completion of the second-step conversion is that of Old MSB.
Throughout this document, references to "we," "us," or "our" refer to the Bank or Company, or both, as the context indicates.
Proposed Merger with Kearny Financial Corp.
On December 18, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kearny Financial Corp. (“Kearny”), the parent company of Kearny Bank, pursuant to which the Company will merge with and into Kearny (the “Merger”). As part of the transaction, the Bank will also merge with and into Kearny Bank.
Subject to the terms and conditions of the Merger Agreement, upon consummation of the Merger, each outstanding share of common stock of the Company will be automatically converted into and exchangeable for the right to receive either: (i) $18 in cash (the “Cash Consideration”), or (ii) 1.3 shares of the Kearny’s common stock with cash being paid in lieu of fractional shares (the “Stock Consideration” and, together with the Cash Consideration, the “Merger Consideration”). The Merger Agreement provides that 90% of the outstanding shares of the Company common stock will be converted into Stock Consideration and 10% of the outstanding shares of the Company common stock


will be converted into Cash Consideration. Each shareholder of the Company will be entitled to elect the number of shares of the Company common stock held by such shareholder that will be exchanged for the Stock Consideration or the Cash Consideration subject to proration in the event that a selected form of consideration is over-elected.
The Merger Agreement contains customary representations, warranties and covenants from both the Company and Kearny. Among other covenants, the Company has agreed: (i) to convene and hold a meeting of its shareholders to consider and vote upon the Merger, (ii) that, subject to certain exceptions, the board of directors of the Company will recommend the approval of the Merger and the Merger Agreement by its shareholders, and (iii) not to (A) solicit alternative third-party acquisition proposals or, (B) subject to certain exceptions, conduct discussions concerning or provide confidential information in connection with any alternative third-party acquisition proposal. The Merger Agreement contains provisions that provide for the termination of the Merger Agreement in certain circumstances, and such provisions may require the Company to pay to Kearny a termination fee of $3.54 million.
The Merger is expected to close during the second calendar quarter of 2020, subject to the Company receiving the requisite approval of its shareholders, receipt of all regulatory approvals and fulfillment of other customary closing conditions.
Change in Fiscal Year End
Effective November 17, 2014, the Company changed its fiscal year end from June 30 to December 31.
Competition
We operate in a market area with a high concentration of banking and other financial institutions, and we face substantial competition in attracting deposits and in originating loans. A number of our competitors are significantly larger institutions with greater financial and managerial resources and lending limits. Our ability to compete successfully is a significant factor affecting our growth potential and profitability.


Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking and finance companies for real estate loans and with commercial banks and savings institutions for consumer loans, and we face competition for funds from investment products such as mutual funds, short-term money funds and corporate and government securities. There are large competitors operating throughout our total market area, and we also face strong competition from other community-based financial institutions.
Lending Activities
We have traditionally focused on the origination of one- to four-family loans and home equity loans and lines of credit, which together comprise a sizeablesizable portion of the total loan portfolio. During the past two years, we have significantly grown our commercial real estate portfolio, which includes multi-family dwellings/apartment buildings, service/retail and mixed-use properties, churches and non-profit properties, medical and dental facilities and other commercial real estate. Additionally, we originate residential and commercial construction loans and commercial and industrial loans. Our consumer loans are comprised of automobile loans, personal loans, account loans and overdraft lines of credit.
Loan Portfolio Composition.  The following tables analyze the composition of the Company's loan portfolio by loan category at the dates indicated.  Except as set forth below, there were no concentrations of loans exceeding 10% of total loans.


At
 December 31,
 At June 30,
At
 December 31,
2017 2016 2015 2014 20142019 2018 2017 2016 2015
Amount Percent Amount Percent Amount Percent Amount Percent Amount PercentAmount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in thousands)(Dollars in thousands)
Type of Loans:
                                      
One- to four-family real estate$157,876
 31.63% $160,534
 42.28% $154,624
 57.07% $144,966
 61.19% $143,283
 60.50%$130,966
 24.69% $143,391
 27.62% $157,876
 31.63% $160,534
 42.28% $154,624
 57.07%
Commercial real estate and multi-family196,681
 39.40
 124,656
 32.83
 59,642
 22.02
 31,637
 13.35
 32,036
 13.53
227,441
 42.88
 212,606
 40.95
 196,681
 39.40
 124,656
 32.83
 59,642
 22.02
Construction43,718
 8.76
 16,554
 4.36
 10,895
 4.02
 12,651
 5.34
 12,517
 5.29
47,635
 8.98
 29,628
 5.71
 43,718
 8.76
 16,554
 4.36
 10,895
 4.02
Home equity26,803
 5.37
 32,262
 8.50
 35,002
 12.92
 36,847
 15.55
 38,484
 16.25
22,853
 4.31
 24,365
 4.69
 26,803
 5.37
 32,262
 8.50
 35,002
 12.92
Commercial and industrial73,465
 14.72
 45,246
 11.92
 10,275
 3.79
 9,663
 4.08
 9,666
 4.08
101,062
 19.06
 108,602
 20.92
 73,465
 14.72
 45,246
 11.92
 10,275
 3.79
Consumer618
 0.12
 446
 0.11
 493
 0.18
 1,152
 0.49
 832
 0.35
432
 0.08
 540
 0.11
 618
 0.12
 446
 0.11
 493
 0.18
Total loans receivable499,161
 100.00% 379,698
 100.00% 270,931
 100.00% 236,916
 100.00% 236,818
 100.00%530,389
 100.00% 519,132
 100.00% 499,161
 100.00% 379,698
 100.00% 270,931
 100.00%
Less:                                      
Construction loans in process(19,868)   (6,557)   (4,600)   (1,499)   (2,491)  (16,109)   (10,677)   (19,868)   (6,557)   (4,600)  
Allowance for loan losses(5,414)   (4,476)   (3,602)   (3,634)   (3,686)  (5,722)   (5,655)   (5,414)   (4,476)   (3,602)  
Deferred loan fees(474)   (658)   (417)   (334)   (366)  (536)   (501)   (474)   (658)   (417)  
Total loans receivable, net$473,405
   $368,007
   $262,312
   $231,449
   $230,275
  $508,022
   $502,299
   $473,405
   $368,007
   262,312
  
Loan Maturity Schedule. The following table sets forth the maturity of the Company's loan portfolio at December 31, 2017.2019. Demand loans, loans having no stated maturity, and overdrafts are presented as due in one year or less. The construction loans presented in the table as of December 31, 20172019 are net of $19.916.1 million of undistributed amounts. The table presents contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At December 31, 2017At December 31, 2019
One- to Four-
 Family
 Real Estate
 
 Commercial
 and Multi-family 
Real Estate
 Construction Consumer Home Equity 
Commercial
and Industrial
 Total
One- to Four-
 Family
 Real Estate
 
 Commercial
 and Multi-family 
Real Estate
 Construction Consumer Home Equity 
Commercial
and Industrial
 Total
(In thousands)(In thousands)
Amounts Due:
                          
Within 1 Year$2,192
 $5,984
 $8,928
 $214
 $1,983
 $23,084
 $42,385
$633
 $4,097
 $18,081
 $49
 $1,569
 $20,937
 $45,366
After 1 year:
                          
1 to 5 years4,557
 29,855
 14,827
 24
 7,351
 24,604
 81,218
2,209
 57,751
 10,505
 
 2,065
 53,934
 126,464
5 to 10 years12,368
 111,140
 
 65
 7,823
 25,101
 156,497
16,718
 122,568
 
 77
 3,339
 21,760
 164,462
After 10 years138,759
 49,702
 95
 315
 9,646
 676
 199,193
111,406
 43,025
 2,940
 306
 15,880
 4,431
 177,988
Total due after one year155,684
 190,697
 14,922
 404
 24,820
 50,381
 436,908
130,333
 223,344
 13,445
 383
 21,284
 80,125
 468,914
Total$157,876
 $196,681
 $23,850
 $618
 $26,803
 $73,465
 $479,293
$130,966
 $227,441
 $31,526
 $432
 $22,853
 $101,062
 $514,280
The following table sets forth the dollar amount of all loans at December 31, 2017 due after December 31, 2018,2020, which have fixed interest rates and which have floating or adjustable interest rates.
Fixed Rates 
Floating or
 Adjustable
 Rates
 TotalFixed Rates 
Floating or
 Adjustable
 Rates
 Total
(In thousands)(In thousands)
One-to four-family real estate$109,904
 $45,780
 $155,684
$91,874
 $39,092
 $130,966
Commercial real estate and multi-family73,272
 117,425
 190,697
94,085
 133,356
 227,441
Construction3,710
 11,212
 14,922
10,622
 20,904
 31,526
Consumer88
 316
 404
102
 330
 432
Home equity6,633
 18,187
 24,820
4,725
 18,128
 22,853
Commercial and industrial33,872
 16,509
 50,381
45,755
 55,307
 101,062
Total$227,479
 $209,429
 $436,908
$247,163
 $267,117
 $514,280


One- to Four-Family Real Estate Mortgages. Historically, the primary focus of our lending activity was the origination of one- to four-family first mortgage loans.  We continue to offer fixed rate, conventional mortgage loans with terms from 5 to 30 years.
We also originate adjustable rate mortgages, or ARMs, with up to 30 year terms at rates based upon the U.S. Treasury One Year Constant Maturity as an index. Our ARMs currently reset on an annual basis, beginning with the first year, and have a 200 basis point annual increase cap and a 600 basis point lifetime adjustment cap.  We do not originate "teaser" rate or negative amortization loans.
We are also offering a loan program whereby we offer an initial rate for a fixed period of time, normally 5 to 10 years, and thereafter there is one preset interest rate adjustment based on competitive rates.
Substantially all residential mortgages include "due on sale" clauses, which are provisions giving us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securing one-to four-family residential loans are made by state certified or licensed independent appraisers and are performed in accordance with applicable regulations and policies. We require title insurance policies on all first lien one-to four-family residential loans and all home equity loans over $250,000.  Homeowners, liability, fire and, if applicable, flood insurance policies are also required.
We provide financing on residential investment properties with 5 to 30 year fixed duration mortgages. Our investment property lending product is available to individuals or proprietorships, partnerships, limited liability corporations, and corporations with personal guarantees. All investment property is underwritten on its ability substantially to carry itself, unless the property is a two‑family residence with the mortgagor living in one of the units. Preference is given to those loans where rental income covers all operating expenditures, including but not limited to principal and interest, real estate taxes, hazard insurance, utilities, maintenance, and reserve. The cash coverage ratio to cover operating expenses must be at least 1.25 times.  Any negative cash flow will be included in the borrower's total debt ratio.  At December 31, 2017,2019, investment property loans secured by one- to four-family homes totaled $42.6$34.5 million.
We generally originate one-to four-family first mortgage loans for primary residences and investment properties with loan-to-value ratios ranging from 65% to 80% depending on the collateral value.
Commercial and Multi-Family Real Estate Mortgages. Our commercial real estate lending includes multi-family dwellings/apartment buildings, service/retail and mixed-use properties, churches and non-profit properties, medical and dental facilities and other commercial real estate. Our commercial real estate mortgage loans are typically a 5 to 10 year balloon mortgage.  Multi-family and commercial real estate loans can be amortized over 30 years with periodic rate resets or 15 year fixed duration mortgages. This type of lending is made available to proprietorships, partnerships, limited liability companies and corporations with personal guarantees and/or carve out guarantees. All commercial property isloans are substantially underwritten on itsthe ability substantiallyof the underlying property to provide satisfactory cash flows.  A cash flow and lease analysis is performed for each property. Preference is given to those loans where rental income covers all operating expenditures, including but not limited to principal and interest, real estate tax, hazard insurance, utilities, maintenance, and reserves. The cash coverage ratio to cover operating expenses must be at least 1.20 times for multi-family and 1.25 times for all other commercial loans.  Any negative cash flow will be included in the limit on the borrower's total debt ratio. Cash from other assets of the borrower, who may own multiple properties and generate a surplus, can be made available


to cover debt‑service shortages of the financed property. Maximum loan-to-value ratios on commercial real estate loans range from 65% to 80%.
The management skills of the borrower are judged on the basis of his/her professional experience and must be documented to meet the Company's satisfaction in relation to the desired project. The assets of the borrower must indicate his/her ability to support the proposed investment, both in terms of liquidity and net worth, and tangible history of the borrower's capability and experience must be evident.
Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property the value of which tends to be more easily ascertainable, multi-family and commercial real estate loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business or rental income. As a result, the availability of funds for the repayment of commercial real estate and multi-family loans may be substantially dependent on the success of the business itself, the tenants and the general economic environment. Commercial real estate and multi-family loans, therefore, have greater credit risk than one-to four-family residential mortgages or consumer loans. In addition, commercial real estate and multi-family loans generally result in larger balances to single borrowers, or related groups of borrowers and also generally require substantially greater evaluation and oversight efforts.
Construction Loans. We originate construction loans for an owner-occupied residence or to a builder with a valid contract of sale. We also provide financing for speculative residential or commercial construction and development with individual consideration given to builders based on their past performance, workmanship, and financial worth. Our construction lending includes loans for construction or major renovations or improvements of owner-occupied residences.  The portfolio consists primarily of properties held by real estate developers.
Construction loans are mortgages up to 24 months in duration. Funds are disbursed periodically upon inspections made by our inspectors on the percentage of work completed, as per the approved budget. Funds disbursed may not exceed 60% of the loan-to-value of land and 80% of the loan-to-value of improvements any time during construction. The majority of our construction loans are variable rate loans with rates tied to the prime rate published in The Wall Street Journal, plus a premium. The Bank also has established a floor rate on all transactions.  A minimum of interest-only payments on disbursed funds must be made on a monthly basis.


Construction lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. If the estimate of construction cost proves to be inaccurate, we may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover the entire unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time.
Consumer Loans. Our consumer lending products consist of new and used automobile loans, secured and unsecured personal loans, account loans and overdraft lines of credit. The maximum term for a loan on a new or used automobile is six years and four years, respectively. We will lend up to 80% of the retail value or dealer invoice on a car loan. We offer a reduction on the interest rate for car loans if payments are automatically deducted from a Millington Bank checking or statement savings account.
Our personal loans have terms of up to four years with a minimum and maximum balance of $1,000 and $5,000, respectively. A reduction to the interest rate is offered for loans with automatic debit repayment from a Millington Bank checking or statement savings account. Our account loans permit a depositor to borrow up to 90% of his or her funds on deposit with us in certificate of deposit accounts. The interest rate is the current rate paid to the depositor, plus a premium. A minimum payment of interest only is required. We also offer an overdraft line of credit with a minimum of $500 and up to a maximum of $5,000 and an interest rate tied to the prime rate published in The Wall Street Journal, plus a premium.
Consumer lending is generally considered to involve a higher degree of credit risk than residential mortgage lending. Consumer loan repayment is dependent on the borrower's continuing financial stability and can be adversely affected by job loss, divorce, illness, personal bankruptcy and other factors. The application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default. Account loans are fully secured.
Home Equity Loans and Lines of Credit. We offer fixed rate home equity loans and variable rate home equity lines of credit with a minimum credit limit of $5,000. Collateral valuation is established through a variety of methods, including an on-line appraisal valuation estimator, drive-by appraisals, recent assessed tax value, purchase price or consideration value as evidenced


by a deed or property search report or a report of comparable real estate properties from a licensed realtor. Loan requests over $50,000, however, require a drive-by appraisal and amounts over $100,000 require full appraisals.  Loan requests over $500,000 require Loan Committee approval. Any policy exception requires approval from the Board of Directors. The loan-to-value limit on home equity lending varies depending on the collateral value and ranges from 65% up to 80%. The variable rate on home equity lines of credit is adjusted monthly and is currently set at prime for owner occupied properties and prime plus a premium for investment properties. The fixed rate loans on investment property are also higher than fixed rate owner occupied home equity loans. We generally provide home equity financing only for a first or second lien position.
Our fixed rate home equity loans have terms of 5 to 30 years. All new variable rate home equity lines of credit have terms of 10 years interest only draw period and a 15 year repayment period with a loan to value ranging from 65% to 80%.  Our existing portfolio of home equity lines is also comprised of interest only home equity lines of credit based on a 10 year draw period and 15 year repayment period consisting of principal and interest repayments.  The loan-to-value limit on interest only home equity financing is 80% on owner-occupied property and 70% on investment property.  We also offer bridge loans with a variable rate and a 70% loan-to-value limit on owner-occupied property and 60% on investment property.
Commercial and Industrial Loans. We offer revolving lines of credit to businesses to finance short‑term working capital needs like accounts receivable and inventory. These lines of credit may be unsecured or secured by liquid assets, accounts receivable and inventory or real estate. We generally provide such financing for no more than a 3 year term and with a variable rate. We also offer unsecured lines of credit to high net worth borrowers for short term working capital and/or business or investment purposes. These lines have a maximum term of two years with a variable interest rate.
We also originate commercial term loans to fund longer‑term borrowing needs such as purchasing equipment, property improvements or other fixed asset needs. These loans are secured by new and used machinery, equipment, fixtures, furniture or other long-term fixed assets and have terms of 1 to 15 years. We originate commercial term loans for other general long-term business purposes, and these loans are secured by real estate. Principal and interest on commercial term loans is payable monthly.
The normal minimum amount for our commercial term loans and lines of credit is $5,000. The maximum amount is based on the loan to value limits set in our policy.  We typically do not provide working capital loans to businesses outside our normal market area or to new businesses where repayment is dependent solely on future profitable operation of the business. We avoid originating loans for which the primary source of repayment could be liquidation of the collateral securing the loan in light of poor repayment prospects. We typically require personal and/or carve out guarantees on all commercial loans, regardless of other collateral securing the loan.
The loan-to-value limits on commercial loans vary according to the collateral. Loans secured by real estate may be originated for up to an 80% loan-to-value ratio. Other limits are typically: Savings accounts-90% of the deposit amount; new equipment-75% of purchase price; and used equipment-the lesser of 75% of the purchase price or current market value.
Loans to One Borrower. The Bank's regulatory limit on total loans to any borrower or attributed to any one borrower is 15% of unimpaired capital and surplus. Accordingly, as of December 31, 2017,2019, our loans to one borrower legal limit was approximately $9.6$10.1 million.


The Bank's lending policies require that any transaction between $500,000 and the Bank's legal lending limit must be approved by the Senior Loan Committee.  Any exceptions to policy requires prior Board approval.
At December 31, 2017,2019, the Bank's largest lending relationship with a single borrower was ana $9.0 million commercial loan to a non-depository financial institution.
Loan Originations, Purchases, Sales, Solicitation and Processing. Our customary sources of loan applications include repeat customers, referrals from realtors and other professionals, "walk-in" customers and business opportunities generated by our commercial lenders. Our residential loan originations are driven by the Bank's reputation, as opposed to being advertising driven.
We recently began to sell loans with servicing released into the secondary mortgage market. We sold four residential mortgage loans through December 31, 2017 and did not sell any loans for the preceding four year period.  It isGenerally, it has been our policy to retain the loans we originate in our portfolio. We have not uniformly originated our real estate mortgage loans to meet the documentation standards to sell loans in the secondary mortgage market. We may do so, however, in the future if we find it desirable in connection with interest rate risk management to sell longer term fixed rate mortgages into the secondary mortgage market.


However, in 2018, we began to sell loans with servicing released into the secondary mortgage market. We sold ten residential mortgage loans through December 31, 2019 and eight residential mortgage loans through December 31, 2018.
We purchased $25.0$11.3 million in wholeparticipated commercial real estate loans forduring the year ended December 31, 2017.2019. In addition, we purchased $55.5participated out $8.1 million in participation interestsand sold $2.5 million in loans originated by us to other banks during 2017.2019. The Company will continue to actively utilize purchases and participations to grow the portfolio.
Loan Approval Procedures and Authority. Lending policies and loan approval limits are approved and adopted by the Board of Directors. Lending authority is vested primarily in the Senior Loan Committee comprised of the Chief Executive Officer, Chief Operating Officer, Chief Lending Officer and the Chief Credit Officer who will review and approve loans over $500,000 and up to the Bank's legal lending limit.  Each of the above individuals also has individual lending authority of up to $500,000.  Certain other Bank employees also have limited lending authority. Prior Board approval is required for all loan products with any exceptions to loan policy, regardless of amount.
Asset Quality

Loan Delinquencies and Collection Procedures. The Company's procedures for delinquent loans are as follows:
 15 days delinquent:late charge added, first delinquent notice mailed
 30 days delinquent:second delinquent notice mailed
 45 days delinquent:additional late charge, third delinquent notice mailed, telephone contact made
 60 days delinquent:telephone contact made, separate letter mailed
 90 days delinquent:decision made to refer to attorney to send demand letter
 120 days delinquent: attorney to file complaint to begin legal action
When a loan is 90 days delinquent, the Senior Vice President and Chief Credit Officer or the President may determine to refer it to an attorney to send a demand letter.  After 120 days, the attorney is able to start the foreclosure proceedings by filing a complaint with the court.  All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his or her financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency.

As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at its fair value less estimated selling costs. The initial write-down of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the property that result from subsequent declines in value are charged to operations in the period in which the declines occur. At December 31, 2017,2019, we had no other real estate owned.

As to commercial loans, the Company requests updated financial statements when the loan becomes 90 days delinquent. As to account loans, the outstanding balance is collected from the related account along with accrued interest when the loan is 180 days delinquent.

Loans are reviewed on a regular basis, and all delinquencies of 60 days or more are reported to the Board of Directors. Loans are placed on nonaccrual status when they are more than 90 days delinquent,  except for such loans which are "well secured" and "in the process of collection."  In addition a loan may be placed on nonaccrual status at any time if, in the opinion of management, the collection of the loan in full is doubtful. An asset is "well secured" if it is secured (1) by collateral in the form of liens on or


pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party.  An asset is "in process of collection" if collection of the asset is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or its restoration to a current status in the near future.
When loans with interest accrued and unpaid are placed on nonaccrual status, the accrued interest is reversed and charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. At December 31, 2017,2019, we had approximately $4.0$3.1 million of loans that were held on a nonaccrual basis all of which wereand classified as impaired with $33,000only $372,000 subject to specific loss allowancesallowance reserves totaling $28,000.


$34,000. The remaining nonaccrual impaired loans did not require specific loss allowances.
Non-Performing Assets. The following table provides information regarding our non-performing loans and other non-performing assets as of the dates indicated.

At
December 31,
 
 At
June 30,
At
December 31,
2017 2016 2015 2014 20142019 2018 2017 2016 2015
(Dollars in thousands)(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
                  
One-to four-family real estate$3,446
 $5,744
 $3,744
 $3,360
 $4,346
$1,169
 $2,276
 $3,446
 $5,744
 $3,744
Commercial and multi-family real estate315
 760
 827
 1,239
 1,248
996
 1,032
 315
 760
 827
Construction
 
 
 65
 137

 
 
 
 
Consumer
 
 
 
 

 
 
 
 
Home equity115
 126
 803
 430
 1,586
943
 608
 115
 126
 803
Commercial and industrial99
 350
 542
 628
 635

 215
 99
 350
 542
Total (1)
3,975
 6,980
 5,916
 5,722
 7,952
3,108
 4,131
 3,975
 6,980
 5,916
Accruing loans contractually past due
90 days or more:
                  
One-to four-family real estate���
 
 235
 310
 310

 2
 
 
 235
Commercial real estate
 
 
 
 

 
 
 
 
Construction
 
 
 
 

 
 
 
 
Consumer1
 
 
 
 

 
 1
 
 
Home equity157
 
 50
 50
 51

 
 157
 
 50
Commercial and industrial
 
 
 
 

 
 
 
 
Total158
 
 285
 360
 361

 2
 158
 
 285
Total non-performing loans$4,133
 $6,980
 $6,201
 $6,082
 $8,313
$3,108
 $4,133
 $4,133
 $6,980
 $6,201
Total non-performing assets (2)
$4,133
 $6,980
 $6,201
 $7,365
 8,722
$3,108
 $4,133
 $4,133
 $6,980
 $6,201
Accruing loans modified in troubled debt restructuring$9,703
 $8,459
 $10,962
 $11,525
 13,439
Accruing loans modified in troubled debt restructurings$9,452
 $10,481
 $9,703
 $8,459
 $10,962
Total non-performing loans to total loans0.83% 1.84% 2.29% 2.57% 3.51%0.59% 0.81% 0.83% 1.84% 2.29%
Total non-performing loans to total assets0.73% 1.51% 1.65% 1.79% 2.41%0.52% 0.71% 0.73% 1.51% 1.65%
Total non-performing assets to total assets0.73% 1.51% 1.65% 2.16% 2.53%0.52% 0.71% 0.73% 1.51% 1.65%
_______________
(1)Includes $1.8 million, $915,000, $1.7 million, $2.2 million $4.1 million, $4.6 million, and $3.2$4.1 million in troubled debt restructurings ("TDRs") at December 31, 2019, 2018, 2017, 2016 2015, and 2014 and June 30 2014,2015, respectively.
(2)Total non-performing assets consist of total non-performing loans and other real estate owned of $-, $-, $-, $- and $1.3 million and $409,000 at December 31, 2017,2019, 2018 ,2017, 2016 ,2015 and 2014 and June 30, 2014.2015.
At December 31, 2017,2019, there were no loans not disclosed in the table above where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.


During the year ended December 31, 2017,2019, gross interest income of $174,000$163,000 would have been recorded on loans accounted for on a nonaccrual basis and $102,000an additional $97,000 would have been recorded on troubled debt restructuringsTDRs if those loans had been current in accordance with their original terms. $497,000 of interestInterest collected on such loans totaling $443,000 was included in interest income during the period.
Classified Assets. The Company in compliance with the Uniform Credit Classification and Account Management Policy adopted by the Federal Deposit Insurance Corporation, and the Company has an internal loan review program, whereby non-performing loans are classified as special mention, substandard, doubtful or loss. It is our policy to review the commercial real estate, construction, and commercial loan portfolios, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as substandard or doubtful, management is required to evaluate the loan for impairment. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is required to be established or the loan is to be charged-off, if a conforming loss event has occurred.
An asset that does not currently expose the Company to a sufficient degree of risk to warrant an adverse classification, but which possesses credit deficiencies or potential weaknesses that deserve management's close attention is classified as "special mention."


An asset classified as "substandard" is inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Assets so classified have well‑defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
An asset classified as "doubtful" has all the weaknesses inherent in a "substandard" asset with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of a loss on a doubtful asset is high.
That portion of an asset classified as "loss" is considered uncollectible and of such little value that its continuance as an asset, without charge‑off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be affected in the future.
Management's classification of assets is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process.
The following table discloses the Company's classification of loans as of December 31, 2017.2019.
At
 December 31, 2017
At
 December 31, 2019
(In thousands)(In thousands)
  
Special Mention$1,597
$1,548
Substandard1,261
1,717
Doubtful

Loss

Total$2,858
$3,265
At December 31, 2017, 32019, 2 out of the 109 loans adversely classified, totaling $414,000,$1.0 million, are included as non-performing loans in the non-performing assets table.
Management further monitors the performance and credit quality of the retail portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status. 
Allowance for Credit Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded credit commitments.  The allowance for loan losses represents management's estimate of probable incurred losses inherent in the loan portfolio as of the Statement of Financial Condition date and is recorded as a reduction to loans. The reserve for unfunded credit commitments represents management's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated Statement of Financial Condition. No additional provisions are recorded in the event the unallocated portion of the allowance for credit losses exceeds the calculated reserve for unfunded credit commitments. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. All, or part, of the principal balance of loans receivable that are deemed uncollectible are charged against the allowance when management determines that the repayment of that amount is highly unlikely.    Any subsequent recoveries are credited to the allowance.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  


Management, in determining the allowance for loan losses, considers the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price of the impaired loan) is lower than the carrying value of that loan. The general component covers pools of loans by loan class.  These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors.  Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation.  The unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The allowance calculation methodology includes segregation of the total loan portfolio into segments. The Company's loans receivable portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, consumer and commercial and


industrial. Some segments of the Company's loan receivable portfolio are further disaggregated into classes which allows management to better monitor risk and performance.
The residential mortgage loan segment is disaggregated into two classes: one-to four-family loans, which are primarily first liens, and home equity loans, which consist of first and second liens.  The commercial real estate loan segment consists of both owner and non-owner occupied loans and is further disaggregated into owner-occupied loans and investor properties, which have medium risk due to historical activity on these type loans.  The construction loan segment is further disaggregated into two classes: one-to four-family owner occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than the one-to four-family owner occupied loans.  The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans consist of a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.  
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Loans whose terms are modified are classified as TDRs if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty.  Concessions granted under a TDR generally involve a reduction in interest rate, a below market interest rate based on risk, or an extension of a loan's stated maturity date. Nonaccrual troubled debt restructuringsrestructuring are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.   Loans classified as TDRs are designated as impaired.
The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company's policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
In addition, the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation, as an integral part of their examination processes, periodically review our loan and real estate owned portfolios and the related allowance for loan losses and valuation allowance for real estate owned. They may require the allowance for loan losses or the valuation allowance for real estate owned to be increased based on their review of information available at the time of the examination, which would negatively affect our earnings.
The following table sets forth information with respect to the Company's allowance for loan losses for the periods indicated:


Year Ended
 December 31,
 
Six Months Ended
December 31,
 Year Ended June 30, 
Year Ended
 December 31,
 
2017 2016 2015 2014 2014 20142019 2018 2017 20162015
(Dollars in thousands)(Dollars in thousands)
Allowance balance at beginning of period$4,476
 $3,602
 $3,634
 $3,579
 $3,686
 $4,270
$5,655
 $5,414
 $4,476
 $3,602
$3,634
Provision for loan losses1,185
 800
 113
 400
 100
 600

 240
 1,185
 800
113
Charge-offs:
                   
One-to four-family real estate178
 64
 61
 381
 57
 522

 
 178
 64
61
Commercial and multi-family real estate43
 
 47
 
 
 340

 
 43
 
47
Construction
 
 22
 74
 73
 119

 
 
 
22
Consumer4
 12
 
 11
 2
 9
4
 8
 4
 12

Home equity
 
 6
 
 285
 15

 
 
 
6
Commercial and industrial30
 
 30
 183
 1
 236

 
 30
 
30
Total charge-offs255
 76
 166
 649
 418
 1,241
4
 8
 255
 76
166
Recoveries:
                   
Consumer
 1
 
 
 
 
2
 1
 
 1

One-to four-family real estate7
 16
 7
 61
 6
 35
69
 8
 7
 16
7
Construction
 
 12
 243
 229
 14

 
 
 
12
Home equity
 2
 2
 
 31
 

 
 
 2
2
Commercial and industrial1
 131
 
 
 
 8

 
 1
 131

Total recoveries8
 150
 21
 304
 266
 57
71
 9
 8
 150
21
Net charge-offs (recoveries)247
 (74) 145
 345
 152
 1,184
(67) (1) 247
 (74)145
Allowance balance at end of period$5,414
 $4,476
 $3,602
 $3,634
 $3,634
 $3,686
$5,722
 $5,655
 $5,414
 $4,476
$3,602
Total loans outstanding at end of period$499,161
 $379,698
 $270,931
 $236,916
 $236.916
 $236,818
$530,389
 $519,132
 $499,161
 $379,698
$270,931
Average loans outstanding during period$429,848
 $301,764
 $247,997
 $234,619
 $236.867
 $232,148
$502,186
 $495,719
 $429,848
 $301,764
$247,997
Allowance for loan losses as a
percentage of non-performing loans
130.99% 64.13 % 58.09% 59.75% 59.75% 44.34%184.11 % 136.83% 130.99% 64.13 %58.09%
Allowance for loan losses as a
percentage of total loans
1.08% 1.18 % 1.33% 1.53% 1.53% 1.56%1.08 % 1.09% 1.08% 1.18 %1.33%
Net loans charged-off as a
percentage of average loans (six-month period annualized)
0.06% (0.02)% 0.06% 0.15% 0.13% 0.51%
Net loans charged-off as a
percentage of average loans
 % % 0.06% (0.02)%0.06%
Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the Company's allowance for loan losses by loan category and the percent of loans in each category to total loans receivable at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses that may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.


At
December 31,
 
At
June 30,
At
December 31,
2017 2016 2015 2014 20142019 2018 2017 2016 2015
Amount 
Percent
 of Loans
 to Total
 Loans
 Amount 
Percent
 of Loans
 to Total
 Loans
 Amount 
Percent
 of Loans
 to Total
 Loans
 Amount 
Percent
 of Loans
 to Total
 Loans
 Amount 
Percent
 of Loans
 to Total
 Loans
Amount 
Percent
 of Loans to Total Loans
 Amount 
Percent
 of Loans to Total Loans
 Amount 
Percent
 of Loans to Total Loans
 Amount 
Percent
 of Loans to Total Loans
 Amount 
Percent
 of Loans to Total Loans
(Dollars in thousands)(Dollars in thousands)    
One-to-four family real estate$1,667
 31.63% $1,595
 42.28% $1,723
 57.07% $1,786
 61.19% $1,851
 60.50%$1,581
 27.63% $1,872
 27.62% $1,667
 31.63% $1,595
 42.28% 1,723
 57.07%
Commercial and multi-family real estate2,267
 39.40
 1,441
 32.83
 1,015
 22.02
 885
 13.35
 860
 13.53
2,612
 45.65
 2,173
 40.95
 2,267
 39.40
 1,441
 32.83
 1,015
 22.02
Construction302
 8.76
 248
 4.36
 143
 4.02
 317
 5.34
 379
 5.29
433
 7.57
 222
 5.71
 302
 8.76
 248
 4.36
 143
 4.02
Home equity185
 5.37
 213
 8.50
 204
 12.92
 323
 15.55
 332
 16.25
165
 2.88
 243
 4.69
 185
 5.37
 213
 8.50
 204
 12.92
Commercial and industrial710
 14.72
 882
 11.92
 235
 3.79
 290
 4.08
 256
 4.08
929
 16.24
 1,142
 20.92
 710
 14.72
 882
 11.92
 235
 3.79
Consumer5
 0.12
 6
 0.11
 9
 0.18
 6
 0.49
 8
 0.35
2
 0.03
 3
 0.11
 5
 0.12
 6
 0.11
 9
 0.18
Unallocated278
 
 91
 
 273
 
 27
 
 
 

 
 
 
 278
 
 91
 
 273
 
Total allowance$5,414
 100.00% $4,476
 100.00% $3,602
 100.00% $3,634
 100.00% $4,270
 100.00%$5,722
 100.00% $5,655
 100.00% $5,414
 100.00% $4,476
 100.00% 3,602
 100.00%
Securities Portfolio
Our investment policy is designed to manage cash flows and foster earnings within prudent interest rate risk and credit risk guidelines. The portfolio mix is governed by our short term and long term liquidity needs. Rate‑of‑return, cash flow, rating and guarantor‑backing are also considered when making investment decisions. The purchase of principal only and stripped coupon interest only security instruments is specifically not authorized by our investment policy. Furthermore, other than government related securities which may not be rated, we only purchase securities with a rating of AAA or AA. We invest primarily in mortgage-backed securities, U.S. Government obligations, U.S. Government agency issued securities, state and political subdivision general obligations and to a lesser extent in Corporate Bonds and Certificates of Deposits.
Mortgage‑backed securities represent a participation interest in a pool of mortgages issued by U.S. government agencies or government‑sponsored enterprises, such as Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Government National Mortgage Association ("Ginnie Mae"), and the Federal National Mortgage Association ("Fannie Mae"), as well as non-government, private corporate issuers. Mortgage‑backed securities are pass‑through securities and generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages, i.e., fixed‑rate or adjustable‑rate, as well as prepayment risk, are passed on to the certificate holder.
Mortgage-backed securities issued or sponsored by U.S. government agencies and government‑sponsored entities are guaranteed as to the payment of principal and interest to investors.
Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier.  The bond holder receives interest payments (yield) and principal and is repaid on a fixed maturity date.  Corporate bonds can mature anywhere between 1 to 30 years and changes in interest rates are generally reflected in the bond prices.  Corporate bonds carry no claims to ownership and do not pay a dividend, but are considered to be less risky than stocks, since the company has to pay off all of its debts (including bonds) before it handles its obligations to stockholders.  Corporate bonds have a wide range of ratings and yields because the financial health of the issuers can vary widely,
Accounting standards require that securities be categorized as "held to maturity," "trading securities" or "available for sale," based on management's intent as to the ultimate disposition of each security. These standards allow debt securities to be classified as "held to maturity" and reported in financial statements at amortized cost if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security's prepayment risk, increases in loan demand, or other similar factors cannot be classified as "held to maturity."
At December 31, 2017,2019, our entire securities portfolio was classified as held to maturity.  All securities were purchased with the intent to hold each security until maturity.  Securities not classified as "held to maturity" or as "trading securities" are classified as "available for sale" and are reported at fair value with unrealized gains and losses on the securities impacting equity.  The Company held no available for sale or trading securities during the years ended December 31, 20172019 and 2016.2018.
Individual securities are considered impaired when their fair values are less than their amortized cost. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are "temporary" or "other-than-temporary" in accordance with applicable accounting guidance.  Accordingly, the Company accounts for temporary impairments based upon security classification as either trading, available for sale or held to maturity.  Temporary impairments on "available for sale" securities would be recognized, on a tax-effected basis, through other comprehensive income with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes.  Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements.  The carrying value of securities held in a trading portfolio would be adjusted to fair value through earnings on a quarterly basis.


Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level equal to or exceeding amortized cost are recognized in earnings.  Otherwise, the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components.  The credit-related impairment generally represents the amount by which the present value of the cash flows expected to be collected on a debt security falls below its amortized cost.  The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred taxes, in other comprehensive income.
At December 31, 2017,2019, our securities portfolio did not contain securities of any issuer, other than the U.S. Government agencies and government-sponsored enterprises, having an aggregate book value in excess of 10% of stockholders' equity.  We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments, however, we may in the future utilize such instruments if we believe it would be beneficial for managing our interest rate risk.
The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our held to maturity securities portfolio at December 31, 2017.2019. Our held to maturity securities portfolio is carried at amortized cost.  This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities of the securities held by us may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties. Callable securities pose reinvestment risk because we may not be able to reinvest the proceeds from called securities at an equivalent or higher interest rate.
At December 31, 2017At December 31, 2019
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment SecuritiesOne Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Market
 Value
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Carrying
 Value
 
Average
 Yield
 
Market
 Value
(Dollars in thousands)(Dollars in thousands)
U.S. Government Agency Obligations$3,500
 1.11% $2,000
 1.29% $
 % $
 % $5,500
 1.17% $5,458
$
 % $
 % $3,000
 2.98% $3,000
 3.27% $6,000
 3.12% $6,013
Mortgage-Backed Securities:
                     
Mortgage-Backed Securities:                     
Government National
Mortgage Association

 
 6
 3
 
 
 
 
 $6
 2.69
 7

 
 4
 3.12
 
 
 
 
 $4
 3.12
 4
Federal Home Loan
Mortgage Corporation

 
 6
 3.39
 1,454
 1.73
 1,129
 1.80
 $2,589
 1.76
 2,534

 
 3
 3.78
 1,700
 1.76
 1,771
 2.61
 $3,474
 2.19
 3,470
Federal National Mortgage
Association

 
 11,696
 2.34
 6,843
 2.93
 2,705
 2.48
 $21,244
 2.55
 21,354
1,151
 3.49
 11,363
 2.63
 880
 1.94
 5,579
 2.86
 $18,973
 2.72
 19,240
Corporate bonds512
 2.71
 1,500
 2.30
 1,000
 3.55
 4,000
 4.00
 $7,012
 3.48
 6,775
1,500
 3.01
 
 
 1,000
 1.59
 4,000
 2.69
 $6,500
 2.60
 6,077
State and political subdivisions151
 1.00
 680
 1.47
 365
 1.93
 
 
 $1,196
 1.55
 1,192
171
 1.40
 705
 1.78
 
 
 
 
 $876
 1.71
 892
Certificate of deposits935
 1.43
 
 
 
 
 
 
 $935
 1.43
 935
Total$5,098
 1.32% $15,888
 2.17% $9,662
 2.77% $7,834
 3.16% $38,482
 2.41% $38,255
$2,822
 3.11% $12,075
 2.58% $6,580
 2.31% $14,350
 2.87% $35,827
 2.69% $35,696
The following table sets forth the carrying value of our held to maturity securities portfolio at the dates indicated. All securities are classified as held to maturity and, therefore, are shown at amortized cost.
At December 31,At December 31,
2017 20162019 2018
(In thousands)(In thousands)
U.S. Government Agency Obligations$5,500
 $6,500
$6,000
 $8,000
Government National Mortgage Association6
 9
4
 5
Federal Home Loan Mortgage Corporation2,589
 3,147
3,474
 2,140
Federal National Mortgage Association21,244
 21,507
18,973
 21,791
Corporate bonds7,012
 9,034
6,500
 6,500
State and political subdivisions1,196
 1,302
876
 1,040
Certificates of deposits935
 2,605
Total securities held to maturity$38,482
 $44,104
$35,827
 $39,476



Sources of Funds


General. Deposits are our major source of funds for lending and other investment purposes. To the extent that our loan originations may exceed the funding available from deposits, we have borrowed funds from the Federal Home Loan Bank ("FHLB") to supplement the amount of funds for lending and funding daily operations.


In addition, we derive funds from loan and mortgage‑backed securities principal repayments, interest, and proceeds from the maturity and call of investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by pricing strategies and money market conditions .
Deposits. Our current deposit products include checking and savings accounts, certificates of deposit and fixed or variable rate individual retirement accounts (IRAs). Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time, if any, that the funds must remain on deposit and the applicable interest rate. Our savings account menu includes regular passbook, statement, money market and club accounts. We also offer a six-level tiered savings account. Our certificates of deposit currently range in terms from 6 months to 10 years. Our IRAs are available with the same maturities as certificates of deposit accounts, with the exception of the 30 month term. We offer a two year certificate of deposit that permits the depositor to increase the interest rate to the current two year rate once during the term.
Deposits are obtained primarily from within New Jersey. The Bank may utilize brokered deposits and a listing service as funding sources.  As of December 31, 2017,2019 the Bank had $32.4 million in brokered deposits and $24.7$21.4 million in listing service deposits.  Premiums or incentives for opening accounts are sometimes offered.  Periodically we select particular certificate of deposit maturities for promotion in connection with asset/liability management and interest rate risk concerns.
The determination of deposit and certificate interest rates is based upon a number of factors, including: (1) need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of a selected group of competitors' rates for similar products; (3) economic conditions; and (4) business plan projections.
A large percentage of our deposits are in certificates of deposit. The inflow of certificates of deposit and the retention of such deposits upon maturity are significantly influenced by general interest rates and money market conditions, making certificates of deposit traditionally a more volatile source of funding than core deposits. Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period of time were not renewed. To the extent that such deposits do not remain with us, they may need to be replaced with borrowings which could increase our cost of funds and negatively impact our net interest rate spread and our financial condition.
The following table sets forth the distribution of average deposits for the periods indicated and the weighted average nominal interest rates for each period on each category of deposits presented.
For the Year Ended December 31,For the Year Ended December 31,
2017 2016 20152019 2018 2017
 
 Average
 Balance
 Percent of Total Deposits 
Weighted
 Average
 Nominal
 Rate
 
 
 Average
 Balance
  Percent of Total Deposits 
Weighted
 Average Nominal
 Rate
 
Average
 Balance
 Percent of Total Deposits 
Weighted
 Average Nominal
 Rate
 
 Average
 Balance
 Percent of Total Deposits 
Weighted
 Average
 Nominal
 Rate
 
 
 Average
 Balance
  Percent of Total Deposits 
Weighted
 Average Nominal
 Rate
 
Average
 Balance
 Percent of Total Deposits 
Weighted
 Average Nominal
 Rate
(Dollars in thousands)(Dollars in thousands)
Non-interest-bearing demand$42,312
 10.95% % $34,026
 11.38% % $34,248
 12.74% %$47,228
 10.88% % 41,746 9.82% % $42,312
 10.95% %
Interest-bearing demand119,096
 30.82
 0.44
 71,843
 24.02
 0.28
 46,493
 17.30
 0.16
140,208
 32.30
 1.19
 153,367
 36.06
 0.82
 119,096
 30.82
 0.44
Savings105,444
 27.28
 0.26
 103,570
 34.63
 0.22
 101,106
 37.61
 0.22
99,391
 22.90
 0.74
 105,623
 24.84
 0.52
 105,444
 27.28
 0.26
Certificates of deposit119,618
 30.95
 1.38
 89,609
 29.97
 1.20
 86,948
 32.35
 1.22
147,253
 33.92
 1.95
 124,556
 29.28
 1.63
 119,618
 30.95
 1.38
Total deposits$386,470
 100.00% 0.71% $299,048
 100.00% 0.50% $268,795
 100.00% 0.51%$434,080
 100.00% 1.37% $425,292
 100.00% 1.00% $386,470
 100.00% 0.71%


The following table sets forth certificates of deposit classified by interest rate categories as of the dates indicated.
At
 December 31,
At
 December 31,
2017 2016 20152019 2018 2017
Amount Percent of Total Amount 
Percent
 of Total
 Amount 
Percent
 of Total
Amount Percent of Total Amount 
Percent
 of Total
 Amount 
Percent
 of Total
(Dollars in thousands)(Dollars in thousands)
Interest Rate:
                      
Under – 1.00%$25,133
 20.21% $43,795
 42.26% $51,005
 59.72%$11,874
 7.60% $17,760
 14.70% $25,133
 20.21%
1.00% - 1.99%70,750
 56.90
 43,223
 41.71
 24,611
 28.82
61,970
 39.69
 53,118
 43.95
 70,750
 56.90
2.00% - 2.99%26,536
 21.34
 12,160
 11.74
 4,240
 4.96
81,554
 52.23
 49,368
 40.85
 26,536
 21.34
3.00% - 3.99%645
 0.52
 728
 0.70
 706
 0.83
756
 0.48
 570
 0.47
 645
 0.52
4.00% - 4.99%332
 0.27
 884
 0.85
 884
 1.03

 
 39
 0.03
 332
 0.27
5.00% - 5.99%943
 0.76
 2,837
 2.74
 3,962
 4.64

 
 
 
 943
 0.76
6.00% +
 
 
 
 
 
Total$124,339
 100.00% $103,627
 100.00% $85,408
 100.00%$156,154
 100.00% $120,855
 100.00% $124,339
 100.00%
The following table sets forth the amount and maturities of certificates of deposit at December 31, 2017.2019.
Amount Due
Year Ended December 31,
Amount Due
Year Ended December 31,
2018 2019 2020 2021 2022 After 2022 Total2020 2021 2022 2023 2024 After 2024 Total
(Dollars in thousands)(Dollars in thousands)
Interest Rate:
                          
Under - 1.00%$21,799
 $3,330
 $
 $
 $4
 $
 $25,133
$10,485
 $1,385
 $4
 $
 $
 $
 $11,874
1.00% - 1.99%18,069
 19,704
 8,917
 16,261
 6,890
 909
 70,750
37,527
 16,713
 6,263
 707
 290
 470
 61,970
2.00% - 2.99%
 85
 9,446
 11,004
 5,409
 592
 26,536
47,852
 26,180
 4,641
 2,403
 55
 423
 81,554
3.00% - 3.99%93
 239
 313
 
 
 
 645
239
 
 
 
 517
 
 756
4.00% - 4.99%294
 38
 
 
 
 
 332
5.00% - 5.99%943
 
 
 
 
 
 943
6.00% +
 
 
 
 
 
 
Total$41,198
 $23,396
 $18,676
 $27,265
 $12,303
 $1,501
 $124,339
$96,103
 $44,278
 $10,908
 $3,110
 $862
 $893
 $156,154
The following table shows the amount of the Company's certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2017.2019.
Certificates
 of Deposit
Certificates
 of Deposit
(In thousands)(In thousands)
Remaining Time Until Maturity:
  
Within three months$8,454
$10,861
Three through six months5,637
40,754
Six through twelve months9,659
21,604
Over twelve months53,890
39,574
Total$77,640
$112,793


Borrowings. To supplement our deposits as a source of funds for lending or investment, we have borrowed funds in the form of advances from the FHLB of New York ("FHLB of NY").  At December 31, 2017,2019, our collateralized borrowing limit with the FHLB of NY was


$77.6 $173.6 million and our outstanding borrowings with the FHLB of NY totaled $37.7 million. For year ended December 31, 2017, the average balance of short term borrowings was $23.9$51.6 million with a maximum amount outstanding of $42.5 million.. Information regarding our total borrowings as of December 31, 2019 is set forth in the following table.
 At December 31, 2019
 Balance Rate Maturity
 (Dollars in thousands)
Total Borrowings:
     
Overnight Advance$23,900
 1.81% January 2, 2020
Five year fixed rate advance$2,675
 1.79% July 6, 2020
Three year fixed rate advance$5,000
 1.75% September 8, 2020
Three year fixed rate advance$10,000
 2.27% November 23, 2020
Four year fixed rate advance$5,000
 1.89% September 8, 2021
Five year fixed rate advance$5,000
 2.01% September 8, 2022
 $51,575
    
A summary of short-term borrowings for 2019, 2018 and 2017 is set forth in the following table.
 At December 31, 2017
 Balance Rate Maturity
 (Dollars in thousands)
Total Borrowings:
     
Ten year fixed rate convertible advance$10,000
 3.460% March 2018
Five year fixed rate advance$2,675
 1.790% July 2020
Three year fixed rate advance$5,000
 1.750% September 2020
Three year fixed rate advance$10,000
 2.270% November 2020
Four year fixed rate advance$5,000
 1.890% September 2021
Five year fixed rate advance$5,000
 2.010% September 2022
 $37,675
    
There were no overnight advances with the FHLB of NY as of December 31, 2017 and 2016
 For Years ended December 31,
 2019 2018 2017
 (Dollars in thousands)
Overnight Advance at Period End$23,900
 $66,600
 $
Maximum amount outstanding at any month end during period67,400
 66,600
 32,500
Average amounts outstanding during period45,799
 40,373
 14.849
Weighted Average Interest Rate2.51% 2.28% 1.22%
Advances from the FHLB of NY are typically secured by the FHLB stock and a portion of our residential mortgage loans and by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. Additional information regarding our borrowings is included under Note 87 to our consolidated financial statements beginning on page F-1 .
Subsidiary Activity
The Company has no direct subsidiaries other than the Bank. The Bank has one wholly owned subsidiary, Millington Savings Service Corp., formed in 1984. The service corporation is currently inactive.
Regulation and Supervision
The Bank and the Company operate in a highly regulated industry. This regulation establishes a comprehensive framework of activities in which they may engage and is intended primarily for the protection of the Deposit Insurance Fund and depositors. Set forth below is a brief description of certain laws that relate to the regulation of the Bank and the Company. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of assets and the adequacy of the allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation including changes in the regulations governing mutual holding companies, could have a material adverse impact on the Company and the Bank. The adoption of regulations or the enactment of laws that restrict the operations of the Bank and/or the Company or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of the Bank's franchise, resulting in negative effects on the trading price of the Company's common stock.
Holding Company Regulation
General. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the "BHC Act"), and is regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Federal Reserve has enforcement


authority over the Company and the Company's non-bank subsidiaries which also permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank. This regulation and oversight is intended primarily for the protection of the depositors of the Bank and not for shareholders of the Company.
As a bank holding company, the Company is required to file with the Federal Reserve an annual report and any additional information as the Federal Reserve may require under the BHC Act. The Federal Reserve will also examine the Company and its subsidiaries.
Under the BHC Act, the Company must obtain the prior approval of the Federal Reserve before it may acquire control of another bank or bank holding company, merge or consolidate with another bank holding company, acquire all or substantially all of the assets of another bank or bank holding company, or acquire direct or indirect control of any voting shares of any bank or bank holding company if, after such acquisition, the Company would directly or indirectly own or control more than 5% of such shares.


Subsidiary banksFederal statutes impose restrictions on the ability of a bank holding company are subjectand its nonbank subsidiaries to certain restrictions imposed by the BHC Act onobtain extensions of credit tofrom its subsidiary bank, on the bank holding company or any of its subsidiaries, onsubsidiary bank’s investments in the stock or other securities of the bank holding company, or its subsidiaries, and on the subsidiary bank’s taking of suchthe holding company’s stock or securities as collateral for loans to any borrower. Furthermore, under amendments to the BHC Act and regulations of the Federal Reserve, aA bank holding company and its subsidiaries are prohibitedalso prevented from engaging in certain tie-intying arrangements in connection with any extension of credit, lease or provisionsale of credit or providing any property, or services. Generally, this provision provides that a bank may not extend credit, lease or sell property, or furnish any service to a customer on the condition that the customer provide additional credit or service to the bank, to the bank holding company, or to any other subsidiaryfurnishing of the bank holding company or on the condition that the customer not obtain other credit or service from a competitor of the bank, the bank holding company, or any subsidiary of the bank.
Extensions of creditservices by the Bank to executive officers, directors, and principal shareholders of the Bank or any affiliate thereof, including the Company, are subject to Section 22(h) of the Federal Reserve Act, which among other things, generally prohibits loans to any such individual where the aggregate amount exceeds an amount equal to 15% of a bank's unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral.subsidiary bank.
Source of Strength Doctrine. A bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the policy of the Federal Reserve that a bank holding company should stand ready to use available resources to provide adequate capital to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to be an unsafe and unsound banking practice or a violation of the Federal Reserve regulations, or both.
Non-Banking Activities. The business activities of the Company, as a bank holding company, are restricted by the BHC Act. UnderIn general, the BHC Act and the Federal Reserve'sReserve’s regulations limit the nonbanking activities permissible for bank holding company regulations, the Company may only engage in, or acquire or control voting securities or assets of a company engaged in, (1) banking or managing or controlling banks and other subsidiaries authorized under the BHC Act and (2) any BHC Act activitycompanies to those activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks to be a proper incident thereto. These include any incidental activities necessary to carry on those activities, as well as a lengthy list of activities that the Federal Reserve has determined to be so closely related to the business of banking as to be a proper incident thereto.
Financial Modernization. The Gramm-Leach-Bliley Act permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services company known as a "financial holding company." A financial holding company essentially is In addition, a bank holding company with significantly expanded powers. Financialthat has elected to be a financial holding companies are authorized by statute tocompany may engage in, or acquire and retain shares of companies engaged in, a numberbroader range of activities that are considered (i) “financial in nature” (as defined by the Gramm-Leach-Bliley Act of 1999 and Federal Reserve regulations) or incidental to such financial activities previously impermissible for bank holding companies, including(as determined by the Federal Reserve in consultation with the Secretary of the Treasury), or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include, among other things, securities underwriting, dealing and market making;market-making, sponsoring mutual funds and investment companies;companies, insurance underwriting and agency;agency activities, and merchant banking activities. The Act also permits the Federal Reserve and the Treasury Department to authorize additional activities for financial holding companies if they are "financial in nature" or "incidental" to financial activities. A bank holding company may become a financial holding company if it and each of its subsidiary banks is well capitalized and well managed, and each of its subsidiary banks has at least a "satisfactory" CRA rating. A financial holding company must provide notice to the Federal Reserve within 30 days after commencing activities previously determined by statute or by the Federal Reserve and Department of the Treasury to be permissible. The Company has not submitted notice to the Federal Reserve of its intent to be deemed a financial holding company.
Regulatory Capital Requirements.The Federal Reserve has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHC Act. The Federal Reserve'sReserve’s capital adequacy guidelines are similar to those imposed on the Bank by the FDIC. See "Regulation“Regulation of the Bank -Regulatory Capital Requirements." The Federal Reserve, however, has adopted a policy statement that exempts bank holding companies with less than $1.0$3.0 billion in consolidated assets that are not engaged in significant non-banking or off-balance sheet activities and that do not have a material amount of debt or equity securities registered with the SEC from its regulatory capital requirements as long as their bank subsidiaries are well capitalized, suchcapitalized. The Federal Reserve may apply its regulatory capital standards at its discretion to any bank holding companies need only maintain a pro forma debt to equity ratiocompany, regardless of less than 1.0 in order to pay dividends and repurchase stock and to be eligibleasset size, if such action is warranted for expedited treatment on applications.supervisory purposes.
Federal Securities Law. The Company's common stock is registered under Section 12(b) of the Exchange Act, and the Company is subject to the periodic reporting and other requirements of Section 12(b) of the Exchange Act.
Acquisition of ControlUnder the Change in Bank Control Act, a notice must be submitted to the Federal Reserve if any person (including a company), or group acting in concert, seeks to acquire "control" of a bank company.  An acquisition of "control" can occur upon the acquisition of 10% or more of the voting stock of a bank holding company or as otherwise defined by the Federal Reserve.  Under the Change in Bank Control Act, the Federal Reserve has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition.  Any company that so acquires control is then subject to regulation as a bank holding company.
Regulation of the Bank
General.  As a New Jersey chartered, FDIC-insured bank, the Bank is regulated by the New Jersey Department of Banking and Insurance and the FDIC. The Bank's operations are subject to extensive regulation, including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending


activities, liquidity, transactions with affiliates and community reinvestment. The Bank must file regulatory reports concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions, such as mergers with or acquisitions of other financial institutions. The New Jersey Department of Banking and Insurance and the FDIC regularly examine the Bank and prepare reports to the Bank's Board of Directors on deficiencies, if any, found in its operations. The regulatory authorities have substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements.
Federal Deposit Insurance.The Bank's deposits areFDIC, through the Deposit Insurance Fund, insures deposit accounts in the Bank up to $250,000 per separately insured to applicable limits by the FDIC. Under the Dodd-Frank Act, the maximum deposit insurance amount has been permanently increased from $100,000 to $250,000.ownership right or category.


The FDIC has adopted aassesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based premiumassessment system, banks that providesare deemed to be less risky pay lower assessments. Assessments for quarterly assessmentsinstitutions with assets of less than $10 billion of assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure of an insured institution's ranking in oneinstitution’s failure within three years.
By FDIC rule effective April 1, 2011, the deposit insurance assessment range was set at 2.5 to 45 basis points of four risk categories based on their examination ratings and capital ratios. The assessment base is the institution's average consolidatedtotal assets less average tangible equity. Insured banksIn conjunction with more than $1.0 billion in assets must calculate quarterly average assets based on daily balances while smaller banks and newly chartered banks may use weekly averages. In the case of a merger, the average assets of the surviving bank for the quarter must include the average assets of the merged institution for the period in the quarter prior to the merger. Average assets are reduced by goodwill and other intangibles. Average tangible equity equals Tier 1 capital. For institutions with more than $1.0 billion in assets, average tangible equity is calculated on a weekly basis while smaller institutions may use the quarter-end balance.
EffectiveDeposit Insurance Fund’s reserve ratio reaching 1.15%, effective July 1, 2016, the assessment range was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC amended its assessment regulations for established banks (generally, an institutionwas required to achieve the 1.35% ratio by September 30, 2020. The law required insured institutions with assets of $10 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subjected to a surcharge to achieve that has been federally insured for at least five years as ofgoal. The 1.35% ratio was reached effective September 30, 2018. As a result, the last day of any quarter for which it is being assessed)surcharges ceased and institutions with less than $10 billion inof assets received credits for assessment payments made that contributed to replaceachieving the previous risk categories with updated financial ratios that are designed to better predict1.35% ratio. The Dodd-Frank Act also eliminated the risk of failure of insured institutions. The amended rules became effective during the first quarter after the designated reserve1.5% statutory maximum ratio offor the Deposit Insurance Fund reached 1.15% and will remain in effect untildelegated to the designated reserve ratio reaches 2.0%. The amended regulationsFDIC the authority to set a maximum rate that banks rated CAMELS 1 or 2 may be charged andratio. The FDIC has established a minimum rate that CAMELS 3, 4 and 5 banks may be charged. Under the amended rules, the FDIC uses a bank's weighted average CAMELS component ratings and the following financial measures to determine assessments: Tier 1 leverage ratio;long-term target reserve ratio of net income before taxes to total assets; ratio of non-performing loans to gross assets;2.0% for the Deposit Insurance Fund, and ratio of other real estate owned to gross assets. In addition, assessments take into consideration core deposits to total assets, one-year asset growth and a loan mix index. The loan mix index measuresit is expected that the extent to which a bank's total assets include higher risk loans. To calculate the loan mix index, each category of loan in the bank's portfolio (other than credit card loans) is divided by the bank's total assets to determine the percentage of assets represented by that loan category. Each percentage is then multiplied by that loan category's historical weighted average industry-wide charge-off rate. The sum of these numbers determines the loan mix index value for that bank. The amended regulations are intended to be revenue neutral to the FDIC but to shift premium payments to higher risk institutions. A companion regulation assessed banks over $10 billion in assets at higher rates for two years in accordance with the requirements of the Dodd-Frank Act.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the Federal Savings and Loan Insurance Corporation. The FICOcurrent deposit insurance assessment rates, which are determined quarterly, averaged 0.545% of insured deposits on an annualized basis in 2017. These assessmentsstructure will continue until the FICO bonds mature in 2019.target reserve ratio is attained.
Regulatory Capital Requirements. The FDIC has promulgated capital adequacy requirements for state-chartered banks that, like the Bank, are not members of the Federal Reserve System. Effective January 1, 2015, the capital adequacy requirements were substantially revised to conform them to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as "Basel III".  The final rule appliescurrent capital rules apply to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve's Small Bank Holding Company Policy Statement.
Under the FDIC's revised capital adequacy regulations, the Bank is required to meet four minimum capital standards: (1) "Tier 1" or "core" capital leverage ratio equal to at least 4%  of total adjusted assets, (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets, (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets, and (4) a total capital ratio equal to 8% of total risk-weighted assets. Common equity Tier 1 capital is defined as common stock instruments, retained earnings, any common equity Tier 1 minority interest and, unless the bank has made an "opt-out" election, accumulated other comprehensive income, net of goodwill and certain other intangible assets. Tier 1 or core capital is defined as common equity Tier 1 capital plus certain qualifying subordinated interests and grandfathered capital instruments. Total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, qualifying subordinated instruments and certain grandfathered capital instruments. An institution's risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight. Risk weightings range from 0% for cash to 100% for property acquired through foreclosure, commercial loans, and certain other assets to 150% for exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property.
The Pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), enacted in 2018, the federal banking agencies have recently propsedmay only apply a heightened risk weight to simplify the capital rules for smaller, non-complex banks, like the Bank. The proposal would simplify the calculation ofa higher volatility commercial real estate exposure that constitutes a higher volatility commercial real estate acquisition, development or construction loan as defined in EGRRCPA and construction exposures for such banks and reduce their risk weighting to 130%. In addition, the proposal would raise the threshold for requiring deductions from capital for mortgage servicing assets and certain deferred tax assets as well as simply the calculation of the amount of minority interests in consolidated subsidiaries includable in regulatory capital.which was originated on or after January 1, 2015.


In addition to higher capital requirements, the newThe capital rules require banks to maintain and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The capital buffer requirement is being phased in over four years beginning January 1, 2016. The fully phased-in capital buffer requirement will effectively raise the minimum required risk-based capital ratios to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital on a fully phased-in basis.
In assessing an institution's capital adequacy, the FDIC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary.
EGRRCPA directs the federal banking agencies to develop a community bank leverage ratio of tangible capital to average total consolidated assets of between 8% and 10% as an alternative to the current leverage and risk-based capital rules for qualifying community banks and satisfying any other leverage or capital requirements to which they are subject. Qualifying community banks meeting the community bank leverage ratio would also be deemed well-capitalized for purposes of the prompt corrective action rules. A qualifying community bank is a depository institution or holding company with total consolidated assets of less than $10 billion that is not excluded from qualification by the federal banking regulators based on the institution’s risk profile. The federal banking agencies have issued a final rule, effective January 1, 2020, under which a qualifying community bank may opt in to the community bank leverage ratio framework if its community bank leverage ratio exceeds 9%. To date, the Bank has not elected to opt into community bank leverage ratio framework.
Prompt Corrective Regulatory Action. Under applicable federal statutes, the federal bank regulatory agencies are required to take "prompt corrective action" with respect to institutions that do not meet specified minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the FDIC's prompt corrective action regulations, an institution is deemed to be "well capitalized" if it has a Total Risk-BasedRisk-


Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of 8.0% or greater, a Common Equity Tier 1 risk-based capital ratio of 6.5% or better and a leverage ratio of 5.0% or greater. Under the final community bank leverage ratio regulations, a qualifying community bank will be deemed well capitalized if it maintains a community bank leverage ratio greater than 9.0%. In addition, a bank that has elected to use the community bank leverage ratio framework will continue to be considered well capitalized during a two-quarter grace period after its leverage ratio falls below 9.0%, provided that the leverage ratio remains above 8.0%.
An institution is "adequately capitalized" if it has a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, a Common Equity Tier 1 Capital Ratio of 4.5% or better and a Leverage Ratio of 4.0% or greater. An institution is "undercapitalized" if it has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 6.0%, a Common Equity Tier 1 ratio of less than 4.5% or a Leverage Ratio of less than 4.0%. An institution is deemed to be "significantly undercapitalized" if it has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, a Common Equity Tier 1 ratio of less than 3.0% or a Leverage Ratio of less than 3.0%. An institution is considered to be "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%
The prompt corrective action regulations provide for the imposition of a variety of requirements and limitations on institutions that fail to meet the above capital requirements. In particular, the FDIC may require any non-member bank that is not "adequately capitalized" to take certain action to increase its capital ratios. If the non-member bank's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the bank's activities may be restricted.
At December 31, 2017,2019, the Bank qualified as "well capitalized" under the prompt corrective action rules.
Community Reinvestment Act. Under the Community Reinvestment Act, every insured depository institution, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the depository institution's record of meeting the credit needs of its community to be assessed and taken into account in the evaluation of certain applications by such institution, such as a merger or the establishment of a branch office by the Bank. An unsatisfactory Community Reinvestment Act examination rating may be used as the basis for the denial of an application. The Bank received a "satisfactory" rating in its most recent Community Reinvestment Act examination.
Transactions with Related Parties. The Bank is subject to the Federal Reserve’s Regulation W, which implements statutory restrictions on transactions between a bank and its affiliates and incorporates the Federal Reserve’s interpretations and exemptions under Sections 23A and 23B of the Federal Reserve Act. Section 23A and Regulation W generally place limits on the amount of a bank’s loans or extensions of credit to, investments in, or certain other transactions with affiliated companies, and on the amount of advances to third parties collateralized by the securities or obligations of affiliated companies. In addition, Section 23B and Regulation W generally require a bank’s transactions with its affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.
The Bank is also subject to restrictions under Section 22(h) of the Federal Reserve Act on its extensions of credit to executive officers, directors, certain principal shareholders and their related interests. Such extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.
Federal Home Loan Bank System. The Bank is a member of the FHLB of NY, which is one of twelve regional federal home loan banks. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members pursuant to policies and procedures established by its board of directors.
As a member, the Bank is required to purchase and maintain stock in the FHLB of NY in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its outstanding FHLB advances.   The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member's capital and limiting total advances to a member.
The FHLB is required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. In addition, these requirements could result in the FHLB imposing a higher rate of interest on advances to their members.
Item 1A. Risk Factors
Not applicable as the Company is a "smaller reporting company."
Item 1B. Unresolved Staff Comments

Not applicable.
Item 2. Properties



At December 31, 2017,2019, our investment in property and equipment, net of depreciation and amortization, totaled $8.7$8.0 million, including leasehold improvements and construction in progress. The following table lists our offices.


 
Office Location
 
Year Facility
Opened
 
Leased or
Owned
      
Millington Main Office
1902 Long Hill Road
Millington, NJ
 1994
(1) 
 Owned
RiverWalk Branch Office
675 Martinsville Road
Basking Ridge, NJ
 2005
(2) 
 Leased
Martinsville Branch Office
1924 Washington Valley Road
Martinsville, NJ
 2006  Leased
Bernardsville Branch Office
122 Morristown Road
Bernardsville, NJ
 2008  Owned
Lending Office Office
25 Independence Road
Warren, NJ
 2017  Leased
__________________
(1)The Bank's main office opened in 1911 in Millington, New Jersey. The Bank moved into its current main office in 1994.
(2)The Bank's first branch office opened in 1998 in Liberty Corner, New Jersey. This office was relocated in 2005.
Item 3. Legal Proceedings
The Bank, from time to time, is a party to routine litigation which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans, and other issues incident to our business. There were no lawsuits pending or known to be contemplated against the Company or the Bank at December 31, 20172019 that would have a material effect on operations or income.
Item 4. Mine Safety Disclosures

Not applicable


PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)  Market Information. The Company's common stock trades on the NASDAQ Stock Market under the symbol "MSBF". The table below shows the reported high and low closing prices of common stock reported by NASDAQ and dividends declared during the periods indicated.
 High Low Dividends
2016     
Quarter ended March 31, 2016$12.89
 $12.25
 $
Quarter ended June 30, 2016$13.80
 $12.25
 $
Quarter ended September 30, 2016$13.90
 $12.93
 $
Quarter ended December 31, 2016$14.90
 $13.35
 $
2017     
Quarter ended March 31, 2017$16.95
 $14.25
 $
Quarter ended June 30, 2017$18.00
 $16.25
 $
Quarter ended September 30, 2017$18.26
 $17.10
 $0.425
Quarter ended December 31, 2017$18.00
 $17.20
 $
 High Low Dividends
2018     
Quarter ended March 31, 2018$18.35
 $17.50
 $
Quarter ended June 30, 2018$21.50
 $17.95
 $0.445
Quarter ended September 30, 2018$21.66
 $20.40
 $
Quarter ended December 31, 2018$20.70
 $17.41
 $0.460
2019 
  
  
Quarter ended March 31, 2019$18.70
 $17.45
 $
Quarter ended June 30, 2019$18.15
 $14.40
 $
Quarter ended September 30, 2019$16.92
 $15.35
 $0.500
Quarter ended December 31, 2019$18.00
 $14.91
 $
Dividends. Declarations of dividends by the Board of Directors depend on a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, and general economic as well as stock market conditions. The timing, frequency and amount of dividends are determined by the Board of Directors.

Stockholders. As of March 2, 2018,13, 2020, there were approximately 454 shareholders of record of the Company's common stock. This number does not include brokerage firms, banks and registered clearing agents acting as nominees for an indeterminate number of beneficial ("street name") owners.

(b)  Use of Proceeds.
Not applicable
(c) Issuer Purchases of Equity Securities.
There were no repurchasesOn December 17, 2018, the Company announced that it had approved a stock repurchase plan to purchase up to 273,150 shares of stockthe Company's common stock. In connection with the repurchase plan, the Company entered into a Rule 10b5-1 plan with Keefe, Bruyette & Wood, a Stifel Company. The following table shows shares repurchased during the fourth quarter of 2017.ended December 31, 2019.
Period(a) Total Number of Shares (or Units) Purchased(b) Average Price Paid per Share (or Unit)(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Number (or Approximate Dollar Value) that may be purchased Under the Plans or Programs
October 1-October 31,201916,102
$16.08
273,150

November 1-November 30, 2019



December 1-December 31, 2019
$


Total16,102
$16.08
273,150



Item 6. Selected Financial Data

Not applicable as the Company is a smaller reporting company.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects the Company's consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the Company's consolidated financial statements and accompanying notes thereto beginning on page F‑1 following Item 16 of this Form 10-K.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported and are described in Note 2 to our consolidated financial statements beginning on page F-1. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level by management which represents the evaluation of known and inherent risksprobable incurred losses in the loan portfolio at the consolidated balance sheet date that are both probable and reasonable to estimate. Management's periodic evaluation of


the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations.

The Company's loan portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, commercial and industrial and consumer.  Some segments of the Company's loan receivable portfolio are further disaggregated into classes which allow management to more accurately monitor risk and performance. Accordingly, the methodology and allowance calculation includes the segmentation of the total loan portfolio.
 
The residential mortgage loan segment is disaggregated into two classes: one-to-four family loans, which are primarily first liens, and home equity loans, which consist of first and second liens.  The commercial real estate loan segment includes owner and non-owner occupied loans which have medium risk based on historical experience with these types of loans.  The construction loan segment is further disaggregated into two classes: one-to-four family owner-occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than the one-to-four family owner-occupied loans.  The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans carry a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals.  The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
  
The allowance consists of specific, general and unallocated components. The specific component is related to loans that are classified as impaired.  For loans classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class and is based on historical loss experience adjusted for qualitative factors. These qualitative risk factors include:
1.Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
2.National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.
3.Nature and volume of the portfolio and terms of loans.
4.Experience, ability, and depth of lending management and staff.
5.Volume and severity of past due, classified and nonaccrual loans as well as and other loan modifications.
6.Quality of the Company's loan review system, and the degree of oversight by the Company's Board of Directors.
7.Existence and effect of any concentrations of credit and changes in the level of such concentrations.
8.Effect of external factors, such as competition and legal and regulatory requirements.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation.

The unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.



A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
 
Loans the terms of which are modified are classified as TDRs if, in connection with the modification, the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty.  Concessions granted under a TDR generally involve a reduction in interest rate below market rate given the associated credit risk, or an extension of a loan's stated maturity date. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.   Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold.
 
Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following:(a) the present value of expected cash flows (discounted at the loan's effective interest rate), (b) the loan's observable market price or (c) the fair value of collateral adjusted for expected selling costs.  The method is selected on a loan by loan basis with management primarily utilizing the fair value of collateral method.



The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
 
The estimated fair values of non-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower's financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company's policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

Overview

Our primary business is attracting deposits from the general public and using those deposits, together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for our lending and investing activities. Our loan portfolio consists of one-to-four-family residential real estate mortgages, commercial real estate mortgages, construction loans, commercial and industrial loans, home equity loans and lines of credit, and other consumer loans. We also invest in U.S. Government obligations and mortgage-backed securities and, to a lesser extent, corporate bonds.

We reported net income of $2.7$4.1 million for the year ended December 31, 20172019 as compared to a net income of $1.2$4.8 million for 2016.2018. Net income for 20172019 was affected by the $678,000 charge we tookan increase in connectionprofessional expenses associated with the revaluationincreased audit scope and identification of our deferred tax asset. As a result of the enactment of the Tax Cuts and Jobs Act effective December 22, 2017, corporate tax rates were reduced thereby resulting in a reduction in the in the value of our deferred tax asset. This charge was taken as part of the provision for income taxes.material weakness.

Net interest income for 20172019 was updown approximately $4.1 million,$382,000, or 34.0%2.13%, as compared to 2016.2018. For the year ended December 31, 2017,2019, interest income increased by $5.3$1.2 million, or 37.1%5.18%, while interest expense increased by $1.2$1.6 million, or 53.4%29.49%, as compared to 2016.2018. Non-interest expense increased by $791,000,$908,000, or 7.6%7.66%, while non-interest income decreasedincreased by $219,000$174,000, or 21.0%21.75%, for the same comparative periodperiod.  The net interest rate spread decreased in 2019 to 2.91%, compared to 3.08% for 2018, mainly as a result of a $350,000 wire fraud settlement receivedincreased competition for deposits caused an increase in 2016 related to a loss recorded in 2014.  The net interest rate spread increased in 2017 to 3.15%, compared to 2.94% for 2016, mainly as a result of our increased loan growth.deposit rates paid. 

Total assets were $563.0$593.1 million at December 31, 2017,2019, a 22.0%1.47% increase compared to $461.6$584.5 million at December 31, 2016.2018. The increase in assets occurred primarily as the result of a $105.4$6.7 million increase in cash and cash equivalents, and a $5.7 million increase in loans receivable, net, offset by a decrease of $5.6$3.6 million in securities held to maturity.   Deposits were $448.9$472.8 million at December 31, 2017,2019, compared to $362.3$420.6 million at December 31, 2016.2018.  FHLB advances were $37.7$51.6 million at December 31, 20172019 compared to $22.7$94.3 million at December 31, 2016.2018.

Stockholders' equity at December 31, 20172019 was $73.0$65.4 million compared to our stockholders' equity at December 31, 20162018 of $73.2$66.6 million. The Company had net income of $2.7$4.1 million for the year ended December 31, 2017.2019.    The retentiondecline in shareholders' equity was primarily due to the repurchase of earnings was offset primarily by $2.5199,202 shares of common stock at a total cost of $3.3 million used to payand the declaration of a $0.425 dividend to shareholders.$2.6 million dividend. Our return on average equity for the year ended December 31, 20172019 was 3.67%6.19% compared to 1.54%6.88% for the year ended December 31, 2016 .2018.

Comparison of Financial Condition at December 31, 20172019 and 20162018



General.  Total assets at December 31, 20172019 were $563.0$593.1 million versus $461.6$584.5 million at December 31, 20162018 with the increase primarily attributable mainly to an increase in cash and cash equivalents and loan growth. During the year ended December 31, 2017,2019, the Company experienced growth of $105.4$6.7 million, or 56.38%, in cash and cash equivalents and of $5.7 million, or 28.6%1.14%, in loans receivable, net and a $698,000, or 48.7% increase in FHLB of New York stock.net. Securities held to maturity decreased $5.6$3.6 million primarily as a result of the purchase of $10.0 million in securities offset by maturities and principal repayments.repayments, while FHLB of New York stock decreased $1.9 million, or 40.12%. Other assets decreased $390,000increased $2.0 million primarily due to the decrease in deferred tax assets.recording of the new lease accounting standard. Deposits increaseddecreased by $86.6$52.2 million while FHLB advances increaseddecreased by $15.0$42.7 million.    

The ratio of average interest-earning assets to average-interest bearing liabilities was 124.7%120.42% for the year ended December 31, 20172019 as compared to 131.9%120.21% for the year ended December 31, 2016.2018. 

Loans. Loans receivable, net, increased $105.4$5.7 million, or 28.6%1.14%, from $368.0$502.3 million at December 31, 20162018 to $473.4$508.0 million at December 31, 2017.2019. The Bank's construction loan portfolio increased approximately $18.0 million due to new projects, while the commercial and multi-family real estate loan portfolio grew by $72.0$14.8 million, or 57.8%6.98%, since December 31, 2016, aided in part by the closing of $57.7 million in purchased and participation loans. The commercial and industrial portfolio increased by $28.2 million, or 62.4%, on stronger loan demand, while the construction loan portfolio increased approximately $13.9 million as a result of new projects.2018. The residential mortgage portfolio, consisting of one-to-four family residential loans and home equity loans, decreased $8.1$13.9 million to $184.7$153.8 million from $192.8$167.8 million, while commercial and industrial loans decreased $7.5 million as of year-end 2016.2018.  All remaining portfolios were consistent with prior year-end levels.

Securities. The securities held to maturity portfolio totaled $38.5$35.8 million at December 31, 20172019 compared to $44.1$39.5 million at December 31, 2016.2018.  Maturities, calls and principal repayments during 20172019 totaled $6.7$13.6 million and $1.2$10.0 million in securities were purchased during 2017 compared to $34.8$7.9 million of maturities, calls and principal repayments and no$9.0 million in purchases during 2016.2018.



Deposits. Total deposits at December 31, 20172019 increased to $448.9$472.8 million from $362.3$420.6 million at December 31, 2016.2018. Overall, deposits increased by $86.6$52.2 million with non-interest bearing balances decreasing by $7.4increasing $1.2 million and interest bearinginterest-bearing deposits increasing $94.1$50.9 million since December 31, 20162018, as the Company focused on deposit pricing and the development of deeper commercial and small business relationships.

Borrowings. Total borrowings were $37.7$51.6 million at December 31, 20172019 compared to $22.7$94.3 million at December 31, 2016. During the year, we executed on four FHLB medium term advances for a total $25.0 million. The advances were for terms of 3, 4, and 5 years with an average rate of 2.04%. In addition, we had a maturity of $10.0 million at a rate of 3.27%. There were no overnight2018. Overnight advances with the FHLB of New York at December 31, 2017 or2019 were $23.9 million compared to $66.6 million at December 31, 2016.2018.

Equity. Stockholders' equity was $73.0$65.4 million at December 31, 20172019 compared to $73.2$66.6 million at December 31, 2016,2018, a decrease of $160,000$1.3 million or 0.2%1.91%. The decrease in shareholders' equity was primarily due to the repurchase of 199,202 shares of common stock at a $2.5total cost of $3.3 million or $0.425 per share, dividend paid in and the third quarter to shareholders.declaration of a $2.6 million dividend. This reduction was partially offset by a $2.7$4.1 million increase in retained earnings related to net income.

Comparison of Operating Results for the Years Ended December 31, 20172019 and 20162018

General. Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income includes service fees and charges, and income on bank owned life insurance. Non-interest expense includes salaries and employee benefits, occupancy and equipment expense and other general and administrative expenses such as service bureau fees and advertising costs.

The Company reported net income of $2.7$4.1 million for December 31, 20172019 compared to net income of $1.2$4.8 million for the year ended December 31, 2016,2018, representing an increasea decrease of $1.6 million$732,000 or 134.5%15.14%.  This increasedecrease was largely driven by an increase in non-interest expense of $908,000 and a $4.1 million increasedecrease of $382,000 in net interest income. Offsetting this were an increase in non-interest expense of $791,000, an increasewas a decrease in the provision for loan losses of $385,000,$240,000, and a decreasean increase of $219,000$174,000 in non-interest income. Income tax expense increased $1.1 milliondecreased $144,000 for the year ended December 31, 20172019 versus 2016 due to the increase in pre-tax income and the revaluation of the Company's deferred tax asset2018 as a result of the passage of the Tax Cuts and Jobs Act on December 22, 2017 which significantly reduced corporate tax rates.lower earnings.

Net Interest Income. Net interest income for the year ended December 31, 20172019 totaled $16.0$17.6 million compared to $12.0$17.9 million for the year ended December 31, 2016.2018.  Interest income for the year ended December 31, 20172019 was $19.5$24.6 million compared to $14.2$23.3 million for the year end December 31, 2016,2018, while interest expense increased by $1.2$1.6 million to $3.4$7.0 million from $5.4 million the same period a year earlier.

Average earning assets increased $100.3$7.8 million, or 26.3%1.44%, to $482.2$554.3 million year over year while the average yield on interest earning assets increased by 0.32%0.16% to 4.04%4.43% for the year ended December 31, 2017.2019.  The result of those variances was an increase in interest income of $5.3$1.2 million for the year ended December 31, 20172019 compared to the year ended December 31, 2016.2018.  Interest income for the year ended December 31, 20172019 was $19.5$24.6 million compared to $14.2$23.3 million for the year end December 31, 2016.2018. Interest income on loans receivable grew by $5.5$1.0 million to $18.3$23.0 million mainly due to an increase in loan volume.rate. Average loans were $429.8$502.2 million and $301.8$495.7 million for the years ended December 31, 20172019 and 2016,2018, respectively. The average yield on loans increased by three basis points.15% which also contributed to the increase in interest income from loans. Average securities held to maturity declined by $16.1$2.1 million to $41.6$37.8 million from $57.7$39.9 million.  The average rate earned on the portfolio increased 0.19%0.15% to 2.43%2.82% from 2.24%2.67% for the prior year.  Overall, the decreased volume combined with the increased rate resulted in a reductiondecrease of $282,000$1,000 in interest income from securities.  Other interest-earning assets, consisting of our Federal Reserve account, FHLB stock and other interest-bearing deposits with other financial institutions, decreasedincreased by $11.6$3,5 million on average, to $10.7$14.4 million for the year ended December 31, 20172019 compared with $22.3$10.9 million for the year ended December 31, 2016.  Offsetting2018.  Partnered with this decreaseincrease was an increase


in the average yield from 0.77%2.94% to 1.78%3.37%. This increase in rate was largely attributed to larger balances held at the Federal Reserve Bank earning an average rate of 1.00%2.13%. The combined impact was an increase in interest income on other interest-earning assets of $19,000.$164,000.

Total interest expense increaseincreased by $1.2$1.6 million to $3.4$7.0 million for the year ended December 31, 20172019 as a result of increased volumes, and higher rates.  Overall, average interest-bearing liabilities increased $97.1$5.7 million, or 33.6%1.3%, to $386.6$460.3 million for the year ended December 31, 20172019 as compared to $289.5$454.6 million for the year ended December 31, 2016.2018.  Interest expense on certificates of deposit increased $576,000$848,000 as average balances were approximately $30.0$22.7 million higher for the year ended 20172019 period totaling $119.6$147.3 million compared to $89.6$124.6 million for the year ended December 31, 2016.2018.  The average cost of certificates of deposit increased by 0.18%0.32%.  Savings accounts averaged $105.4$99.4 million for the year ended December 31, 20172019 versus $103.6$105.6 million for the year ended December 31, 2016.2018.  The four basis point0.22% increase in the average rate was the primary reason for the $47,000$187,000 increase in interest expense for these accounts in 20172019 as compared to the same period in 2016.2018.  Interest demand and money market accounts on average grew $47.3decreased $13.2 million to $119.1$140.2 million, which resulted in an increase inwhile interest expense of $326,000increased $413,000 for the year ended December 31, 2017.2019.  The average interest rate paid on these accounts rose 0.16%0.37% to 0.44%1.19% from 0.28%0.82% as a result of a mixture of larger balance accounts earning a higher rate of interest and the volume of deposits.interest. Interest expense on FHLB advances rose by $250,000$144,000 to $996,000$1.7 million from $746,000$1.6 million a year earlier.  The average cost of advances decreasedincreased by 0.70%0.12% to 2.35%2.32% from 3.05% as a result of one long term borrowing maturing during the year costing 3.27% and the execution of four FHLB medium term advances with an average rate of 2.04%2.20% . Average FHLB advances were $42.4$73.5 million for the year ended December 31, 20172019 versus $24.4$71.1 million for the year ended December 31, 2016.2018.

The Company's net interest spread and margin rosedeclined over the periods and were 3.15%2.91% and 3.33%3.17%, respectively for the year ended December 31, 20172019 compared to 2.94%3.08% and 3.13%3.28%, respectively for the year ended December 31, 2016.


2018.

Provision for Loan Losses. The loan loss provision for the year ended December 31, 20172019 was $1,185,000$0 compared to $800,000$240,000 for the year ended December 31, 2016.2018.  The Company's management reviews the level of the allowance for loan losses on a quarterly basis based on a variety of factors including, but not limited to, (1) the risk characteristics of the loan portfolio, (2) current economic conditions, (3) actual losses previously experienced, (4) the Company's level of loan growth and (5) the existing level of reserves for loan losses that are probable and estimable. This analysis resulted in a higherlower provision for loan loss being required for the period ended December 31, 2017.2019.  The increasedecrease in the level of provision for loan loss primarily reflects loan growth year-over-year as other credit metrics generally improvedimproving year over year.  There was a stabilization of the quantitative and qualitative factors during the year ended December 31, 20172019 and December 31, 2016.2018.  The Company had $255,000$4,000 in charge-offs and $8,000$71,000 in recoveries for the year ended December 31, 20172019 compared to $76,000$8,000 in charge-offs and $150,000$9,000 in recoveries for the year ended December 31, 2016.2018.  The Company had $4.1$3.1 million in non-performing loans as of December 31, 2017,2019, compared to $7.0$4.1 million at December 31, 2016.2018.  The allowance for loan losses as a percentage of total loans was 1.08% and 1.18% atfor December 31, 20172019 and December 31, 2016,2018, respectively, while the allowance for loan losses as a percentage of non-performing loans increased to 130.99%184.11% at December 31, 20172019 from 64.13%136.83% at December 31, 2016.2018. Non-performing loans to total loans were 0.83%0.59% at December 31, 20172019 compared to 1.84%0.81% at December 31, 2016.  Annualized net2018.  Net charge-offs to average loans outstanding ratios were 0.06%0.00% for the year ended December 31, 2017 compared to (0.02)% for the year ended2019 and December 31, 2016.2018. While management believes the allowance for loan losses is adequate for the risk in the loan portfolio, there can be no assurance that future increases may not be necessary.

Non-Interest Income.  This category includes fees derived from checking accounts, ATM transactions, debit card use and other fees. It also includes increases in the cash-surrender value of our bank owned life insurance. Overall, non-interest income was $822,000$974,000 for the year ended December 31, 20172019 compared to $1,041,000$800,000 for the year ended December 31, 2016, a decrease2018, an increase of $219,000$174,000 or 21.0%21.75%.

Income from fees and service charges totaled $342,000$346,000 for the year ended December 31, 20172019 compared to $333,000$334,000 for the year ended December 31, 2016,2018, an increase of $9,000$12,000 or 2.7%3.59%.  The increase was attributable to higher volume in services fees charged during the year.

Income on bank owned life insurance was $413,000$554,000 and $316,000$388,000 for the years ended December 31, 20172019 and 2016,2018, while other non-interest income was $67,000$74,000 and $392,000$78,000 for the years ended December 31, 20172019 and 2016,2018, respectively. Bank owned life insurance income rose due toincreased as a result of a death benefit recorded during the purchase of $6.0 million in new life insurance policies during 2016. In addition, other non-interest income declined due to a $350,000 recovery in 2016 related to a wire fraud loss recorded in 2014.year.

Non-Interest Expenses. Total non-interest expenses increased by $791,000,$908,000, or 7.6%7.66%, during the year ended December 31, 20172019 and totaled $11.2$12.8 million as compared to $10.4$11.9 million for the year ended December 31, 2016.2018.

Salaries and employee benefits expense increased by $511,000,$96,000, or 8.9%1.44%, to $6.2$6.8 million for the year ended December 31, 20172019 compared to $5.7$6.7 million for the year ended December 31, 2016.2018.  Salary and benefits increased due to an increase in incentive compensation and stock option and restricted stock awards granted during the second quarter of 2016 as well as normal increases in salaries and benefits expenses and additions to staff.expenses.

Directors' compensation expense totaled $743,000$524,000 for the year ended December 31, 20172019 compared to $458,000$490,000 for the year ended December 31, 2016,2018, representing an increase of $285,000$34,000 or 62.2%.  The increase6.94% as one director was primarily due toadded during the expense recorded for the termination of the director retirement plan as described in Note 12.year. 

Professional services increased $247,000 totaling $1.3Occupancy and equipment expense decreased by $30,000, or 1.92%, to $1.5 million for the year ended December 31, 20172019 compared with $1.1to $1.6 million for the same period a year earlier.

 Service bureau fees increased by $228,000, or 65.71%, to $575,000 for the year ended December 31, 2016.  The increase is partially attributable2019 compared to the Company's migration to a hosted IT solution that was partially present in 2016.

Occupancy and equipment expense increased by $166,000, or 11.4%, to $1.6 million$347,000 for the year ended December 31, 20172018 as a result of a reduction in the Company's relationship credit that had completed during the year.

FDIC assessment expense decreased $111,000, or 52.61%, to $100,000 for the year ended December 31, 2019 compared to $1.5 million$211,000 for the same period a year earlier. The increasereduction in occupancy and equipment expense was duerelated to an increase in depreciation expense on capitalized assets, an increase in lease expense, andFDIC credit received for the closing of our Dewy Meadow location during the second quarter of 2017.past two quarters.

 Service bureau fees decreased by $523,000, or 69.6%, to $229,000

Professional services increased $685,000 totaling $2.4 million for the year ended December 31, 20172019 compared to $752,000with $1.7 million for the year ended December 31, 2016 as a result2018.  The increase is associated with increased audit scope and identification of lower costs incurred in 2017 due to our core conversion implementation during 2016.material weakness.

Other non-interest expense totaled $794,000$831,000 for the year ended December 31, 2017,2019, compared to $658,000$813,000 for the year earlier, reflecting an increase of $136,000,$18,000, or 20.7%2.21%, due to various expense category increases.

Income Taxes. The income tax expense for the year ended December 31, 20172019 was $1,768,000,$1.7 million, or 39.4%,28.9% of income before taxes as compared to income tax expense of $653,000,$1.8 million, or 36.0%27.2%, of the reported income before income taxes, for the year ended December 31, 2016.2018.  The increase of effectivein tax rate was primarily attributable to a larger proportion of pre-tax income being taxable and the revaluation of the Company's deferred tax asset as a result of the passage of the Tax Cuts and Jobs Act on December 22, 2017 which significantly reduced corporate tax rates. As a result, the Company recorded an additional tax provision of $678,000 for the revaluation for the year ended December 31, 2017.true-up from 2018.

In addition, certain directors, executive officers and directors emeriti executed options to purchase 212,468 shares of Common Stock at a per share exercise price of $9.4323.  In lieu of issuing shares of Common Stock upon the exercise of such options, the Company made a cash payment to such optionees equal to the excess of the closing price of the Common Stock on the Nasdaq Stock Market on August 4, 2017 of $17.30 over the per share exercise price of such options of $9.4323 multiplied by the number of options being exercised.  An aggregate of


$1.7 million was paid to the optionees. The transaction resulted in a $406,000 tax benefit to the Company for the year ended December 31, 2017.
Average Balance Sheet. The following tables set forth certain information for the year ended December 31, 20172019 and 2016.2018.  The average yields and costs are derived by dividing interest income and expense by the average daily balance of assets and liabilities, respectively, for the periods presented.
Year Ended December 31,Year Ended December 31,
2017 20162019 2018
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Cost
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Cost
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Cost
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Cost
Interest-earning assets:
                      
Loans receivable (1)
$429,848
 $18,278
 4.25% $301,764
 $12,745
 4.22%$502,186
 $23,007
 4.58% $495,719
 $21,960
 4.43%
Securities41,613
 1,011
 2.43% 57,743
 1,293
 2.24%37,787
 1,064
 2.82% 39,893
 1,065
 2.67%
Other interest-earning assets (2)
10,719
 191
 1.78% 22,334
 172
 0.77%14,367
 484
 3.37% 10,885
 320
 2.94%
Total interest-earning assets482,180
 19,480
 4.04% 381,841
 14,210
 3.72%554,340
 24,555
 4.43% 546,497
 23,345
 4.27%
Non-interest-earning assets24,087
     20,560
    22,698
     22,435
    
Total assets$506,267
     $402,401
    $577,038
     $568,932
    
Interest-bearing liabilities:
                      
Interest demand & money market demand$119,096
 526
 0.44% $71,843
 200
 0.28%$140,208
 1,670
 1.19% $153,367
 1,257
 0.82%
Savings and club deposits105,444
 277
 0.26% 103,570
 230
 0.22%99,391
 735
 0.74% 105,623
 548
 0.52%
Certificates of deposit119,618
 1,647
 1.38% 89,609
 1,071
 1.20%147,253
 2,877
 1.95% 124,556
 2,029
 1.63%
Total interest-bearing deposits344,158
 2,450
 0.71% 265,022
 1,501
 0.57%386,852
 5,282
 1.37% 383,546
 3,834
 1.00%
FHLB of New York advances42,414
 996
 2.35% 24,435
 746
 3.05%73,473
 1,708
 2.32% 71,064
 1,564
 2.20%
Total interest-bearing liabilities386,572
 3,446
 0.89% 289,457
 2,247
 0.78%460,325
 6,990
 1.52% 454,610
 5,398
 1.19%
Non-interest-bearing deposits42,312
     34,026
    47,228
     41,746
    
Other non-interest-bearing liabilities3,308
     3,591
    3,194
     2,345
    
Total liabilities432,192
     327,074
    510,747
     498,701
    
Stockholders' equity74,075
     75,327
    66,291
     70,231
    
Total liabilities and stockholders' equity$506,267
     $402,401
    $577,038
     $568,932
    
Net interest income/net interest rate spread (3)
  $16,034
 3.15%   $11,963
 2.94%  $17,565
 2.91%   $17,947
 3.08%
Net interest margin (4)
    3.33%     3.13%    3.17%     3.28%
Ratio of interest-earning assets to
interest-bearing liabilities
124.73%     131.92%    120.42%     120.21%    
________________
(1)Non-accruing loans have been included, and the effect of such inclusion was not material.  The allowance for loan losses is excluded, while construction loans in process and deferred fees are included.
(2)Includes FHLB of New York stock at cost and term deposits with other financial institutions.
(3)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)Net interest margin represents net interest income as a percentage of average interest-earning assets.
Rate/Volume Analysis. The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated. Each category reflects the:  (1) changes in volume (changes in volume multiplied by past rate); (2) changes in rate (changes in rate multiplied by past volume); and (3) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each.


Year Ended December 31,
2017 vs. 2016
Increase (Decrease)
Year Ended December 31,
2019 vs. 2018
Increase (Decrease)
Volume 
Due to
Rate
 NetVolume 
Due to
Rate
 Net
Interest and dividend income:
          
Loans receivable$5,446
 $87
 $5,533
$292
 755
 1,047
Securities(301) 19
 (282)(29) 28
 (1)
Other interest-earning assets(59) 78
 19
113
 51
 164
Increase in total interest income5,086
 184
 5,270
376
 834
 1,210
Interest expense:
          
Interest demand and money market accounts172
 154
 326
(25) 438
 413
Savings and club4
 43
 47
(6) 193
 187
Certificates of deposit397
 179
 576
408
 440
 848
Total interest-bearing deposits573
 376
 949
377
 1,071
 1,448
FHLB of New York advances321
 (71) 250
55
 89
 144
Increase in total interest expense894
 305
 1,199
432
 1,160
 1,592
Change in net interest income$4,192
 $(121) $4,071
$(56) (326) (382)
Liquidity, Commitments and Capital Resources

The Bank must be capable of meeting its customer obligations at all times. Potential liquidity demands include funding loan commitments, cash withdrawals from deposit accounts and other funding needs as they present themselves. Accordingly, liquidity is measured by our ability to have sufficient cash reserves on hand, at a reasonable cost and/or with minimum losses.

Senior management is responsible for managing our overall liquidity position and risk and is responsible for ensuring that our liquidity needs are being met on both a daily and long-term basis. The Financial Review Committee, comprised of senior management and chaired by the President and Chief Executive Officer is responsible for establishing and reviewing our liquidity procedures, guidelines, and strategy on a periodic basis.

Our approach to managing day-to-day liquidity is measured through our daily calculation of investable funds and/or borrowing needs to ensure adequate liquidity. In addition, senior management constantly evaluates our short-term and long-term liquidity risk and strategy based on current market conditions, outside investment and/or borrowing opportunities, short and long-term economic trends, and anticipated short and long-term liquidity requirements. The Bank's loan and deposit rates may be adjusted as another means of managing short and long-term liquidity needs. We do not at present participate in derivatives or other types of hedging instruments to meet liquidity demands, as we take a conservative approach in managing liquidity.

At December 31, 2017,2019, the Bank had outstanding commitments to originate loans of $25.2$15.4 million, unused lines of credit of $65.6$86.4 million (including $14.9$13.3 million for home equity lines of credit and $50.2$73.1 million for commercial lines of credit), and standby letters of credit of $359,000.$513,000. Certificates of deposit scheduled to mature in one year or less at December 31, 2017,2019, totaled $41.2$96.1 million.

The Bank had contractual obligations related to the long-term operating leases for the threetwo branch locationsand one operations center location that it leases (Loan ProduectionProduction Office, RiverWalk and Martinsville). For additional information regarding the Bank's lease commitments as of December 31, 2017,2019, see Note 109 to our consolidated financial statements beginning on page F-1.

The Bank has access to cash through borrowings from the FHLB, as needed, to meet its day-to-day funding obligations. At December 31, 2017,2019, its total loans to deposits ratio was 105.46%107.46%.  At December 31, 2017,2019, the Bank's collateralized borrowing limit with the FHLB was $77.6$173.6 million, of which $37.7$51.6 million was outstanding. As of December 31, 2017,2019, the Bank also had a $13.0 million line of credit with a financial institution for an unsecured line of credit (which is a form of borrowing) that it could access if necessary.

Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2017,2019, the Company and the Bank exceeded all applicable regulatory capital requirements.  See Note 98 to our consolidated financial statements beginning at page F-1 for more information about the Company and the Bank's regulatory capital compliance.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance-sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving the Bank facilities. These financial instruments include significant purchase commitments such as commitments to purchase investment securities or mortgage-backed securities and commitments to extend credit


to meet the financing needs of our customers. At December 31, 2017,2019, our significant off-balance sheet commitments consisted of commitments to originate loans of $25.2 million, construction loans in process of $19.9$15.4 million, unused lines of credit of $65.6$86.4 million (including $14.9$13.3 million for home equity lines of credit and $50.2$73.1 million for commercial lines of credit) and standby letters of credit of $359,000.$513,000.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since a number of commitments typically expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding our outstanding lending commitments at December 31, 2017,2019, see Note 1413 to our consolidated financial statements beginning on page F-1.
Impact of Inflation
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles 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.
Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels.
The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of non-interest expense. Expense items such as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation.
Recent Accounting Pronouncements
Note 2 to the consolidated financial statements is incorporated herein by reference.
Quarterly Results of Operations (Unaudited)
Three months ended12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/201612/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
(In Thousands, Except Per Share Data)                              
Interest income$5,377
 $5,083
 $4,727
 $4,293 $3,949
 $3,510
 $3,453
 $3,298$6,101
 $6,179
 $6,167
 $6,108
 $6,003
 $6,175
 $5,738
 $5,429
Interest expense1,052
 893
 803
 698 649
 566
 522
 5101,711
 1,838
 1,756
 1,685
 1,544
 1,420
 1,307
 1,127
Net Interest Income4,325
 4,190
 3,924
 3,595 3,300
 2,944
 2,931
 2,7884,390
 4,341
 4,411
 4,423
 4,459
 4,755
 4,431
 4,302
Provision for (recovery of) loan losses200
 490
 300
 195 300
 180
 190
 130
Net Interest Income after Provision for (recovery of) Loan Losses4,125
 3,700
 3,624
 3,400
 3,000
 2,764
 2,741
 2,658
Provision for loan losses
 
 
 
 
 60
 90
 90
Net Interest Income after Provision for Loan Losses4,390
 4,341
 4,411
 4,423
 4,459
 4,695
 4,341
 4,212
Non-interest income211
 205
 219
 187 205
 183
 512
 141381
 199
 204
 190
 198
 190
 208
 204
Non-interest expenses2,824
 2,822
 2,818
 2,717 2,417
 2,500
 2,909
 2,5643,077
 2,919
 2,906
 3,867
 2,911
 3,064
 2,899
 2,987
Income (Loss) before Income Taxes1,512
 1,083
 1,025
 870
 788
 447
 344
 235
Income before Income Taxes1,694
 1,621
 1,709
 746

1,746

1,821

1,650

1,429
Income tax expense (benefit)1,240
 (86) 293
 321 310
 146
 121
 76443
 505
 487
 232
 491
 506
 407
 407
Net Income (Loss)$272
 $1,169
 $732
 $549
 $478
 $301
 $223
 $159
Earnings (Loss) per share:               
Net Income$1,251
 $1,116
 $1,222
 $514
 $1,255
 $1,315
 $1,243
 $1,022
Earnings per share:       
        
Basic$0.05
 $0.21
 $0.13
 $0.10
 $0.09
 $0.05
 $0.04
 $0.03
$0.25
 $0.22
 $0.24
 $0.10
 $0.24
 $0.25
 $0.23
 $0.19
Diluted$0.05
 $0.21
 $0.13
 $0.10
 $0.09
 $0.05
 $0.04
 $0.03
$0.25
 $0.22
 $0.24
 $0.10
 $0.24
 $0.24
 $0.23
 $0.19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of our assets and liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk, or changes in interest rates.
We derive our income mainly from the difference or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When


market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.
Quantitative Analysis. The following table presents the Bank's economic value of equity ("EVE") as of December 31, 2017.2019. The Bank outsources its interest rate risk modeling and the EVE values in this table were calculated by an outside consultant, based on information provided by the Bank. This analysis shows:
Changes in
Interest Rates
(base points)
% Change
in Pretax
Net Interest Income
Economic
Value of
Equity
% Change
in Pretax
Net Interest Income
Economic
Value of
Equity
+40010.32%13.52%4.30%12.00%
+3007.95%14.59%3.60%12.80%
+2005.55%15.66%2.80%13.60%
+1002.95%16.69%1.70%14.30%
017.35%(-)%14.60%
-100-4.75%17.53%(3.60)%14.50%
-200(9.60)%14.40%
________________
(1) The -200bp scenario was not disclosed due to the low prevailing interest rate environment


Future interest rates or their effect on EVE or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities, such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.
Notwithstanding the discussion above, the quantitative interest rate analysis presented above indicates that a rapid increase or decrease in interest rates would adversely affect our net interest margin and earnings.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements are contained in this Annual Report on Form 10‑K immediately following Item 15.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a)Disclosure Controls and Procedures
(a)Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule l3a-l5(e) promulgated under the Securities Exchange Act of 1934, as amended) as of December 31, 2017.2019. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective as of December 31, 2017.2019.
(b)Internal Control Over Financial Reporting
(b) Internal Control Over Financial Reporting
1. Management's Annual Report on Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that  transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization


of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2019.

Remediation of Material Weaknesses

As previously disclosed in Item 9A Controls and Procedures in the Annual Report on Form 10-K for the year end December 31, 2018, management identified five material weaknesses in internal control related to the following:

A material weakness in internal controls related to the design, implementation, and effectiveness of certain information technology general controls
A material weakness in internal controls over the processing and approving of department level journal entries
A material weakness in internal controls over loan data within the loan accounting system
A material weakness in internal controls over deposit data within the deposit accounting system
A material weakness in internal controls over the allowance for loan loss calculation

Management, with the oversight of the audit committee, had taken the following steps starting in 2018:
Management reviewed the material weaknesses with our audit committee and the appropriate levels of management.
Management enhanced and implemented systemic controls over information technology processing including the periodic, precise review of user access rights and a formalized precise process for granting and revoking user access.
Management added staff and redefined roles to address segregation of duties issues. Specifically an IT Manager joined the Company in March 2019 and duties and abilities within Loan and Deposit Operations were adjusted to account for segregation of duties.
Management required and documented dual control over journal entries and implemented a process to ensure that all transactions were subject to this control.
Management implemented a formal review process over loan and deposit data maintenance and required that such reviews be made utilizing core system generated reports and other core system tools available to the Company.
Management implemented a checklist to further support and augment the review process for the allowance for loan losses.

During 2019, management implemented the previously disclosed remediation plan. During the fourth quarter of 2019, we completed our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded the material weakness has been remediated as of December 31, 2019.

/s/ Michael A. Shriner /s/ John S. Kaufman 
Michael A. Shriner John S. Kaufman
President and Chief Executive Officer First Vice President and Chief Financial Officer
2.Report of Independent Registered Public Accounting Firm
Not applicable2. Report of Independent Registered Public Accounting Firm
The effectiveness of the Company's internal control over financial reporting at December 31, 2019 has been audited by Crowe LLP, an independent registered public accounting firm as stated in its report filed as part of the Companyfinancial statements included within beginning on pages F-1. Such report is a smaller reporting company.incorporated herein by reference.
3. Changes in Internal Control over Financial Reporting

3.Changes in Internal Control over Financial Reporting
No
Except as noted above, no change in the Company's internal controls over financial reporting (as defined in Rule l3a-l5(f) promulgated under the Securities Exchange Act of 1934, as amended) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9B. Other Information

None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information in the sections captioned "Proposal I – Election
Board of Directors" "Section 16(a) Beneficial Ownership Compliance" and "Corporate Governance" in the Company's Proxy Statement for its 2017 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference.

The Company has adopted a CodeCompany’s articles of Ethicsincorporation require that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  The Code of Ethics has been posted on the Company's website and may be found at www.millingtonbank.com/about-us/investor-relations.
There have been no material changes in the procedures by which security holders may recommend nominees to the Company's Board of Directors since the datebe divided into three classes, as nearly equal in number as possible, each class to serve for a three-year period, with approximately one-third of the Company'sdirectors elected each year. Directors serve until their successors have been elected and qualified. The Board of Directors currently consists of ten members.

Set forth below is information about the Company’s and the Bank’s directors and executive officers. Each director currently serves as a director of the Company and the Bank.



Name and Positions with Company 
Age (1)
 
Year First Elected or Appointed as Director of the Company (2)
 Current Term to Expire 
Shares of Common Stock Beneficially Owned (1)(3)
 
Percent of Class (4)
 
    DIRECTORS       
  
Michael A. Shriner
President, Chief Executive Officer
and Director
 55 1999 2021 
     112,509 (5)
 2.16% 
Robert C. Andersen
Director
 56 2018 2022 
     34,220 (6)
 * 
W. Scott Gallaway
Director and Chairman
 74 2000 2022 
     33,067 (7)
 * 
Robert D. Vollers
Director
 61 2016 2022 
     27,252 (8)
 * 
Anthony M. Bruno, Jr.
Director
 65 2019 2020 -- * 
H. Gary Gabriel
Director
 52 2018 2020 
     8,320 (9)
 * 
Lawrence B. Seidman
Director
 72 2016 2020 
  614,553 (10)
 11.84% 
Milena Schaefer
Director
 44 2019 2020 -- * 
Gary T. Jolliffe
Director
 76 1992 2021 
    97,555 (11)
 1.88% 
Raymond Vanaria
Director
 61 2016 2021 
   98,767 (12)
 1.90% 
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS 
Robert G. Russell, Jr.
Executive Vice President and Chief Operating Officer
 53 N/A N/A 
    28,238 (13)
 * 
Nancy E. Schmitz
Senior Vice President, Chief Credit
Officer and Corporate Secretary
 64 N/A N/A 
   29,934 (14)
 * 
John J. Bailey
Executive Vice President, Chief Lending Officer
 65 N/A N/A 
   24,140 (15)
 * 
John Kaufman
First Vice President and Chief
Financial Officer
 37 N/A N/A 
      7,981 (16)
 * 
__________________
*    Less than 1.0% of shares outstanding.
(1)    As of March 13, 2020.
(2)For Directors Gallaway, Shriner, and Jolliffe, this is the date that they first served as a director of the Bank. They each became a director of the Company upon its formation in 2014.
(3)Includes stock held in joint tenancy; stock owned as tenants in common; stock owned or held by a spouse or other member of the individual’s household; stock allocated through certain employee benefit plans of the Company; stock in which the individual either has or shares voting and/or investment power and shares which the individual has the right to acquire at any time within 60 days of the Record Date. Each person or relative of such person whose shares are included herein exercises sole or shared voting and dispositive power as to the shares reported. Excludes shares for which certain officers or directors may be deemed to have voting power by virtue of serving as the 401(k) plan administrative committee.
(4)In calculating the percentage ownership of an individual or group, the number of shares outstanding is deemed to include any share which the individual or group has the right to acquire through the exercise of options or otherwise within 60 days of the Record Date.
(5)Includes 17,465 shares allocated to Mr. Shriner’s account under the ESOP. Includes 21,600 shares which Mr. Shriner has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(6)Includes 4,220 shares which Mr. Andersen has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(7)Includes 6,333 shares which the Mr. Gallaway has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(8)Includes 6,333 shares which Mr. Vollers has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.


(9)Includes 4,220 shares which Mr. Gabriel has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(10)Includes 6,333 shares which Mr. Seidman has the right to acquire pursuant to the exercise of options within 60 days of the Record Date. Mr. Seidman has agreed with the Federal Reserve Bank of New York that the maximum number of shares that he may vote at the Meeting will be 9.9% of the outstanding shares (513,306 shares).
(11)Includes 6,333 shares which Mr. Jolliffe has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(12)Includes 6,333 shares which Mr. Vanaria has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(13)Includes 1,850 shares allocated to Mr. Russell’s account under the ESOP. Includes 12,000 shares which Mr. Russell has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(14)Includes 7,866 shares allocated to Ms. Schmitz’s account under the ESOP. Includes 12,000 shares which Ms. Schmitz has the right to acquire pursuant to the exercise of options within 60 days of the Record Date.
(15)Includes 1,573 shares allocated to Mr. Bailey’s account under the ESOP. Includes 12,000 shares which Mr. Bailey has the right to acquire upon the exercise of options within 60 days of the Record Date.
(16)Includes 837 shares allocated to Mr. Kaufman’s account under the ESOP. Includes 4,800 shares which Mr. Kaufman has the right to acquire upon the exercise of options within 60 days of the Record Date.

Biographical Information

Set forth below is the business experience for the past five years of each of the directors and executive officers of the Company. These biographies contain information regarding the person’s service as a director, business experience, other directorships at any point during the last proxy statement mailedfive years with any other public companies, information regarding involvement with certain types of proceedings, if applicable, and the experience, qualifications, attributes or skills that hat qualify them to serve on the Board.

Michael A. Shriner has been the President and Chief Executive Officer of the Company and the Bank since 2012. He has been employed by the Bank since 1987 and became a vice president in 1990, a senior vice president in 1997, the executive vice president in 2002 and the chief operating officer in 2006 until 2012. He was appointed to the Board of Directors in 1999. Mr. Shriner currently serves as a member of the Enterprise Risk Management Committee with the New Jersey Bankers Association. He has previously served as chairman of the Mortgage Steering Committee of the New Jersey League of Community Bankers and was a member of the Residential Lending and Affordable Housing Committee, Consumer Lending and CRA Committee and Operations and Technology Committee. Mr. Shriner is a graduate of The National School of Banking (Fairfield University). He also serves as a trustee for HomeSharing, Inc. a non-profit organization located in central New Jersey. Mr. Shriner’s 30 years of banking experience, knowledge of the Bank and the Company and leadership skills make him an integral part of the Board of Directors.

Robert C. Andersen is owner and President of RC Andersen LLC, a New Jersey-based general contracting firm which services the industrial real estate market in the Northeast and Denver. He has owned and operated RC Andersen since 2006. Prior to that, he was Vice President of a New Jersey-based general contracting firm with which he was with for 10 years, and, prior to that, he was with various New York City general contracting and subcontracting firms. Prior to that, he worked as a structural engineer. Mr. Andersen’s extensive experience with commercial real estate construction makes him a valuable addition to the Board of Directors.

W. Scott Gallaway hasserved as the Chairman of the Boards of Directors of the Company and the Bank since 2012, and as a director since 2000. He founded Gallaway Associates, a real estate brokerage and appraisal firm in 1975 and sold the brokerage portion to RE/MAX Alliance in 2000. From 2012 to 2015, he was an equity partner with RE/MAX Alliance Realtors of Basking Ridge and spent many years as a broker, salesperson and licensed appraiser in the State of New Jersey. Mr. Gallaway is Past President of the Somerset County Board of Realtors, the Northern New Jersey Chapter of Homes for Living, the New Jersey Chapter of Certified Residential Brokers (CRB), and the Bernardsville Rotary Club. He has also served as Third District Vice President of the New Jersey Association of Realtors and Charter Scoutmaster of Troop 150, BSA, Bernardsville, N.J. He has also served on the Board of Directors of the Patriots Path Council, BSA and the Somerset Hills YMCA. Mr. Gallaway is Past Master of Congdon Overlook Lodge F&AM and Past President of the Masters, Wardens and Past Masters Association of the Eleventh District of New Jersey. Mr. Gallaway was honored as “Outstanding Citizen Volunteer of the Year” by the Borough of Bernardsville in 1993. Mr. Gallaway’s real estate and appraisal experience and his stature in the community have made him a valuable member of the Board of Directors.

Robert D. Vollers was appointed to the Boards of Directors of the Company and the Bank effective January 1, 2016 upon the retirement of E. Haas Gallaway. Mr. Vollers is Managing Director/Partner of Heritage Guild Companies which operates three retail firearms and archery stores and a training academy. He is also Managing Member/Partner of eight Stowaway Self Storage Facilities located in New Jersey, Pennsylvania and New York. Mr. Vollers is Chairman of the board of directors and a significant shareholder of Vollers Inc. and Vollers Excavating, a large site improvement company operating in New Jersey, Pennsylvania and New York since 1949. Mr. Vollers served in various capacities in Vollers Excavating and Vollers Inc. including serving as Chief Executive Officer from 2004-2015. Mr. Vollers is a licensed realtor and has been for over 30 years. Mr. Vollers previously served as a Regional Director of Team Capital Bank, a de novo bank formed in 2005 which was acquired in 2014 by Provident Financial Services, Inc. Mr. Vollers’ significant business experience along with his prior services as a bank director make him a valuable member to the Board.

Anthony M. Bruno serves as Chief Operating Officer of PF Compass, a firm specializing in the provision and management of employee benefit plans, a position he has held since July 2016. Prior to joining PF Compass, Mr. Bruno was employed by Valley National Corporation and its wholly owned subsidiary Valley National Bank serving as President of Wealth Management and Insurance Services and First Senior Vice President of Valley National Bank, positions he held from July 2008 to June 2016. From 1995 until its sale in 2008 to Valley National Corporation,


Mr. Bruno was a founding director and held numerous bank positions including Chairman, President and Chief Executive Officer of Greater Community Bank and Greater Community Bancorp. Mr. Bruno’s years of experience as a banker make him a valuable addition to the Board of Directors.
H. Gary Gabriel serves as Vice Chairman of the Metropolitan Area Capital Markets Group in Cushman & Wakefield's East Rutherford, New Jersey office where he is responsible for managing, underwriting and marketing investment properties for sale in the suburban markets surrounding New York City. He has been with Cushman & Wakefield since 1994. Prior to joining Cushman & Wakefield, Mr. Gabriel served as an associate with the Edward S. Gordon Company and, prior to that, he was employed by the Broadway Bank and Trust Company and Midlantic Bank. As an officer at both banks, his primary responsibility was the restructure and collection of non-performing real estate loans. Mr. Gabriel’s in-depth knowledge of the real estate market in which we operate, together with his prior banking experience, make him a valuable addition to the Board of Directors.

Lawrence B. Seidman serves as Manager of Seidman and Associates, LLC and related investment groups located in Parsippany, New Jersey, the principal business of which includes investments in financial institutions since 1995. Mr. Seidman formerly served on the board of Stonegate Bank from January 2009 to September 2018, ASB Bancorp Inc. and its wholly owned subsidiary, Asheville Savings Bank from February 2016 to September 2018, Center Bancorp, Inc. from May 2007 to July 2014 and Naugatuck Valley Financial Corporation from November 2014 to January 2016. Mr. Seidman’s many years of banking experience, both as a director and as an investor, make him an extremely valuable member of the Board of Directors.

Milena Schaefer is the Senior Vice President - Strategy and Operations for PVH Corp., one of the largest global apparel companies that owns brands such as Calvin Klein, Tommy Hilfiger and Van Heusen.  She assumed her current position in 2017 but has served in various other capacities with PVH Corp. since 2008.  Ms. Schaefer’s expertise with e-commerce initiatives, analytics and her management experience make her a valuable addition to the Board of Directors.

Gary T. Jolliffe served as President and Chief Executive Officer of the Company and the Bank until his retirement on December 31, 2011. Mr. Jolliffe joined the Bank in 1986 as its executive vice president and was appointed as its president in 1990. In 1992, he was also appointed to the position of chief executive officer and became a director. Mr. Jolliffe was a member of the Board of Governors of the New Jersey League of Community Bankers from 1999 through 2007 serving in numerous positions, including chairman of the New Jersey League of Community Bankers from 2004 to 2005. Mr. Jolliffe is a past member of the Board of Trustees of Freedom House Foundation, Glen Gardner, New Jersey. After 30 years as a member of the Bernardsville Rotary Club where he held the positions of director, president, vice president and treasurer, Mr. Jolliffe is now an honorary member. Mr. Jolliffe’s more than 50 years of banking experience, including nearly 32 years with the Bank and the Company, combined with his knowledge of the communities make him an integral member of our Board of Directors.
Raymond Vanariais a member of the certified public accounting firm, Malesardi, Quackenbush, Swift & Company LLC, a firm he joined in 1983. Mr. Vanaria specializes in individual and corporate taxation, auditing and small business consulting. From July 1, 2014 to January 22, 2016, Mr. Vanaria served on the Board of Directors of ConnectOne Bancorp, headquartered in Englewood Cliffs, New Jersey and Chairman of the Audit Committee. Prior to the merger of Center Bancorp with ConnectOne Bancorp, he was Vice Chairman of the Board of Center Bancorp and served as Chairman of the Audit Committee and Compliance Committee as well as serving as a member of its Loan Committee, Risk Committee and Strategic Planning Committee. Mr. Vanaria’s professional experience as a certified public accountant qualify him to be an audit committee financial expert, and together with his previous bank director experience make him a valuable member of the Board.

Executive Officers Who Are Not Directors:

Robert G. Russell, Jr. serves as Executive Vice President and Chief Operating Officer of the Bank. Prior to being hired by the Bank in January 2015, Mr. Russell served as President and Chief Executive Officer of NJM Bank from 2013 up to its stockholders.merger with Spencer Savings Bank. Prior to serving as President, Mr. Russell had served as Chief Financial and Investment Officer of NJM Bank from 2003 to 2013. During his time at NJM he was also largely responsible for the strategic planning of the organization. Mr. Russell has been in the financial industry for over 25 years, primarily with commercial banks and savings banks and has been a Morris County resident for the last 20 years.

Nancy E. Schmitz joined Millington Bank in 1997 as a Commercial Lending Officer and Corporate Secretary. She was promoted to Vice President - Lending in 2006 and to Senior Vice President and Chief Credit Officer in 2015. Ms. Schmitz was previously employed by Lloyds Bank California for six years, where she completed a formal bank training program in Lending. She also worked at HomeFed Bank, headquartered in San Diego, California in the National Accounts group and with Imperial Corporation of America in their San Diego Corporate Banking Group. She also was a volunteer with the US Agency for International Development in the Republic of Kyrgyzstan.

John J. Bailey joined the Bank in February 2015 and serves as Executive Vice President and Chief Lending Officer.  Previously, Mr. Bailey was Senior Vice President - Credit Administration at Union Center National Bank from December 2012 up to its merger in July 2014 with ConnectOne Bank.  Prior to joining Union Center National Bank, Mr. Bailey was Managing Member and owner of Bailey Financial Consulting, LLC, a provider of consulting services to commercial banks.  Mr. Bailey has been in the financial services industry for over 25 years, primarily with commercial banks and savings banks.   He served on the Board of Directors of Colonial Financial Services, Inc., Vineland, New Jersey from June 2011 up to its sale to Cape Bancorp, Inc. in March 2015.

John Kaufman joined the Company in 2015 and serves as First Vice President and Chief Financial Officer. Prior to being hired by the Company, Mr. Kaufman served as Controller of American Heritage Federal Credit Union from July 2013 to September 2015.  He has also


worked for GCF Bank from June 2012 to July 2013 and, prior to that, Wilmington Savings Fund Society. Mr. Kaufman has been in the financial industry for over 15 years, primarily with savings banks.

Item 11. Executive Compensation
Executive Compensation
Summary Compensation Table.The following table sets forth the cash and non-cash compensation awarded to or earned during the years ended December 31, 2019 and 2018, by the Chief Executive Officer and the three other most highly compensated executive officers whose total compensation (exclusive of non-qualified deferred compensation earnings) during the fiscal year ended December 31, 2019 exceeded $100,000 for services rendered in all capacities to the Company and the Bank.We refer to these individuals in this proxy statement as the “named executive officers.” There were no awards of restricted stock or stock options to any of the named executive officers in either 2019 or 2018 nor did any named executive officer receive non-equity incentive plan compensation or non-qualified deferred compensation earnings.

Name and Principal PositionYearSalaryBonusAll Other CompensationTotal
Michael A. Shriner
President, Chief Executive
Officer and Director
 2019
 2018
$332,947
323,250
$60,000
     54,378
$37,025
67,667
(1)

$429,972
445,295
Robert G. Russell, Jr.
Executive Vice President and Chief
Operating Officer
 2019
 2018
$237,930
231,000
$63,402
65,000
$26,031
27,795
(2)

$327,363
323,795
Nancy E. Schmitz
Senior Vice President and Corporate Secretary
 2019
 2018
$181,857
175,560
$50,920
49,901
$21,840
35,172
(3)

$254,617
261,633
John Bailey
Executive Vice President and Chief Credit Officer
 2019
 2018
$198,522
192,740
$55,586
58,015
$22,986
28,239
(4)

$277,986
278,994

_____________________
(1)For the year ended December 31, 2019, consists of $920 for life insurance, $8,400 for an employer contribution to the 401(k) plan, reimbursement of auto expenses of $8,738, the value of shares allocated to Mr. Shriner’s account under the ESOP in the amount of $14,326, a cash allocation under the ESOP of $225 and cash dividends received on restricted stock awards of $4,416.
(2)For the year ended December 31, 2019, consists of $277 for life insurance, $8,400 for an employer contribution to the 401(k) plan, the value of shares allocated to Mr. Russell’s account under the ESOP in the amount of $14,326, a cash allocation under the ESOP of $28 and cash dividends received on restricted stock awards of $3,000.
(3)For the year ended December 31, 2019, consists of $1,367 for life insurance, $5,450 for an employer contribution to the 401(k) plan, the value of shares allocated to Ms. Schmitz’s account under the ESOP in the amount of $11,918, a cash allocation under the ESOP of $105 and cash dividends received on restricted stock awards of $3,000.
(4)For the year ended December 31, 2019, consists of $723 for life insurance, $5,949 for an employer contribution to the 401(k) plan, the value of shares allocated to Mr. Bailey’s account under the ESOP in the amount of $13,290, a cash allocation under the ESOP of $24 and cash dividends received on restricted stock awards of $3,000.

Outstanding Equity Awards at Fiscal Year End. The following tables set forth information containedon an award-by-award basis with respect to options and restricted stock awards held at December 31, 2019 by each of the named executive officers, as well as the value of such awards held by such persons at the end of the fiscal year.



     
 Option Awards Stock Awards
  Number of Number of      Market
  Securities Securities     Number ofValue of 
  Underlying Underlying     Shares or UnitsShares or 
  Unexercised Unexercised Option Option Of Stock ThatUnits of 
  Options Options Exercise Expiration Have NotStock 
Name Exercisable (1) Unexercisable (1) Price ($) Date VestedNot Vested (2) 
            
Michael A. Shriner 21,600 14,400    13.04 6/6/26 8,832158,976
            
Robert G. Russell, Jr. 12,000 8,000 13.04 6/6/26 6,000108,000
            
Nancy E. Schmitz 12,000 8,000 13.04 6/6/26 6,000108,000
            
John Bailey 12,000 8,000 13.04 6/6/26 6,000108,000
            
_____________
(1)On June 7, 2016, each of the named executive officers received a grant of options to purchase shares of Common Stock as well as a grant of shares of restricted stock. Both the options and the restricted stock grants vest in increments of 20% on each of the five anniversaries of the date of grant beginning on June 7, 2017.
(2)Represents value of unvested shares of restricted stock held by the named executive officer using the closing price of the Common Stock of $18.00 on December 31, 2019.

Split Dollar Life Insurance Agreement. The Bank has entered into Life Insurance Agreements with Mr. Shriner, Mr. Russell, Ms. Schmitz and Mr. Bailey. The Life Insurance Agreements for Mr. Shriner and Ms. Schmitz provide a death benefit equal to the following: if the executive is: (i) employed by the Bank at the time of his or her death, (ii) has retired from employment with the Bank after completion of not less than twenty (20) years of service with the Bank, or (iii) has retired from employment with the Bank and at such date of retirement the sum of the executive’s age and years of service equals not less than 70, then the executive’s beneficiary is entitled to payment of an amount equal to 200% of the executive’s highest annual base salary (not including bonus, equity compensation, deferred compensation or any other forms of compensation) in effect at the Bank at any time during the three calendar years prior to the date of retirement or death of the executive. The Life Insurance Agreements for Mr. Russell and Mr. Bailey provide a death benefit equal to 300% of the executive’s annual base salary in effect immediately preceding such executive’s death, but only if the executive is still employed by the Bank at the time of his death. The current death benefit for Mr. Shriner, Mr. Russell, Ms. Schmidt and Mr. Bailey is approximately $692,530, $742,341, $619,389 and $378,260, respectively.

For Mr. Shriner and Ms. Schmitz, if a change in control of the Bank shall occur prior to the executive’s termination of employment or retirement, then the death benefit coverage shall remain in effect until the executive’s death, unless the agreement is otherwise terminated pursuant to its terms prior to such date of a change in control.

Millington Bank Savings Plan (the “401(k) Plan”).The 401(k) Plan is a tax-qualified defined contribution savings plan for the benefit of all eligible employees. Pursuant to the 401(k) Plan, employees may also voluntarily elect to defer between 1% and 80% of their compensation as 401(k) savings under the 401(k) Plan, not to exceed applicable limits under federal tax laws. The 401(k) Plan also provides for matching contributions up to a maximum of 50% of the first 6% of a person’s salary for each participant. Employee contributions are immediately fully vested. Matching contributions are vested after three years of service. Each participant has an individual account under the 401(k) Plan and may direct the investment of his or her account among a variety of investment options or vehicles available.

Employee Stock Ownership Plan. The Bank has established the Millington Bank ESOP for the exclusive benefit of participating employees of the Bank. Participating employees are salaried, full-time employees who have completed at least one year of service and have attained the age of 21. Benefits may be paid either in shares of the common stock or in cash. Contributions to the ESOP and shares released from the suspense account will be allocated annually among participants on the basis of compensation. Participants become vested in their ESOP benefits at the rate of twenty percent per year of service beginning after two years of service and are fully vested in their accounts upon six years of service. Employment service before the adoption of the ESOP is credited for the purposes of vesting. Contributions to the ESOP by the Bank are discretionary, but are anticipated to be sufficient in amount necessary for the ESOP to meet the debt service obligations on the ESOP loan.

In connection with MSB Financial - Federal’s minority stock offering in 2007, the ESOP borrowed funds from MSB Financial - Federal and used those funds to purchase 202,342 shares of MSB Financial - Federal common stock for the ESOP. The purchased shares served as collateral for the loan. In connection with the conversion of MSB Financial - Federal’s mutual holding company in 2015, the ESOP purchased


150,663 shares of Company Common Stock and received 230,609 shares of Company Common Stock in exchange for the shares of MSB Financial - Federal it held. The new shares were financed by a loan from the Company and the existing ESOP loan was combined with this loan. The loan is being repaid principally through quarterly contributions to the ESOP by the Bank over the 20-year loan term. The loan is currently scheduled to be paid off on June 30, 2035. Shares purchased by the ESOP are held in a suspense account for allocation among the participants’ accounts as the loan is repaid on a pro-rata basis.

Contributions to the ESOP and shares released from the suspense account in an amount proportional to the repayment of the ESOP loan will be allocated to each eligible participant’s plan account, based on the ratio of each participant’s compensation to the total compensation of all eligible participants. Vested benefits will be payable generally upon the participants’ termination of employment, and will be paid in the sections captioned "Executive Compensation" and "Director Compensation"form of Common Stock. Pursuant to FASB ASC Topic 718-40, we are required to record a compensation expense each year in an amount equal to the fair market value of the shares released from the suspense account.

Executive Agreements

The Bank is party to Change in Control Agreements with each of the named executive officers. Each of the Change in Control agreements provides that if the named executive officer’s employment is terminated without just cause or if the named executive officer terminates for “good reason” as defined in the Proxy StatementChange in Control agreement within twenty-four months following a change in control, the named executive officer will be paid a lump sum payment amount equal to approximately three times his five year average annual compensation in the case of Mr. Shriner and two times their respective five year average annual compensation in the case of Mr. Russell, Ms. Schmitz and Mr. Bailey. Each of the Change in Control agreements provides that the payment will be reduced to the extent necessary so that no payment made under the agreement, when aggregated with all other payments to the individual will constitute an “excess parachute payment” under Section 280G of the Internal Revenue Code. Such change in control agreements have a two year term, subject to the Board reviewing and approving extensions of such term annually. If change in control payments had been made under the Change in Control agreements as of December 31, 2019, the payments would have equaled approximately $1,460,507, $534,851, $495,293 and $485,788 to Mr. Shriner, Mr. Russell, Ms. Schmitz and, Mr. Bailey, respectively.

Director Compensation
The following table sets forth information regarding the compensation of the Company’s directors for the fiscal year ended December 31, 2019. Mr. Shriner also serves as a director, and his compensation is incorporated herein by reference.detailed under “Executive Compensation.” He does not receive any separate compensation for service as a director. There were no grants of restricted stock to any director during the fiscal year ended December 31, 2019.


Director (1)
Board
Fees ($)
Option
Awards ($) (2)
All Other
Compensation ($) (3)
Total ($)
     
Robert C. Andersen44,0000044,000
Tony Bruno40,5000040,500
H. Gary Gabriel44,0000044,000
Gary T. Jolliffe44,000086744,867
W. Scott Gallaway86,000086786,867
Milena Schaefer44,0000044,000
Lawrence Seidman44,0000044,000
Raymond Vanaria45,5000045,450
Robert D. Vollers46,0000046,000

___________________
(1)As of December 31, 2019, Directors Jolliffe, Gallaway, Seidman, Vanaria and Vollers each held options to purchase 10,556 shares of Common Stock at a per share exercise price of $13.04 ($13.29 in the case of Mr. Seidman) which grants vest in increments of 20% on each of the five anniversaries of the date of grant. As of December 31, 2019, Directors Andersen and Gabriel each held options to purchase 5,278 shares of Common Stock at a per share exercise price of $17.30 as well as options to purchase 5,278 shares of Common Stock at a per share exercise price of $17.65. Directors Schaefer and Bruno don’t hold any options. These options vest in increments of 20% on each of the five anniversaries of the date of grant.
(2)No Option Awards were made in 2019
(3)For the year ended December 31, 2019: All Other Compensation consists of dividends paid on restricted stock awards of $866.50 for each of Directors Jolliffe and Gallaway. The other directors do not hold restricted stock awards.



Board Fees. Directors currently are compensated only for their service as directors of the Bank, and no additional compensation is paid for serving on the board of the Company. For the year ended December 31, 2019, the Bank paid a fee of $3,500 per board meeting. The Chairman of the Board of Directors was paid a fee of $7,000 per board meeting. The board has regular meetings on a monthly basis for a total of 12 meetings per year. Directors who serve on the Audit Committee and/or the Compensation Committee also received an additional payment of $500 per meeting. The Chairmen of the Audit Committee and the Compensation Committee received a payment of $1,000 per meeting.

Emeritus Director Program. On November 18, 2016, Ferdinand J. Rossi announced his retirement from the Board of Directors of the Company and the Bank with such retirement effective as of December 31, 2016.  Mr. Rossi has agreed to continue his service to the Company after his retirement in the capacity as an Emeritus Director.  Mr. Rossi has entered into an agreement with the Company detailing his duties as an Emeritus Director and the compensation to be received which will consist solely of the continued vesting of his previously-granted restricted stock awards during the term of his service as an Emeritus Director.  Mr. Rossi has agreed that all previously granted but unvested stock option awards were forfeited as of the date of his retirement. Upon his retirement from the Board effective January 31, 2018, Thomas G. McCain entered into a similar agreement to serve as an Emeritus Director which provides for the continued vesting of his restricted stock awards and the forfeiture of all unvested option grants.

Related Party Transactions

No directors, executive officers or their immediate family members were engaged, directly or indirectly, in transactions with the Company or any subsidiary during any of the two years ended December 31, 2019 or 2018 that exceeded $120,000 (excluding loans with Millington Bank).

Millington Bank makes loans to its officers, directors and employees in the ordinary course of business. All directors and employees are offered a 25 to 50 basis point reduction on interest rates for consumer loans or primary residence mortgage loans. Such loans do not include more than the normal risk of collectability or present other unfavorable features. Set forth below is a schedule of all loans to directors and executive officers for which a discount on the interest rate has been given:
Name and Nature of Relationship of Related Person



Net Interest
Rate

Largest Amount Outstanding Year Ended
12/31/2019


Balance
as of
12/31/2019


Amount
of Principal
Repaid



Secured or
Not Secured
      
W. S. Gallaway
Director
3.25%$162,604.59$150.539.77$12,064.82Secured
Gary T. Jolliffe
Director
3.75%$140,803.78$133,725.86$7,077.92Secured
Michael A. Shriner
President and CEO/Director
8.25%$1,250.00-0-$1,250.00Unsecured
Michael A. Shriner
President and CEO/Director
2.75%$192,351.91$174,205.16$18,146.75Secured
Michael A. Shriner
President and CEO/Director
4.25%$75,000.00-0-$75,000.00Secured
Nancy E. Schmitz
Senior Vice President
8.25%-0--0--0-Unsecured

Loans shown with a zero current balance represent home equity lines of credit (secured) or overdraft protection lines of credit (unsecured) on which there was no activity during the fiscal year ended December 31, 2019. All loans were approved through the normal underwriting process.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)Security Ownership of Certain Beneficial Owners.
The following table sets forth, as of March 2, 2020, certain information containedas to those persons who were known to be the beneficial owners of more than five percent (5%) of the Company’s outstanding shares of Common Stock and as to the shares of Common Stock beneficially owned by all executive officers and directors of the Company as a group.


Name and Address of Beneficial Owner 
Amount and Nature of
Beneficial Ownership (1)
 
Percent of Shares
of Common
Stock Outstanding (2)
Lawrence B. Seidman
100 Misty Lane
Parsippany, NJ 07054
 614,553
(3) 
 11.54%
      

Millington Bank Employee Stock Ownership
   Plan and Trust
1902 Long Hill Road
Millington, New Jersey 07946
 284,900
 (4) 
 5.49%
      
All directors and executive officers
    as a group (14 persons)
 1,219,041
 (5) 
 23.51%
____________
(1)For purposes of this table, a person is deemed to be the beneficial owner of shares of Common Stock if he or she has or shares voting or investment power with respect to such shares or has a right to acquire beneficial ownership at any time within 60 days from March 2, 2020. As used herein, “voting power” is the power to vote or direct the voting of shares and “investment power” is the power to dispose or direct the disposition of shares. Except as otherwise noted, ownership is direct, and the named persons or group exercise sole voting and investment power over the shares of the Common Stock.
(2)In calculating the percentage ownership of an individual or group, the number of shares outstanding is deemed to include any shares which the individual or group have the right to acquire through the exercise of options or otherwise within 60 days of March 2, 2020.
(3)Includes 6,333 shares which Mr. Seidman has the right to acquire pursuant to the exercise of options within 60 days of March 2, 2020. Mr. Seidman has agreed with the Federal Reserve Bank of New York that the maximum number of shares that he may vote at the Meeting will be 9.9% of the outstanding shares (513,306 shares).
(4)The ESOP trustee, Pentegra Trust Company, will vote all unallocated shares of the Common Stock held by the ESOP and all allocated shares for which no voting instructions are received in the section captioned "Principal Holderssame proportion it has received timely voting instructions “for” or “against” a matter from the ESOP participants with respect to shares previously allocated to participant accounts under the ESOP, subject to the exercise of our Common Stock" inits fiduciary duties.
(5)Includes 33,134 shares allocated to the Proxy Statement is incorporated hereinaccounts of executive officers under the ESOP. Includes 102,505 shares which the directors and executive officers have the right to acquire pursuant to the exercise of options within 60 days of March 2, 2020. Includes 614,553 shares owned by reference.Director Seidman but which he has agreed not to vote at any meeting of shareholders. Excludes shares for which certain officers or directors may be deemed to have voting power by virtue of serving as the 401(k) plan administrative committee.

(b)Security Ownership of Management.
The information contained inrequired by this Item is set forth above under the sections captioned "Principal Holderscaption "Item 10. Directors, Executive Officers and Corporate Governance of our Common Stock" and "Proposal I – Election of Directors" in the Proxy Statement is incorporated herein by reference.this Form 10-K."

(c)Changes in Control. Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.
(d)Securities Authorized for Issuance Under Equity Compensation Plans. Set forth below is information as of December 31, 20172019 with respect to compensation plans under which equity securities of the Registrant are authorized for issuance.


Equity Compensation Plan Information Equity Compensation Plan Information 
(A)
 
 Number of Securities
 to be Issued Upon
 Exercise of
 Outstanding Options,
 Warrants and Rights
(B)
 
 
 Weighted-average
 Exercise Price of
 Outstanding Options,
 Warrants and Rights
(C)
 Number of Securities
 Remaining Available for
 Future Issuance Under
 Equity Compensation
 Plans (Excluding Securities
 Reflected in Column (A))
(A)
 
 Number of Securities
 to be Issued Upon
 Exercise of
 Outstanding Options,
 Warrants and Rights
(B)
 
 
 Weighted-average
 Exercise Price of
 Outstanding Options,
 Warrants and Rights
(C)
 Number of Securities
 Remaining Available for
 Future Issuance Under
 Equity Compensation
 Plans (Excluding Securities
 Reflected in Column (A))
Equity compensation plans
approved by shareholders:
      
2016 Stock Compensation
and Incentive Plan
210,448
$13.27
71,051
185,003
$13.56
85,985
Total210,448
$13.27
71,051
185,003
$13.56
85,985
Item 13. Certain Relationships and Related Transactions, and Director Independence

Director Independence

The information containedBoard of Directors has determined that all directors with the exception of Michael A. Shriner are considered independent under the independence standards of The Nasdaq Stock Market. In determining which directors are independent, the Board of Directors considered the deposit and other relationships described under “Related Party Transactions” but determined these relationships did not affect their independence. Except as disclosed, all loans and deposits made or accepted were on substantially the same terms that would be granted to other customers with similar credit or deposit balances. There are no members of the Audit Committee, Compensation Committee or Nominating Committee who do not meet the independence standards of The Nasdaq Stock Market for membership on such committees.

Meetings and Committees of the Board of Directors

The Board of Directors conducts its business through meetings of the Board and through activities of its committees. The Board maintains an Audit Committee, an Asset/Liability Management Committee, an Asset Quality Committee, a Compensation Committee and a Nominating Committee. During the year ended December 31, 2019, the Board of Directors held 12 meetings. No director attended fewer than 75% of the total meetings of the Board and committees on which such director served during the year ended December 31, 2019.

The Audit Committee, a standing committee, was comprised during the year ended December 31, 2019 of Directors Raymond Vanaria (Chairman), W. Scott Gallaway, Robert C. Andersen, Tony Bruno and Gary T. Jolliffe. Each of the members of the Audit Committee is an independent director. Raymond J. Vanaria serves as the “audit committee financial expert.” The committee has the authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities. The Audit Committee recommends the engagement of independent auditors, receives the internal and independent audit reports and recommends appropriate action. The Audit Committee met fourtimes during the year ended December 31, 2019.

The Board of Directors has reviewed, assessed the adequacy of and approved a formal written charter for the Audit Committee, a copy of which can be found on the Company’s website at www.millingtonbank.com/about-us/investor-relations.

The Compensation Committee, a standing committee, was comprised of Directors Robert Vollers (Chairman), H. Gary Gabriel, Milena Schaefer and Lawrence B. Seidman during the year ended December 31, 2019. Each of the members of the Compensation Committee is an independent director within the requirements of Nasdaq. This committee meets at least annually to review management’s recommendations for management salaries and bonuses. The Compensation Committee met fourtimes during the year ended December 31, 2019. The Compensation Committee operates under a formal written charter, a copy of which can be found on the Company’s website at www.millingtonbank.com/about-us/investor-relations. The Compensation Committee is responsible for establishing the compensation philosophy, developing compensation guidelines, establishing (or recommending to the entire Board of Directors) the compensation of the Chief Executive Officer and the other executive officers. No executive officer participates with respect to decisions on his or her compensation. The Compensation Committee may retain, at its discretion, compensation consultants to assist it in making compensation related decisions although none were utilized in 2019.

The Compensation Committee’s goal is to determine appropriate compensation levels that will enable the Company to: (i) attract, retain and motivate an experienced, competent executive management team; (ii) reward the executive management team for the enhancement of stockholder value based on our annual performance and the market price of our stock; (iii) provide compensation rewards that are adequately balanced between short-term and long-term performance goals; and (iv) maintain compensation levels that are competitive with other financial institutions, particularly those comparable in asset size and market area.
The Compensation Committee considers a number of factors in their decisions regarding executive compensation, including, but not limited to, the level of responsibility and performance of the individual executive officers and the overall performance of the Company. The Compensation Committee also considers the recommendations of the Chief Executive Officer with respect to the compensation of executive officers and on matters of compensation philosophy, plan design and general guidelines for employee compensation. However, the Chief Executive Officer does not vote on and is not present for any discussion of his own compensation

Director Nomination Process

During the year ended December 31, 2019, the Nominating Committee, a standing committee, was comprised of Directors Robert C. Andersen, W. Scott Gallaway, H. Gary Gabriel, Gary T. Jolliffe, Lawrence B. Seidman, Milena Schaefer, Raymond Vanaria and Robert Vollers. The Nominating Committee recommends to the full Board of Directors persons for selection as the Board’s nominees for election as directors. The Committee met one (confirmed) time during the year ended December 31, 2019. Members of the Nominating Committee who are nominees did not participate in their selection as nominees. Each member of the committee is an independent director. The responsibilities of the members of the Nominating Committee are set forth in a charter, a copy of which can be found on the Company’s website at www.millingtonbank.com/about-us/investor-relations.

The Company does not pay fees to any third party to identify or evaluate or assist in identifying or evaluating potential nominees. The process for identifying and evaluating potential nominees of the Board includes soliciting recommendations from directors and officers of the Company and the Bank. Additionally, the Board will consider persons recommended by stockholders of the Company in selecting nominees of the Board for election as directors. In the Board’s selection of nominees of the Board, there is no difference in the sections captioned "Related Party Transactions"manner of evaluation of potential nominees who have been recommended by directors or officers of the Company and "Corporate Governance"the Bank versus evaluation of potential nominees who have been recommended by stockholders. The Committee seeks nominees with excellent decision-making ability, business experience, personal integrity and reputation, who are knowledgeable about the business activities and market areas in which the Company and the Bank engage. The Board does not have a specific policy regarding diversity of board nominees although it may consider diversity in market knowledge, experience, background, employment and other factors in selecting nominees.

To be considered in the Proxy StatementCommittee’s selection of individuals the Committee recommends to the Board for selection as the Board’s nominees, recommendations from stockholders must be received by the Company at the principal executive office of the Company not less than ninety (90) days before the date of the meeting; provided, however, that if less than one hundred (100) days’ notice or prior disclosure of the date of the meeting is incorporated hereingiven or made to stockholders, notice by reference.the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.  Such stockholder’s notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Company’s books, of such stockholder, (B) the class and number of shares of the Company’s capital stock that are beneficially owned by such stockholder, and (C) a statement disclosing (1) whether such stockholder or any nominee thereof is acting with or on behalf of any other person and (2) if applicable, the identity of such person.

Stockholder Communications

The Board of Directors does not have a formal process for stockholders to send communications to the Board. In view of the infrequency of stockholder communications to the Board of Directors, the Board does not believe that a formal process is necessary. Written communications received by the Company from stockholders are shared with the full Board no later than the next regularly scheduled Board meeting. The Board of Directors does not have a formal written policy regarding director attendance at annual meetings. However, the Board encourages directors to attend all annual meetings. All but one of the members of the Board of Directors attended the 2018 Annual Meeting.

Board Leadership Structure

Director Michael A. Shriner serves as President and Chief Executive Officer of the Company and Director W. Scott Gallaway serves as Chairman of the Board. The Board of Directors has determined that the separation of the offices of Chairman of the Board and Chief Executive Officer and President will enhance Board independence and oversight.  Moreover, the separation of the Chairman of the Board and Chief Executive Officer and President will allow the Chief Executive Officer and President to better focus on his growing responsibilities of running the Company, enhancing stockholder value and expanding and strengthening our franchise while allowing the Chairman of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management.

Board’s Role in the Risk Management Process

We face a number of risks, including credit risk, cybersecurity risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk.  Management is responsible for the day-to-day management of the risks the Company faces, while the Board, as a whole and through its committees, in particular the Audit Committee, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.   In addition, the Board has appointed a Chief Risk Officer who reports to the Board at least quarterly and more frequently if needed on risk management issues.  Other members of senior management attend the Board meetings and are available to address any questions or concerns raised by the Board on risk management and any other matters.  The Chairman of the Board and independent members of the Board work together to provide strong, independent oversight of the Company’s management and affairs through its standing committees and, when necessary, special meetings of independent directors.

Item 14. Principal Accounting Fees and Services
The information contained in the section captioned "Proposal II – Ratification of the Appointment of the


Independent Registered Public Accounting Firm"Firm
The Company’s independent registered public accounting firm, or principal accountant, for the year ended December 31, 2019 was Crowe LLP. The Audit Committee of the Board of Directors of the Company has re-appointed Crowe as the Company’s independent registered public accounting firm for the year ended December 31, 2020. The appointment of Crowe as the Company’s independent registered public accounting firm for the year ended December 31, 2020 is subject to ratification of such appointment by our stockholders.
Principal Accounting Fees and Services

The Securities and Exchange Act of 1934, as amended, requires all auditing services and non-audit services provided by an issuer’s independent auditor to be pre-approved by the issuer’s audit committee. The Company’s Audit Committee has adopted a policy of approving all audit and non-audit services prior to the service being rendered. All of the services provided by Crowe, were approved by the Audit Committee prior to the service being rendered.

Audit Fees.The fees incurred by the Company for audit services provided by Crowe for the fiscal years ended December 31, 2019 and 2018, respectively, were $429,018 and $892,135, respectively. These fees include professional services rendered for the audit of the Company’s annual consolidated financial statements and review of consolidated financial statements included in the Proxy Statement is incorporated hereinCompany’s Quarterly Reports on Form 10-Q, and services normally provided in connection with statutory and regulatory filings, including administrative and out-of-pocket expenses.

Audit Related Fees.The Company did not incur any audit-related fees for services provided by reference.Crowe reasonably related to the performance of the audits for the fiscal year ended December 31, 2019 and 2018.

Tax Fees.The fees incurred by the Company for services provided by Crowe related to the preparation of state and federal tax returns for the fiscal years ended December 31, 2019 and 2018, respectively were $19,000 and $18,000, respectively.

All Other Fees.The Company did not incur any other fees payable to Crowe for the fiscal years ended December 31, 2019 or 2018.




PART IV
 
Item 15. Exhibits, Financial Statement Schedules

(1)The following financial statements and the reports of independent registered public accounting firms appear in this Annual Report on Form 10-K immediately after this Item 15:
2018
2018
2018
2018
2018
(2) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
(3) The following exhibits are filed as part of this report:
Articles of Incorporation of MSB Financial Corp. *
Bylaws of MSB Financial Corp. **
4Stock Certificate of MSB Financial Corp.*
10.1EmploymentDescription of Capital Stock of MSB Financial Corp.
Change in Control Agreement with Michael A. Shriner As Amended and Restated ***
EmploymentChange in Control Agreement with Robert G. Russell, Jr. ***
EmploymentChange in Control Agreement with Nancy E. Schmitz ***
EmploymentChange in Control Agreement with John J. Bailey ***
Change in Control Agreement with John Kaufman ***
Form of Executive Life InsurnaceInsurance Agreement ****
10.6Millington Savings Bank Directors Consultation and Retirement Plan**
Amendment to Directors' Retirement Plan*****
10.8MSB Financial Corp. 2008 Stock Compensation and Incentive Plan, As Amended and Restated******
10.9Millington Bank Directors Deferred Compensation Plan*****
10.1MSB Financial Corp. 2016 Equity Incentive Plan*******
Subsidiaries of the Registrant
Consent of BDO USA,Crowe LLP
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSXBRL Instance Document ********
101.SCHXBRL Schema Document ********
101.CALXBRL Calculation Linkbase Document ********
101.LABXBRL Labels Linkbase Document ********
101.PREXBRL Presentation Linkbase Document ********
 

 
(Footnotes on following page)
________________


*Incorporated by reference to the Registrant's Form S-1 Registration Statement File No. 333-202573)
**Incorporated by reference to the Annual Report on Form 10-K of MSB Financial Corp., (the predecessor corporation) for the fiscal year ended June 30, 2014 and filed on September 26, 2014.
***Incorporated by reference to the Current Report on Form 8-K of the predecessor corporation dated MarchApril 16, 20152018 and filed on MarchApril 20, 20152018
****Incorporated by reference to MSB Financial Corp.'s (the predecessor) Registration Statement on Form S-1 (File No. 333-137294)
*****Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 21, 2015 and filed on December 28, 2015
******Incorporated by reference to the Form S-8 Registration Statement (File No. 333-164264) of the predecessor corporation.
*******Incorporated by reference to the Registrant's Form S-8 Registration Statement (File No. 333-213834).
********Submitted as Exhibits 101 to this Form 10-K are documents formatted in XBRL (Extensible Business Reporting Language).
Item 16.  Summary
Not applicable


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of March 2, 2018.13, 2020.
MSB FINANCIAL CORP.
 
 
By:
 
 
/s/ Michael A. Shriner
 Michael A. Shriner
 President and Chief Executive Officer
 (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below on March 2, 201813, 2020 by the following persons on behalf of the registrant and in the capacities indicated.
/s/ Michael A. Shriner /s/ W. Scott Gallaway 
Michael A. Shriner
President, Chief Executive Officer and Director
 
W. Scott Gallaway
Chairman of the Board and Director
/s/ Anthony Bruno
 
/s/ Gary T. Jolliffe
Anthony Bruno
Director
 
Gary T. Jolliffe
Director
 
/s/ H. Gary Gabriel
Gary T. Jolliffe
Director
 
H. Gary Gabriel
Director
 
/s/ Lawrence B. Seidman
H. Gary Gabriel
Director
 
Lawrence B. Seidman
Director
 
 
/s/ Milena Schaefer 
/s/ Raymond J. Vanaria
Milena Schaefer
Director

Raymond J. Vanaria
Director
 

 
/s/ Raymond J. VanariaRobert D. Andersen
 
 
/s/ Robert D. AndersenVollers
Raymond J. Vanaria
Director

Robert D. Andersen
Director
/s/ Robert D. Vollers
Director

/s/ John S. Kaufman

Robert D. Vollers
Director
 
John S. Kaufman
First Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)





Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors
MSB Financial Corp. and Subsidiaries
Millington, New Jersey

Opinion on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of MSB Financial Corp. and Subsidiaries (the “Company”"Company") and subsidiaries as of December 31, 20172019 and 2016, and2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years then ended December 31, 2019 and 2018, and the related notes (collectively referred to as the “consolidated"financial statements"). We also have audited the Company’s internal control over financial statements”)reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries atas of December 31, 20172019 and 2016,2018, and the results of their operations and their cash flows for each of the years then ended, December 31, 2019 and 2018 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Basis for OpinionOpinions
These consolidated
The Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding offraud, and whether effective internal control over financial reporting but not for the purpose of expressing an opinion on the effectivenesswas maintained in all material respects.

Our audits of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsstatements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA,Crowe LLP

We have served as the Company's auditor since 2013.

Woodbridge, New Jersey
March 2, 20182018.


New York, New York

March 13, 2020


  
MSB Financial Corp. and Subsidiaries Consolidated Statements of Financial Condition
At
December 31,
2017
At
December 31,
2016
At
December 31,
2019
At
December 31,
2018
(Dollars in thousands, except per share amounts)  
Cash and due from banks$2,030
$1,388
$1,296
$1,558
Interest-earning demand deposits with banks20,279
19,994
17,157
10,242
Cash and Cash Equivalents22,309
21,382
18,453
11,800
Securities held to maturity (fair value of $38,255 and $43,894, respectively)38,482
44,104
Loans receivable, net of allowance for loan losses of $5,414 and $4,476, respectively473,405
368,007
Securities held to maturity (fair value of $35,696 and $38,569, respectively)35,827
39,476
Loans receivable, net of allowance for loan losses of $5,722 and $5,655, respectively508,022
502,299
Premises and equipment8,698
8,957
8,020
8,180
Federal Home Loan Bank of New York stock, at cost2,131
1,433
2,848
4,756
Bank owned life insurance14,197
13,784
14,480
14,585
Accrued interest receivable1,607
1,378
1,650
1,615
Other assets2,211
2,601
3,786
1,789
Total Assets$563,040
$461,646
$593,086
$584,500
Liabilities and Stockholders' Equity  
Liabilities  
Deposits:  
Non-interest bearing$36,919
$44,365
$47,935
$46,690
Interest bearing411,994
317,934
424,817
373,889
Total Deposits448,913
362,299
472,752
420,579
Advances from Federal Home Loan Bank of New York37,675
22,675
51,575
94,275
Advance payments by borrowers for taxes and insurance686
792
722
749
Other liabilities2,741
2,695
2,662
2,251
Total Liabilities490,015
388,461
527,711
517,854
Stockholders' Equity  
Preferred stock, par value $0.01; 1,000,000 shares authorized; no shares issued or outstanding



Common stock, par value $0.01; 49,000,000 shares authorized; 5,768,632 and 5,714,182 issued; 5,768,632 and 5,714,182 outstanding, respectively58
57
Common stock, par value $0.01; 49,000,000 shares authorized; 5,184,914 and 5,389,054 issued and outstanding at December 31, 2019 and December 31, 2018, respectively52
54
Paid-in capital51,068
51,809
41,857
44,726
Retained earnings23,641
23,370
24,989
23,498
Unearned common stock held by ESOP (190,390 and 201,316 shares, respectively)(1,742)(1,929)
Accumulated other comprehensive loss
(122)
Unearned common stock held by ESOP (168,538 and 179,464 shares, respectively)(1,523)(1,632)
Total Stockholders' Equity73,025
73,185
65,375
66,646
Total Liabilities and Stockholders' Equity$563,040
$461,646
$593,086
$584,500
See notes to consolidated financial statements.  


 F- 2 



      
MSB Financial Corp. and Subsidiaries Consolidated Statements of Income
Year Ended
 December 31,
Year Ended
 December 31,
2017 20162019 2018
(in thousands except per share amounts)      
Interest Income      
Loans receivable, including fees$18,278
 $12,745
$23,007
 $21,960
Securities held to maturity1,011
 1,293
1,064
 1,065
Other191
 172
484
 320
Total Interest Income19,480
 14,210
24,555
 23,345
Interest Expense      
Deposits2,450
 1,501
5,282
 3,834
Borrowings996
 746
1,708
 1,564
Total Interest Expense3,446
 2,247
6,990
 5,398
Net Interest Income16,034
 11,963
17,565
 17,947
Provision for Loan Losses1,185
 800

 240
Net Interest Income after Provision for Loan Losses14,849
 11,163
17,565
 17,707
Non-Interest Income      
Fees and service charges342
 333
346
 334
Income from bank owned life insurance413
 316
554
 388
Other67
 392
74
 78
Total Non-Interest Income822
 1,041
974
 800
Non-Interest Expenses      
Salaries and employee benefits6,240
 5,729
6,769
 6,673
Directors compensation743
 458
524
 490
Occupancy and equipment1,620
 1,454
1,534
 1,564
Service bureau fees229
 752
575
 347
Advertising24
 41
21
 33
FDIC assessment184
 198
100
 211
Professional services1,347
 1,100
2,415
 1,730
Other794
 658
831
 813
Total Non-Interest Expenses11,181
 10,390
12,769
 11,861
Income before Income Taxes4,490
 1,814
5,770
 6,646
Income Tax Expense1,768
 653
1,667
 1,811
Net Income$2,722
 $1,161
$4,103
 $4,835
Earnings per share:      
Basic$0.49
 $0.21
$0.81
 $0.90
Diluted$0.48
 $0.20
$0.80
 $0.90
See notes to consolidated financial statements.      


 F- 3 



    
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Comprehensive Income
 
Year Ended
 December 31,
(Dollars in thousands)2017 2016
Net income$2,722
 $1,161
Other comprehensive income (loss), net of tax   
Defined benefit pension plans:   
Actuarial loss arising during period, net of tax of $- and
$33 for year ended December 31, 2017 and 2016, respectively

 (50)
Reclassification adjustment for prior service cost included in net income, net of tax of $- and $5 for the year ended December 31, 2017 and 2016, respectively [Note A]
 (8)
Reclassification adjustment for net actuarial loss included in net income, net of tax of ($81) and ($10) for the year ended December 31, 2017 and 2016, respectively [Note B]122
 15
Other comprehensive income (loss)122
 (43)
Comprehensive income$2,844
 $1,118
MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Changes in Stockholders' Equity
 
Common
Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Unallocated
Common
Stock
Held by
ESOP
 
Total
Stockholders'
Equity
(Dollars in thousands)         
Balance - December 31, 2017$58
 $51,068

$23,641
 $(1,742) $73,025
Net income
 
 4,835
 
 4,835
Allocation of ESOP stock
 219
 
 110
 329
Repurchased stock (390,089 shares)(4) (7,026) 
 
 (7,030)
Exercise of stock options (10,511 shares)
 137
 
 
 137
Stock-based compensation
 328
 
 
 328
Cash paid for common stock dividend ($0.905 per share)
 
 (4,978) 
 (4,978)
Balance - December 31, 2018$54
 $44,726
 $23,498
 $(1,632) $66,646
Net income
 
 4,103
 
 4,103
Allocation of ESOP stock
 151
 
 109
 260
Repurchased stock (199,202 shares and 4,938 restricted)(2) (3,347) 
 
 (3,349)
Stock-based compensation
 327
 
 
 327
Cash paid for common stock dividends ($0.50 per share)
 
 (2,612) 
 (2,612)
Balance - December 31, 2019$52
 $41,857
 $24,989
 $(1,523) $65,375
See notes to consolidated financial statements.         
Note A: The gross amount of prior service cost amortization is recorded in Directors' Compensation. The related tax impact is recorded in income tax expense.
Note B: The gross amount of actuarial (gain) loss amortization is recorded in Salaries and Benefits, $0 and ($3), respectively, and Directors' Compensation, $203, and $29, respectively. The related tax expense is recorded in income tax expense.
See notes to consolidated financial statements.

 F- 4 



MSB Financial Corp. and Subsidiaries
 
Consolidated Statements of Changes in Stockholders' Equity
 
Common
Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Unallocated
Common
Stock
Held by
ESOP
 
Accumulated
Other
Comprehensive
 Loss
 
Total
Stockholders'
Equity
(Dollars in thousands)           
Balance - December 31, 2015$59
 $56,216
 $22,209
 $(2,042) $(79) $76,363
Net  income    1,161
     1,161
Other comprehensive loss, net of tax        (43) (43)
Allocation of ESOP stock  36
   113
   149
Repurchased stock (242,379 shares)(2) (3,213)       (3,215)
Purchase of common stock for equity plan  (1,467)       (1,467)
Exercise of stock options (3,138 shares)  30
       30
Stock-based compensation  207
       207
Balance - December 31, 2016$57
 $51,809
 $23,370
 $(1,929) $(122) $73,185
Net income    2,722
     2,722
Other comprehensive income, net of tax        122
 122
Allocation of ESOP stock  78
   187
   265
Repurchased stock (218,631 shares)(2) (3,785)       (3,787)
Exercise of stock options (273,081 shares)3
 2,575
       2,578
Stock-based compensation  391
       391
Cash paid for common stock dividend ($0.425 per share)    (2,451)     (2,451)
Balance - December 31, 2017$58
 $51,068
 $23,641
 $(1,742) $
 $73,025
See notes to consolidated financial statements.           
    
MSB Financial Corp. and Subsidiaries 
  
Consolidated Statements of Cash Flows 
 
Year Ended
December 31,
(Dollars in thousands)2019 2018
Cash Flows from Operating Activities   
Net income$4,103
 $4,835
Adjustments to reconcile net income to net cash provided by
 operating activities:
   
Net (accretion) of securities premiums and discounts and deferred loan fees and costs(181) (118)
Depreciation and amortization of premises and equipment559
 573
Stock-based compensation and allocation of ESOP stock587
 657
Provision for loan losses
 240
Deferred income taxes(191) 293
Income from bank owned life insurance(554) (388)
Increase in accrued interest receivable(35) (8)
Decrease in other assets64
 129
Decrease in other liabilities(800) (490)
Net Cash Provided by Operating Activities3,552
 5,723
Cash Flows from Investing Activities   
Activity in held to maturity securities:   
Purchases(9,961) (8,969)
Maturities, calls and principal repayments13,556
 7,898
Net decrease (increase) in loans receivable3,279
 (54,406)
Purchased loans(11,300) (7,096)
Proceeds from sales of loans2,533
 32,563
Purchase of bank premises and equipment(399) (55)
Purchase of Federal Home Loan Bank of New York stock(14,697) (27,356)
Redemption of Federal Home Loan Bank of New York stock16,605
 24,731
Net Cash Used by Investing Activities(384) (32,690)
Cash Flows from Financing Activities   
Net increase (decrease) in deposits52,173
 (28,334)
Advances from Federal Home Loan Bank of New York
 66,600
Repayment of advances from Federal Home Loan Bank of New York(42,700) (10,000)
(Decrease) increase in advance payments by borrowers for taxes and insurance(27) 63
Cash dividends paid to stockholders(2,612) (4,978)
Net exercise of options and repurchase of shares
 (53)
Repurchase of common stock(3,349) (6,840)
Net Cash  Provided by Financing Activities3,485
 16,458
Net increase (decrease) in Cash and Cash Equivalents6,653
 (10,509)
Cash and Cash Equivalents – Beginning11,800
 22,309
Cash and Cash Equivalents – Ending$18,453
 $11,800
See notes to consolidated financial statements.   

 F- 5 



    
MSB Financial Corp. and Subsidiaries 
  
Consolidated Statements of Cash Flows 
 
Year Ended
December 31,
(Dollars in thousands)2017 2016
Cash Flows from Operating Activities   
Net income$2,722
 $1,161
Adjustments to reconcile net income to net cash provided by
 operating activities:
   
Net (accretion) amortization of securities premiums and discounts and deferred loan fees and costs(137) 11
Depreciation and amortization of premises and equipment556
 456
Stock-based compensation and allocation of ESOP stock654
 356
Provision for loan losses1,185
 800
Deferred income taxes513
 177
Income from bank owned life insurance(413) (316)
Increase in accrued interest receivable(229) (26)
(Increase) decrease in other assets(204) 567
Increase (decrease) in other liabilities251
 (688)
Net Cash Provided by Operating Activities4,898
 2,498
Cash Flows from Investing Activities   
Activity in held to maturity securities:   
Purchases(1,182) 
Maturities, calls and principal repayments6,727
 34,789
Net increase in loans receivable(44,873) (68,077)
Purchased loans(80,535) (38,327)
Proceeds from sales of loans19,039
 
Purchase of bank premises and equipment(297) (1,295)
Purchase of bank owned life insurance
 (6,000)
Purchase of Federal Home Loan Bank of New York stock(16,404) (57)
Redemption of Federal Home Loan Bank of New York stock15,706
 450
Net Cash Used by Investing Activities(101,819) (78,517)
Cash Flows from Financing Activities   
Net increase in deposits86,614
 99,701
Advances from Federal Home Loan Bank of New York25,000
 
Repayment of advances from Federal Home Loan Bank of New York(10,000) (10,000)
(Decrease) increase in advance payments by borrowers for taxes and insurance(106) 49
Cash dividends paid to stockholders(2,451) 
Net exercise of options and repurchase of shares(1,672) 
Proceeds from exercise of stock options571
 30
Repurchase of common stock(108) (3,215)
Purchase of common stock for equity plan
 (1,467)
Net Cash  Provided by Financing Activities97,848
 85,098
Net Increase in Cash and Cash Equivalents927
 9,079
Cash and Cash Equivalents – Beginning21,382
 12,303
Cash and Cash Equivalents – Ending$22,309
 $21,382
See notes to consolidated financial statements.   
MSB Financial Corp. and Subsidiaries
    
Consolidated Statements of Cash Flows (Continued)   
 
Year Ended
December 31,
(Dollars in thousands)2019 2018
Supplementary Cash Flows Information   
Interest paid$6,991
 $5,407
Income taxes paid$2,077
 $1,436
Supplemental noncash disclosures   
Lease liabilities arising from obtaining right-of-use assets$1,211
 $
See notes to consolidated financial statements.   


 F- 6 



MSB Financial Corp. and Subsidiaries
    
Consolidated Statements of Cash Flows (Continued)   
 
Year Ended
December 31,
(Dollars in thousands)2017 2016
Supplementary Cash Flows Information   
Interest paid$3,423
 $2,252
Income taxes paid$1,061
 $288
Loan receivable transferred to other real estate$
 $
See notes to consolidated financial statements.   


F- 7



Note 1 – Organization and Business
MSB Financial Corp. (the "Company") is a Maryland-chartered corporation organized in 2014 to be the successor to MSB Financial Corp., a federal corporation ("Old MSB") upon completion of the second-step conversion of Millington Bank (the "Bank") from the two-tier mutual holding company structure to the stock holding company structure. MSB Financial, MHC (the "MHC") was the former mutual holding company for Old MSB prior to completion of the second-step conversion.  In conjunction with the second-step conversion, each of the MHC and Old MSB ceased to exist.  The second-step conversion was completed on July 16, 2015 at which time the Company sold 3,766,592 shares of its common stock (including 150,663 shares purchased by the Bank's employee stock ownership plan) at $10.00 per share for gross proceeds of approximately $37.7 million. Expenses related to the stock offering totaled $1.5 million and were netted against proceeds. As part of the second-step conversion, each of the outstanding shares of common stock of Old MSB held by persons other than the MHC were converted into 1.1397 shares of Company common stock with cash paid in lieu of fractional shares.  As a result, a total of 2,187,242 additional shares were issued in the second-step conversion.  As a result of the second-step conversion, all share and per share information has subsequently been revised to reflect the 1.1397 exchange ratio unless otherwise noted.
The Company's principal business is the ownership and operation of the Bank. The Bank is a New Jersey-chartered stock savings bank and its deposits are insured by the Federal Deposit Insurance Corporation. The primary business of the Bank is attracting retail deposits from the general public and using those deposits together with funds generated from operations, principal repayments on securities and loans and borrowed funds, for its lending and investing activities. The Bank's loan portfolio primarily consists of one-to-four family and home equity residential loans, commercial real estate loans, commercial loans, and construction loans. It also invests in U.S. government obligations and mortgage-backed securities. The Bank is regulated by the New Jersey Department of Banking and Insurance and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the "Federal Reserve") regulates the Company as a bank holding company.
The primary business of Millington Savings Service Corp (the "Service Corp"), the Bank's wholly-owned subsidiary, was the ownership and operation of a single commercial rental property. This property was sold during the year ended June 30, 2007. Currently the Service Corp is inactive.
Note 2 - Summary of Significant Accounting Policies
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, the Bank and the Bank's wholly owned subsidiary, the Service Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses all available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Bank's market area.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations.
The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of December 31, 2017 for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions and interest-bearing deposits with banks with original maturities of six months or less.
Securities
Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of being sold in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities or as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of applicable income taxes, reported in a separate component of stockholders' equity.  The Company had no trading or available for sale securities as of December 31, 20172019 and 2016.2018.

F- 8

Note 2 - Summary of Significant Accounting Policies (Continued)


Equity investments are measured at fair value with changes in fair value recognized in net income. The Company had no equity investments with changes in fair value recorded in net income for the years ended December 31, 2019 and 2018.
Individual securities are considered impaired when their fair value is less than amortized cost. Management evaluates all securities with unrealized losses quarterly to determine if such impairments are "temporary" or "other-than-temporary" in accordance with applicable accounting guidance.  Accordingly, the Company accounts for temporary impairments based upon a security's classification as trading, available for sale or held to maturity.  Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through other comprehensive income (loss) with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes.  Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements.  The carrying value of securities held in the trading portfolio is adjusted to fair value through earnings on a monthly basis.

F- 7

Note 2 - Summary of Significant Accounting Policies (Continued)


Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level equal to or exceeding amortized cost are recognized in earnings.  Otherwise, the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components.  The credit-related impairment generally represents the amount by which the present value of the cash flows expected to be collected on athe debt security falls below its amortized  cost.  The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit-related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred taxes, in other comprehensive income (loss).
The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value of a security has been lower than the cost, and the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer.  The Company also assesses its intent with regard to selling or holding each security as well as any conditions which may require the sale of security prior to the recovery of fair value to a level which equals or exceeds amortized cost. 
Discounts and premiums on securities are accreted/amortized to maturity by use of the level-yield method. Gain or loss on sales of securities is based on the specific identification method.
Concentration of Risk
The Bank's lending activities are concentrated in loans secured by real estate located in the State of New Jersey.
Loans Receivable
Loans are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts based on the effective interest method.
Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management's estimate of probable incurred losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management's estimate of probable incurred losses inherent in its unfunded loan commitments and is recorded in other liabilities, when required, on the consolidated statement of financial condition. The allowance for credit losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. All, or part, of the principal balance of loans receivable that are deemed uncollectible are charged against the allowance for loan losses when management determines that the repayment of that amount is highly unlikely.  Any subsequent recoveries are credited to the allowance for loan losses.  Non-residential consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible. 
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance.  The allowance is based on the Company's pastthree year loan loss experience, known and inherent risksprobable incurred losses in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, the composition of the loan portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
For additional detail regarding the allowance for loan losses, see Note 4 to the Consolidated Financial Statements.

Other Real Estate Owned ("OREO")
Other real estate owned represents real estate acquired through formal foreclosure or by taking possession of the real estate and is initially recorded at the lower of cost or fair value, less estimated selling costs establishing a new cost basis.  Write-downs required at the time of acquisition are charged to the allowance for loan losses.  Thereafter, the Company maintains an allowance for decreases in the property's

F- 9

Note 2 - Summary of Significant Accounting Policies (Continued)


estimated fair value, through charges to earnings.  Such charges are included in other non-interest expense along with any additional property maintenance.  There was no OREO at December 31, 20172019 and 2016.2018. We may obtain physical possession of residential and commercial real estate collateralizing consumer and commercial mortgage loans via foreclosure or in-substance repossession. As of December 31, 2017,2019, we had consumer loans with a carrying value of $1.2 million$773,000 collateralized by residential real estate property for which formal foreclosure proceedings were in process.

Premises and Equipment

F- 8

Note 2 - Summary of Significant Accounting Policies (Continued)


Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed on the straight-line method over the following estimated useful lives:
 Years
Building and improvements5 - 50
Furnishings and equipment3 – 7
Leasehold improvementsShorter of useful life
or term of lease
Significant renewals and betterments are capitalized to the premises and equipment account. Maintenance and repairs are charged to operations in the year incurred. Rental income is netted against occupancy costs in the consolidated statements of income.
Federal Home Loan Bank Stock
Federal law requires a member institution of the Federal Home Loan Bank ("FHLB") system to hold restricted stock of its district's FHLB according to a predetermined formula based on advances available and outstanding. The restricted stock is carried at cost.  Management's determination of whether these shares are impaired is based on an assessment of the ultimate recoverability of its cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge was necessary related to the FHLB restricted stock during the years ended December 31, 20172019 and 2016.2018.

Bank Owned Life Insurance
Bank owned life insurance is carried at net cash surrender value. The change in the net cash surrender value is recorded as a component of non-interest income.
Defined Benefit Plans
In accordance with applicable guidance prescribed in FASB ASC 715, "Compensation – Retirement Benefits", the Company recognizes the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in the consolidated statement of financial condition, with changes in the funded status recorded through other comprehensive income (loss) in the year in which those changes occur.  The funded status of the plan is calculated using actuarial concepts which involve making assumptions regarding discount rate, mortality, expected rate of compensation increases and others.
Stock-based Compensation Plans
In accordance with FASB ASC 718, "Compensation – Stock Compensation", the Company recognizes compensation expense for the total of the fair value of all share-based compensation awards granted over the requisite service periods.  In addition, ASC 718 requires that cash flow activity be reported on a financing rather than an operating cash flow basis for the benefits, if any, of realized tax deductions in excess of previously recognized tax benefits on compensation expense.
Advertising
The Company expenses advertising and marketing costs as incurred.



Income Tax Expense

F- 10

Note 2 - Summary of Significant Accounting Policies (Continued)


The Company and its subsidiaries file a consolidated federal income tax return. Federal income taxes are allocated based on the contribution of their respective income or loss to the consolidated income tax return. Separate state income tax returns are filed.
Federal and state income taxes have been provided for these consolidated financial statements on the basis of reported income. The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the reporting of certain items of income and expense for financial reporting and income tax reporting purposes. Deferred income taxes are recorded to recognize such temporary differences.
The Company follows the provisions of FASB ASC 740, "Income Taxes", formerly FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes ("FIN48").  ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company's evaluation under ASC 740, no significant income tax uncertainties have been identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended December 31, 20172019 and 2016.2018. The Company's policy is to recognize interest and penalties on unrecognized

F- 9

Note 2 - Summary of Significant Accounting Policies (Continued)


tax benefits in income tax expense in the consolidated statement of income. The Company did not recognize any interest and penalties for the years ended December 31, 20172019 and 2016.2018. The tax years subject to examination by the taxing authorities are the years ended December 31, 20172019, 2016, 2015, the six months ended December 31, 2014,2018, 2017 and the year ended June 30, 2014.2016.
Off-Balance Sheet Credit-Related Financial Instruments
In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under lines of credit. Such financial instruments are recorded when they are funded.
Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding, exclusive of the Employee Stock Ownership Plan ("ESOP") shares not yet committed to be released. Diluted earnings per share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method.
The following table shows the computation of basic and diluted earnings per share:
 Year Ended December 31,
(In Thousands, Except Per Share Data)2017 2016
Numerator:   
Net income$2,722
 $1,161
Denominator: 
  
Weighted average common shares5,550
 5,646
Dilutive potential common shares95
 77
Weighted average fully diluted shares5,645
 5,723
Earnings per share: 
  
Basic$0.49
 $0.21
Dilutive$0.48
 $0.20
Outstanding common stock equivalents having no dilutive effect
 
Other Comprehensive Income
Other comprehensive income includes benefit plans amounts recognized under ASC 715, "Compensation-Retirement Benefits".  This item of other comprehensive income reflects, net of tax, prior service costs and unrealized net losses that had not been recognized in the consolidated financial statements prior to the implementation of ASC 715 along with actuarial losses arising during the current period.
Interest Rate Risk
The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase securities and to make loans primarily secured by real estate. The potential for interest-rate risk exists as a result of the generally shorter duration of the Bank's interest-sensitive liabilities compared to the generally longer duration of its interest-sensitive assets. In a rising rate environment, liabilities will generally reprice faster than assets, thereby reducing net interest income. For this reason,

F- 11

Note 2 - Summary of Significant Accounting Policies (Continued)


management regularly monitors the maturity structure of the Bank's assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.
 Year Ended December 31,
(In Thousands, Except Per Share Data)2019 2018
Numerator:   
Net income$4,103
 $4,835
Denominator: 
  
Weighted average common shares5,096
 5,351
Dilutive potential common shares31
 49
Weighted average fully diluted shares5,127
 5,400
Earnings per share: 
  
Basic$0.81
 $0.90
Dilutive$0.80
 $0.90
Outstanding common stock equivalents having no dilutive effect
 
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-9, "Revenue from Contracts with Customers (ASU 2014-9)", which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-9 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-9 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.  The standard was initially effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-9 recognized at the date of adoption  (which includes additional footnote disclosures).
The FASB subsequently issued ASU 2015-14 which states that public business entities should apply the guidance in ASU 2014-9 to annual reporting periods beginning after December 31, 2017, including interim reporting periods within that reporting period. The Company has decided to use the modified retrospective method to adopt the guidance.
The FASB also subsequently issued ASUs Nos. 2016-8, 2016-10, 2016-12, 2016-20 and 2017-5 to augment, amend and clarify the original pronouncement.  For the twelve months ended December 31, 2017, approximately 98% of our revenue was comprised of interest income on financial assets and earnings on bank-owned life insurance, which are explicitly excluded from the scope of ASU 2014-09. We have analyzed our other revenue streams that are within the scope of the guidance, primarily service fees on deposits and ATM and debit card fees, and have determined there will be no material impact to our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-1, "Financial Instruments - Overall." The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance effective January 1, 2018, will not have a material impact on our consolidated financial statements. 
In February 2016, the FASB issued ASU No. 2016-2, "Leases" (Topic 842). This ASU revises the accounting related tomethod for lessee accounting. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability for all leases. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily due to the recognition of lease assets and lease liabilities. ASU 2016-2 is effective for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted.
The standard is required to be adopted using the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We currently expect that upon adoption of ASU 2016-2, right-of-use assets and lease liabilities will be recognized in our consolidated statements of condition in amounts that will be material; however, we do not expect a material impact to our consolidated income statement.
In March 2016, the FASB issued ASU No. 2016-9, "Improvements to Employee Share-Based Payment Accounting, Compensation – Stock Compensation" (Topic 718). This ASU changes several aspects of the accounting for share-based payment award transactions, including: (1) accounting and cash flow classification for excess tax benefits and deficiencies, (2) forfeitures, and (3) tax withholding requirements and cash flow classification. The standard is effective for public companies for annual and interim periods in fiscal years beginning after December 15, 2016. The adoption of ASU 2016-9 effective January 1, 2017, did not haveASC 842 resulted in the recognition of a material impactright-of-use (ROU) asset of $1.2 million and a lease liability of $1.2 million on our consolidated financial statements.Consolidated Statements of Financial Condition. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. The Company has also elected not to restate comparative periods.

In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The standard is effective for public companies in annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in thean interim or annual period provided that the entire standard is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements. We have taken steps to begin preparations for implementation, such as evaluating changes to our current loss recognition model and evaluating the potential use ofhave selected an outside professionals for an updated model.

F- 12

Note 2 - Summary of Significant Accounting Policies (Continued)


In August 2016,professional company's model to begin loading our data into and determining next steps. On October 16, 2019, the FASB issued ASU 2016-15, "Statement of Cash Flows" (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update address the following eight specific cash flow issues with the objective of reducing the existing diversity in practice: (1) debt prepayments or debt extinguishment costs (cash outflow-financing), (2) settlement of debt instruments with coupon interest rates insignificantvoted to a delay the effective interest rate, interest payment (cash outflow-operating), or principal payment (cash outflow-financing), (3) contingent consideration payments made soon after a business combination (cash outflow-investing), (4) proceeds fromdate of ASU 2016-13 for SEC filers who are smaller reporting companies (like the settlementCompany) and public entities that are not SEC filers and nonpublic entities. For these entities, the effective date for implementation of insurance claims (classification on basis of the nature of each loss), (5) proceeds from the corporate/bank-owned life insurance, proceeds (cash inflow-investing), payments (cash outflow-investing/operating), (6) distributions received from equity method investees, cumulative earnings approach (cash inflow-investing), nature of distribution approach (cash inflow-operating/investing), (7) beneficial interest in securitization transactions, assets (noncash transaction), cash receipts from trade receivable (cash inflow-investing), (8) separately identifiable cash flows (classified based on source-financing/investing/operating).  The amendments in this Update are effective for public business entities for theASU 2016-13 has been deferred to fiscal years beginning after December 15, 20172022, and interim periods within those fiscal years.  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 adoption of this guidance effective January 1, 2018, will not have a material impact on our consolidated statements of cash flow.
In February 2017, FASB issued Accounting Standards Update No. 2017-7, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU 2017-7"). To improve the consistency, transparency, and usefulness of financial information for users, the amendments in ASU 2017-7 require that an employer disaggregate the service cost component from the other components of net benefit cost and report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in ASU 2017-7 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in ASU 2017-7 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We intend to adopt ASU 2017-7 during the first quarter of 2018 and it will have no effect on our results of operations because it only impacts the presentation of certain information on the statements of income.
In March 2017, FASB issued Accounting Standards Update No. 2017-8, "Receivables —Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-8"). ASU 2017-8 amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  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 effect of ASU 2017-8 would be lower interest income and a corresponding lower yield as the amortization period would be shortened.  As of December 31, 2017 we do not hold any callable debt securities that were purchased at a premium.  We intend to adopt ASU 2017-8 during the first quarter of 2019.
In May 2017, FASB issued Accounting Standards Update No. 2017-9, "Scope of Modification Accounting," which clarifies Topic 718, "Compensation – Stock Compensation," such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award unless all of the following criteria are met:  (1) the fair value of the modified award is the same as the fair value of the original award immediately before the modification (the ASU indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the entity is not required to estimate the value immediately before and after the modification); (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.  The ASU is effective for all entities for fiscal years beginning after December 15, 2017, including interim periods within those years.  The adoption of this guidance effective January 1, 2018, did not have a material impact on our consolidated financial statements.

Note 3 - Securities Held to Maturity
The amortized cost of securities held to maturity and their fair values are summarized as follows:

F- 13

Note 3 - Securities Held to Maturity (Continued)


Amortized
 Cost
 
Gross
 Unrealized
 Gains
 
Gross
 Unrealized
 Losses
 
Fair
 Value
Amortized
 Cost
 
Gross
 Unrealized
 Gains
 
Gross
 Unrealized
 Losses
 
Fair
 Value
(In thousands) (In thousands) 
December 31, 2017:       
December 31, 2019:       
U.S. Government agencies$5,500
 $
 $42
 $5,458
$6,000
 $13
 $
 $6,013
Mortgage-backed securities23,839
 263
 207
 23,895
22,451
 300
 37
 22,714
Corporate bonds7,012
 6
 243
 6,775
6,500
 2
 425
 6,077
State and political subdivisions1,196
 1
 5
 1,192
876
 16
 
 892
Certificates of deposits935
 1
 1
 935
$38,482
 $271
 $498
 $38,255
$35,827
 $331
 $462
 $35,696
December 31, 2016:       
December 31, 2018:       
U.S. Government agencies$6,500
 $1
 $42
 $6,459
$8,000
 $11
 $18
 $7,993
Mortgage-backed securities24,663
 366
 224
 24,805
23,936
 142
 299
 23,779
Corporate bonds9,034
 17
 308
 8,743
6,500
 
 736
 5,764
State and political subdivisions1,302
 
 29
 1,273
1,040
 
 7
 1,033
Certificates of deposits2,605
 10
 1
 2,614
$44,104
 $394
 $604
 $43,894
$39,476
 $153
 $1,060
 $38,569
All mortgage-backed securities at December 31, 20172019 and 20162018 have been issued by FNMA, FHLMC or GNMA and are secured by 1-4 family residential real estate.
The amortized cost and fair value of securities held to maturity at December 31, 2017,2019, 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.
(In thousands)Amortized Cost 
Fair
 Value
Amortized Cost 
Fair
 Value
U.S. Government agencies:      
Due within one year$3,500
 $3,484
$
 $
Due after one year through five years2,000
 1,974

 
Due after five through ten years3,000
 3,011
Due thereafter3,000
 3,002
5,500
 5,458
6,000
 6,013
Mortgage-backed securities      
Due within one year1,151
 1,153
Due after one year through five years11,708
 11,765
11,370
 11,552
Due after five years through ten years8,297
 8,388
Due after five through ten years2,580
 2,565
Due thereafter3,834
 3,742
7,350
 7,444
23,839
 23,895
22,451
 22,714
Corporate Bonds      
Due within one year512
 515
1,500
 1,502
Due after one year through five years1,500
 1,504

 
Due after five years through ten years1,000
 965
1,000
 956
Due thereafter4,000
 3,791
4,000
 3,619
7,012
 6,775
6,500
 6,077
State and political subdivisions      
Due within one year151
 150
171
 171
Due after one year through five years680
 677
705
 721
Due after five years through ten years365
 365

 
1,196
 1,192
876
 892
Certificates of Deposits   
Due within one year935
 935
Due after one year through five years
 
935
 935
$35,827
 $35,696
$38,482
 $38,255

 F- 1410 

Note 3 - Securities Held to Maturity (Continued)


There were no sales of securities held to maturity during the years ended December 31, 20172019 and 2016.2018.  At December 31, 20172019 and 20162018, securities held to maturity with a fair value of approximately $1$3 million and $1$2 million, respectively, were pledged to secure public funds on deposit.
The following table provides the gross unrealized losses and fair value of securities in an unrealized loss position, by the length of time that such securities have been in a continuous unrealized loss position:
Less than 12 Months More than 12 Months TotalLess than 12 Months More than 12 Months Total
Fair
 Value
 
Gross
 Unrealized
 Losses
 
Fair
 Value
 
Gross
 Unrealized
 Losses
 
Fair
 Value
 
Gross
 Unrealized
 Losses
Fair
 Value
 
Gross
 Unrealized
 Losses
 
Fair
 Value
 
Gross
 Unrealized
 Losses
 
Fair
 Value
 
Gross
 Unrealized
 Losses
(In thousands)(In thousands)
December 31, 2017:           
December 31, 2019:           
U.S. Government
agencies
$1,000
 $1
 $4,458
 $41
 $5,458
 $42
$
 $
 $
 $
 $
 $
Mortgage-backed securities7,796
 88
 5,558
 119
 13,354
 207
1,716
 8
 3,140
 29
 4,856
 37
Corporate bonds
 
 4,756
 243
 4,756
 243

 
 4,574
 425
 4,574
 425
State and political subdivisions655
 5
 
 
 655
 5

 
 
 
 
 
Certificates of deposits245
 1
 
 
 245
 1
$9,696
 $95
 $14,772
 $403
 $24,468
 $498
$1,716
 $8
 $7,714
 $454
 $9,430
 $462
December 31, 2016:           
December 31, 2018:           
U.S. Government
agencies
$5,458
 $42
 $
 $
 $5,458
 $42
$
 $
 $1,982
 $18
 $1,982
 $18
Mortgage-backed securities13,456
 224
 
 
 13,456
 224
8
 1
 15,205
 298
 15,213
 299
Corporate bonds1,988
 13
 4,705
 295
 6,693
 308
1,487
 13
 4,277
 723
 5,764
 736
State and political subdivisions1,172
 28
 101
 1
 1,273
 29
180
 1
 853
 6
 1,033
 7
Certificates of deposits245
 1
 
 
 245
 1
$22,319
 $308
 $4,806
 $296
 $27,125
 $604
$1,675
 $15
 $22,317
 $1,045
 $23,992
 $1,060
At December 31, 2017,2019, management concluded that the unrealizedunrecognized losses summarized above (which related to fiveten mortgage-backed securities and three corporate bonds, compared to two U.S. Government agency bonds, sixteentwenty mortgage-backed securities, threefive corporate bonds, fourand six state and political subdivision bonds and one certificate of deposit compared to five U.S. Government agency bonds, fourteen mortgage-backed securities, six corporate bonds, eight state and political subdivision bonds, and one certificates of deposit, as of December 31, 2016, were2018) are temporary in nature since they wereare not related to the underlying credit quality of the issuer.  TheAs of December 31, 2019, the Company doesdid not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities prior to the fullanticipated recovery of fair value to a level which equals or exceedsthe remaining amortized cost.  TheManagement believes that the losses above are primarily related to the change in market interest rate conditions and are considered noncredit related and temporary.rates. Accordingly, the Company has not recognized any other-than-temporary impairment loss on these securities.

Note 4 - Loans Receivable and Allowance for Loan Losses
The composition of total loans receivable at December 31, 20172019 and 20162018 was as follows:



 F- 1511 

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


At
December 31,
2017
 At
December 31,
2016
At
December 31,
2019
 At
December 31,
2018
(In thousands)(In thousands)
Residential mortgage:      
One-to-four family$157,876
 $160,534
$130,966
 $143,391
Home equity26,803
 32,262
22,853
 24,365
184,679
 192,796
153,819
 167,756
Commercial and multi-family real estate196,681
 124,656
227,441
 212,606
Construction43,718
 16,554
47,635
 29,628
Commercial and industrial73,465
 45,246
Commercial and industrial - Secured63,462
 60,426
Commercial and industrial - Unsecured37,600
 48,176
313,864
 186,456
376,138
 350,836
Consumer:618
 446
432
 540
Total loans receivable499,161
 379,698
530,389
 519,132
Less: 
  
 
  
Loans in process19,868
 6,557
16,109
 10,677
Deferred loan fees474
 658
536
 501
Allowance for loan losses5,414
 4,476
5,722
 5,655
Total adjustments25,756
 11,691
22,367
 16,833
Loans receivable, net$473,405
 $368,007
$508,022
 $502,299
Allowance for Loan Losses

The Company's loan portfolio is comprised of the following segments: residential mortgage, commercial real estate, construction, commercial and industrial and consumer.  Some segments of the Company's loan receivable portfolio are further disaggregated into classes which allow management to more accurately monitor risk and performance. Accordingly, the methodology and allowance calculation includes the segmentation of the total loan portfolio.

The residential mortgage loan segment is disaggregated into two classes: one-to-four family loans, which are primarily first liens, and home equity loans, which consist of first and second liens.  The commercial real estate loan segment includes owner and non-owner occupied loans which have medium risk based on historical experience with these types of loans.  The construction loan segment is further disaggregated into two classes: one-to-four family owner-occupied, which includes land loans, whereby the owner is known and there is less risk, and other, whereby the property is generally under development and tends to have more risk than the one-to-four family owner-occupied loans.  The commercial and industrial loan segment consists of loans made for the purpose of financing the activities of commercial customers. The commercial and industrial loans carry a mix of loans secured by real estate and unsecured lines of credit some of which are for high net worth individuals. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments or principal or interest when due according to the contractual terms of the loan agreement. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these classes of loans, adjusted for qualitative factors.  These qualitative risk factors include:
1.Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
2.National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans.
3.Nature and volume of the portfolio and terms of loans.
4.Experience, ability, and depth of lending management and staff.
5.Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.
6.Quality of the Company's loan review system, and the degree of oversight by the Company's Board of Directors.
7.Existence and effect of any concentrations of credit and changes in the level of such concentrations.
8.Effect of external factors, such as competition and legal and regulatory requirements.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management's best judgment using relevant information available at the time of the evaluation.
An
F- 12

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


Although management seeks to avoid intentionally creating an unallocated component, is maintainedone will exist at times due to cover uncertaintiesthe dynamic interplay of balances, qualitative factors and other items that could affectimpact management's estimate of probable losses. The unallocated component of the allowanceallowances reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

F- 16

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.
The following tables provide an analysis of the allowance for loan losses and the loan receivable balances, by the portfolio segment segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 20172019 and 2016:2018:

Year Ended December 31, 2017Year Ended December 31, 2019
(in thousands)
Residential
Mortgage
 
Commercial and
Multi-Family
Real Estate
 Construction 
Commercial
and
Industrial
 Consumer Unallocated Total
Residential
Mortgage
 
Commercial and
Multi-Family
Real Estate
 Construction 
Commercial
and
Industrial
 Consumer Unallocated Total
Allowance for loan losses:                          
Balance, beginning$1,808
 $1,441
 $248
 $882
 $6
 $91
 $4,476
$2,115
 $2,187
 $222
 $1,128
 $3
 $
 $5,655
Provisions215
 869
 54
 (143) 3
 187
 1,185
(438) 425
 211
 (199) 1
 
 
Loans charged-off(178) (43) 
 (30) (4) 
 (255)
 
 
 
 (4) 
 (4)
Recoveries7
 
 
 1
 
 
 8
69
 
 
 
 2
 
 71
Balance, ending$1,852
 $2,267
 $302
 $710
 $5
 $278
 $5,414
$1,746
 $2,612
 $433
 $929
 $2
 $
 $5,722
Period-end allowance allocated to: 
  
  
  
  
  
  
 
  
  
  
  
  
  
Loans individually evaluated for impairment$
 $
 $
 $27
 $1
 $
 $28
$234
 $74
 $
 $
 $
 $
 $308
Loans collectively evaluated for impairment1,852
 2,267
 302
 683
 4
 278
 5,386
1,512
 2,538
 433
 929
 2
 
 $5,414
Ending balance$1,852
 $2,267
 $302
 $710
 $5
 $278
 $5,414
$1,746
 $2,612
 $433
 $929
 $2
 $
 $5,722
Period-end loan balances evaluated for: 
  
  
  
  
  
  
 
  
  
  
  
  
  
Loans individually evaluated for impairment$12,609
 $2,057
 $
 $205
 $1
 $
 $14,872
$10,199
 $2,337
 $
 $24
 $
 $
 $12,560
Loans collectively evaluated for impairment171,988
 194,373
 23,803
 73,167
 616
 
 463,947
143,570
 224,760
 31,465
 100,957
 432
 
 501,184
Ending balance$184,597
 $196,430
 $23,803
 $73,372
 $617
 $
 $478,819
$153,769
 $227,097
 $31,465
 $100,981
 $432
 $
 $513,744
Year Ended December 31, 2016Year Ended December 31, 2018
(in thousands)
Residential
Mortgage
 
Commercial and
Multi-Family
Real Estate
 Construction 
Commercial and
Industrial
 Consumer Unallocated Total
Residential
Mortgage
 
Commercial and
Multi-Family
Real Estate
 Construction 
Commercial and
Industrial
 Consumer Unallocated Total
Allowance for loan losses:                          
Balance, beginning$1,927
 $1,015
 $143
 $235
 $9
 $273
 $3,602
$1,852
 $2,267
 $302
 $710
 $5
 $278
 $5,414
Provisions(73) 295
 105
 647
 8
 (182) 800
255
 (80) (80) 418
 5
 (278) $240
Loans charged-off(64) 
 
 
 (12) 
 (76)
 
 
 
 (8) 
 $(8)
Recoveries18
 131
 
 
 1
 
 150
8
 
 
 
 1
 
 $9
Balance, ending$1,808
 $1,441
 $248
 $882
 $6
 $91
 $4,476
$2,115
 $2,187
 $222
 $1,128
 $3
 $
 $5,655
Period-end allowance allocated to: 
  
  
  
  
  
  
 
  
  
  
  
  
  
Loans individually evaluated for impairment$101
 $
 $
 $102
 $
 $
 $203
$326
 $69
 $
 $20
 $
 $
 $415
Loans collectively evaluated for impairment1,707
 1,441
 248
 780
 6
 91
 4,273
1,789
 2,118
 222
 1,108
 3
 
 5,240
Ending balance$1,808
 $1,441
 $248
 $882
 $6
 $91
 $4,476
$2,115
 $2,187
 $222
 $1,128
 $3
 $
 $5,655
Period-end loan balances evaluated for: 
  
  
  
  
  
  
 
  
  
  
  
  
  
Loans individually evaluated for impairment$13,820
 $1,529
 $
 $511
 $
 $
 $15,860
$11,960
 $2,411
 $
 $243
 $
 $
 $14,614
Loans collectively evaluated for impairment178,812
 122,787
 9,934
 44,644
 446
 
 356,623
155,746
 209,879
 18,905
 108,270
 540
 
 493,340
Ending balance$192,632
 $124,316
 $9,934
 $45,155
 $446
 $
 $372,483
$167,706
 $212,290
 $18,905
 $108,513
 $540
 $
 $507,954

Nonaccrual and Past Due Loans
For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or when management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Certain loans may remain on accrual status if they are in the process of collection and are either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.  The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

 F- 1713 

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


The following table represents the classes of the loans receivable portfolio summarized by aging categories of performing loans and nonaccrual loans as of December 31, 20172019 and 2016:2018:
As of December 31, 2017
30-59 Days Past Due
and Still Accruing
 
60-89 Days
Past Due
and Still Accruing
 
Greater
than 90
Days and
Still
Accruing
 
Total
Past Due
and Still Accruing
 
Accruing
Current
Balances
 
Nonaccrual
Loans (1)
 
Total Loans
Receivables
As of December 31, 2019
30-59 Days Past Due
and Still Accruing
 
60-89 Days
Past Due
and Still Accruing
 
Greater
than 90
Days and
Still
Accruing
 
Total
Past Due
and Still Accruing
 
Accruing
Current
Balances
 
Nonaccrual
Loans
 
Total Loans
Receivables
(In thousands)(In thousands)
Residential Mortgage                          
One-to-four family$1,221
 $700
 $
 $1,921
 $152,425
 $3,446
 $157,792
$1,719
 $287
 $
 $2,006
 $127,747
 $1,169
 $130,922
Home equity605
 16
 157
 778
 25,912
 115
 26,805
160
 
 
 160
 21,744
 943
 22,847
Commercial and multi-family real estate
 
 
 
 196,115
 315
 196,430
260
 
 
 260
 225,841
 996
 227,097
Construction
 
 
 
 23,803
 
 23,803

 
 
 
 31,465
 
 31,465
Commercial and industrial68
 
 
 68
 73,205
 99
 73,372

 
 
 
 100,981
 
 100,981
Consumer
 5
 1
 6
 611
 
 617
3
 
 
 3
 429
 
 432
Total$1,894
 $721
 $158
 $2,773
 $472,071
 $3,975
 $478,819
$2,142
 $287
 $
 $2,429
 $508,207
 $3,108
 $513,744

(1)Nonaccrual loans at December 31, 2017, included $1,659,000 that were 90 days or more delinquent, $341,000 that were 60-89 days delinquent, $631,000 that were 30-59 days delinquent, and $1,344,000 that were current or less than 30 days delinquent.

As of December 31, 2016
30-59 Days
Past Due
and Still Accruing
 
60-89 Days
 Past Due
and Still Accruing
 
Greater
than 90
Days and
Still
Accruing
 
Total
Past Due
and Still Accruing
 
Accruing
Current
Balances
 
Nonaccrual
Loans(1)
 
Total Loans
Receivables
As of December 31, 2018
30-59 Days
Past Due
and Still Accruing
 
60-89 Days
 Past Due
and Still Accruing
 
Greater
than 90
Days and
Still
Accruing
 
Total
Past Due
and Still Accruing
 
Accruing
Current
Balances
 
Nonaccrual
Loans(1)
 
Total Loans
Receivables
(In thousands)(In thousands)
Residential Mortgage                          
One-to-four family$2,433
 $1,944
 $
 $4,377
 $150,260
 $5,744
 $160,381
$1,328
 $365
 $2
 $1,695
 $139,371
 $2,276
 $143,342
Home equity591
 34
 
 625
 31,500
 126
 32,251
1,602
 75
 
 $1,677
 22,079
 608
 24,364
Commercial and multi-family real estate374
 
 
 374
 123,182
 760
 124,316

 
 
 $
 211,258
 1,032
 212,290
Construction
 
 
 
 9,934
 
 9,934

 
 
 $
 18,905
 
 18,905
Commercial and industrial
 
 
 
 44,805
 350
 45,155

 
 
 $
 108,298
 215
 108,513
Consumer
 
 
 
 446
 
 446
1
 
 
 $1
 539
 
 540
Total$3,398
 $1,978
 $
 $5,376
 $360,127
 $6,980
 $372,483
$2,931
 $440
 $2
 $3,373
 $500,450
 $4,131
 $507,954
(1)Nonaccrual loans at December 31, 2016, included $5,521,000 that were 90 days or more delinquent, $30,000 that were 60-89 days delinquent, $964,000 that were 30-59 days delinquent, and $464,000 that were current or less than 30 days delinquent.
Impaired Loans
Management evaluates individual loans in all of the loan segments (including loans in the residential mortgage and consumer segments) for possible impairment if the loan is either on nonaccrual status or is risk rated Substandard or worse or has been modified in a troubled debt restructuring ("TDR").  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Once the determination has been made that a loan is impaired, impairment is measured by comparing the recorded investment in the loan to one of the following: (a) the present value of expected cash flows (discounted at the loan's effective interest rate), (b) the loan's observable market price or (c) the fair value of collateral adjusted for expected selling costs.  The method is selected on a loan by loan basis with management primarily utilizing the fair value of collateral method.
The estimated fair values of the real estate collateral are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

F- 18

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


The estimated fair values of non-real estate collateral, such as accounts receivable, inventory and equipment, are determined based on the borrower's financial statements, inventory reports, accounts receivable aging schedules or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.

F- 14

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


The evaluation of the need and amount of the allowance for impaired loans and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company's policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The following tables provide an analysis of the impaired loans at December 31, 20172019 and 20162018 and the average balances of such loans for the years then ended:
2017
(In Thousands)
Recorded
 Investment
 
Loans with
 No Related
 Reserve
 
Loans with
 Related
 Reserve
 
Related
 Reserve
 
Contractual
 Principal
 Balance
 
Average
 Loan
 Balances
(In Thousands)           
December 31, 2019
Recorded
 Investment
 
Loans with
 No Related
 Reserve
 
Loans with
 Related
 Reserve
 
Related
 Reserve
 
Contractual
 Principal
 Balance
 
Average
 Loan
 Balances
Residential mortgage                      
One-to-four family$11,181
 $11,181
 $
 $
 $11,729
 $12,256
$8,560
 $1,169
 $7,391
 $200
 $9,215
 $9,469
Home equity1,428
 1,428
 
 
 1,522
 1,335
1,639
 1,267
 372
 34
 1,740
 1,750
Commercial and multi-family real estate2,057
 2,057
 
 
 2,680
 1,787
2,337
 1,362
 975
 74
 3,080
 2,357
Construction
 
 
 
 
 

 
 
 
 
 
Commercial and industrial205
 173
 32
 27
 242
 296
24
 24
 
 
 25
 153
Consumer1
 
 1
 1
 1
 1

 
 
 
 
 
Total$14,872
 $14,839
 $33
 $28
 $16,174
 $15,675
$12,560
 $3,822
 $8,738
 $308
 $14,060
 $13,729
2016
(In Thousands)
Recorded
 Investment
 
Loans with
 No Related
 Reserve
 
Loans with
 Related
 Reserve
 
Related
 Reserve
 
Contractual
 Principal
 Balance
 
Average
 Loan
 Balances
(In Thousands)           
December 31, 2018
Recorded
 Investment
 
Loans with
 No Related
 Reserve
 
Loans with
 Related
 Reserve
 
Related
 Reserve
 
Contractual
 Principal
 Balance
 
Average
 Loan
 Balances
Residential mortgage                      
One-to-four family$12,509
 $10,395
 $2,114
 $101
 $12,891
 $12,795
$10,224
 $1,956
 $8,268
 $298
 $10,907
 $10,392
Home equity1,311
 1,311
 
 
 1,401
 1,981
1,736
 609
 1,127
 28
 1,827
 1,484
Commercial and multi-family real estate1,529
 1,529
 
 
 2,149
 1,278
2,411
 1,405
 1,006
 69
 3,067
 2,059
Construction
 
 
 
 
 

 
 
 
 
 
Commercial and industrial511
 357
 154
 102
 961
 548
243
 223
 20
 20
 262
 149
Consumer
 
 
 
 
 1

 
 
 
 
 1
Total$15,860
 $13,592
 $2,268
 $203
 $17,402
 $16,603
$14,614
 $4,193
 $10,421
 $415
 $16,063
 $14,085

As of December 31, 20172019 and 2016,2018, impaired loans listed above include $11.3 and $11.4 million, and $10.7 million, respectively, of loans previously modified in TDRs and as such are considered impaired under GAAP.  As of December 31, 20172019 and 2016, $9.7 million2018, $9.5 and $8.5$10.5 million, respectively, of these loans have been performing in accordance with their modified terms for an extended period of time and as such were removed from nonaccrual status and considered performing. During the year ended December 31, 2019, interest income of $443,000 was recorded on impaired loans related to accruing TDRs. During the year ended December 31, 2018, interest income of $543,000 was recorded on impaired loans related to accruing TDRs.


Credit Quality Indicators
Management uses a nine point internal risk rating system to monitor the credit quality of the loans in the Company's commercial real estate, construction and commercial and industrial loan segments.  The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually or when credit deficiencies, such as delinquent loan payments, arise. The criticized rating categories utilized by management generally follow bank regulatory definitions.
The Bank's rating categories are as follows:
1 – 5: The first five risk rating categories are considered not criticized, and are aggregated as "Pass" rated.

F- 15

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


6: "Special Mention" category includes assets that are currently protected, but are potentially weak, resulting in increased credit risk and deserving management's close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. 

F- 19

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


7: "Substandard" loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  This includes loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.
8: "Doubtful" loans have all the weaknesses inherent in loans classified "Substandard" with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. 
9: "Loss" loans are considered uncollectible and subsequently charged off.

The following table presents the classes of the loans receivable portfolio summarized by the aggregate "Pass" and the criticized categories of "Special Mention", "Substandard", "Doubtful" and "Loss" within the internal risk rating system as of December 31, 20172019 and 2016:2018:
As of December 31, 2017Pass Special Mention Substandard Doubtful Loss Total
As of December 31, 2019Pass Special Mention Substandard Doubtful Loss Total
(In thousands)(In thousands)
Commercial and multi-family real estate$193,982
 $1,415
 $1,033
 $
 $
 $196,430
$223,975
 $1,490
 $1,632
 $
 $
 $227,097
Construction23,803
 
 
 
 
 23,803
31,465
 
 
 
 
 31,465
Commercial and industrial72,962
 182
 228
 
 
 73,372
100,838
 58
 85
 
 
 100,981
Total$290,747
 $1,597
 $1,261
 $
 $
 $293,605
$356,278
 $1,548
 $1,717
 $
 $
 $359,543

As of December 31, 2016Pass Special Mention Substandard Doubtful Loss Total
As of December 31, 2018Pass Special Mention Substandard Doubtful Loss Total
(In thousands)(In thousands)
Commercial and multi-family real estate$122,804
 $
 $1,512
 $
 $
 $124,316
$209,206
 $1,367
 $1,717
 $
 $
 $212,290
Construction8,759
 1,175
 
 
 
 9,934
18,905
 
 
 
 
 18,905
Commercial and industrial44,537
 86
 532
 
 
 45,155
108,025
 69
 419
 
 
 108,513
Total$176,100
 $1,261
 $2,044
 $
 $
 $179,405
$336,136
 $1,367
 $1,717
 $
 $
 $339,708
Management further monitors the performance and credit quality of the retail portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. These credit quality indicators are assessed in the aggregate in these relatively homogeneous portfolios. Loans greater than 90 days past due are generally considered nonperforming and placed on nonaccrual status. 
Residential
mortgage
 
 
Consumer
 
Total Residential and
Consumer
Residential
mortgage
 
 
Consumer
 
Total Residential and
Consumer
As of December 31,2017 2016 2017 2016 2017 20162019 2018 2019 2018 2019 2018
(In thousands)(In thousands)
Nonperforming$3,718
 $5,870
 $1
 $
 $3,719
 $5,870
$2,112
 $2,884
 $
 $
 $2,112
 $2,884
Performing180,879
 186,762
 616
 446
 181,495
 187,208
151,657
 164,822
 432
 540
 $152,089
 $165,362
Total$184,597
 $192,632
 $617
 $446
 $185,214
 $193,078
$153,769
 $167,706
 $432
 $540
 $154,201
 $168,246
Troubled Debt Restructurings
Loans whose terms are modified are classified as a TDR if, in connection with the modification, the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a reduction in interest rate below market rates given the associated credit risk, or an extension of a loan's stated maturity date or capitalization of interest and/or escrow. Nonaccrual TDRs are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.  Loans classified as TDRs are designated as impaired until they are ultimately repaid in full or foreclosed and sold.  The nature and extent of impairment of TDRs, including those which experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses.
The recorded investment balance of TDRs totaled $11.4 million at December 31, 2017 compared with $10.7 million at December 31, 2016.  The majority of the Company's TDRs are on accrual status and totaled $9.7 million at December 31, 2017 versus $8.5 million at December 31, 2016.  The total of TDRs on nonaccrual status was $1.7 million at December 31, 2017 and $2.2 million at December 31, 2016.

For the year ended December 31, 2017, the terms of thirteen loans were modified into six TDRs. The Company refinanced and consolidated a one-to-four family and one home equity mortgage loan which was restructured to an adjustable interest rate from a fixed interest rate. In addition,

 F- 2016 

Note 4 - Loans Receivable and Allowance for Loan Losses (Continued)


The recorded investment balance of TDRs totaled $11.3 million at December 31, 2019 and $11.4 million at December 31, 2018.  The majority of the Company's TDRs are on accrual status and totaled $9.5 million at December 31, 2019 versus $10.5 million at December 31, 2018.  The total of TDRs on nonaccrual status was $1.8 million at December 31, 2019 and $915,000 at December 31, 2018.

For the year ended December 31, 2019, the terms of seven loans were modified into two TDRs. The Company restructured a one-to-four family loan, aadjustable rate mortgage, two home equity loanlines of credit and atwo commercial line of credit. Theseoverdraft loans were consolidated into one one-to-four family TDR with an extended maturity date. The Company restructured a commercial loan and a multi-family real estate loan into one TDR and extended the maturity date. The Company refinanced and consolidated a one-to-four family loan and three commercial loans into a multi-family and commercial loan with an adjustable interest rate from a fixed interest rate.  In addition, the Company refinanced a one-to-four familycommercial overdraft loan and capitalized the interest. The Company restructureda commercial owner-occupied fixed rate loan into one commercial loan and extended the maturity date.owner-occupied fixed rate TDR. For the year ended December 31, 2016,2018, one loan was modified into a TDR. The Company refinanced a multi-family & commercial loan that was restructured to extend the Company did not modify any loans as a TDR.maturity date and capitalize the interest.

The following tables summarize by class loans modified into TDRs during the year ended December 31, 2017:2019 and 2018:
      

Year Ended December 31, 2017Year Ended
December 31, 2019
Number of
Contracts
 
Pre-Modification
Outstanding Recorded
Investments
 
Post-Modification
Outstanding Recorded
Investments
Number of
Contracts
 
Pre-Modification
Outstanding Recorded
Investments
 
Post-Modification
Outstanding Recorded
Investments
  (Dollars in thousands)  (Dollars in thousands)
          
Residential Mortgage          
One-to-four family4
 $1,019
 $1,283
1
 $421
 $460
Home equity2
 99
 
Commercial and multi-family real estate1
 419
 661
1
 794
 791
Commercial6
 315
 32
          
Total13
 $1,852
 $1,976
2
 $1,215
 $1,251
 Year Ended
December 31, 2018
 
Number of
Contracts
 
Pre-Modification
Outstanding Recorded
Investments
 
Post-Modification
Outstanding Recorded
Investments
   (Dollars in thousands)
      
Commercial and multi-family real estate1
 374
 392
      
Total1
 $374
 $392
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified in TDRs during the previous 12 months and for which there was a subsequent payment default for the years ended December 31, 2017 and 2016.
Note 5 - Premises and Equipment
The components of premises and equipment at December 31, 20172019 and 2016 were as follows:
 At
December 31,
2017
 At
December 31,
2016
 (In thousands)
Land$1,937
 $1,937
Buildings and improvements8,555
 8,554
Leasehold improvements1,430
 1,787
Furnishings and equipment2,988
 2,688
Assets being developed for future use27
 114
 14,937
 15,080
Accumulated depreciation and amortization(6,239) (6,123)
 $8,698
 $8,957
Note 6 - Accrued Interest Receivable
The components of interest receivable at December 31, 2017 and 20162018 were as follows:

 F- 2117 



 At
December 31,
2017
 At
December 31,
2016
 (In thousands)
Loans$1,480
 $1,230
Securities held to maturity127
 148
 $1,607
 $1,378
 At
December 31,
2019
 At
December 31,
2018
 (In thousands)
Land$1,937
 $1,937
Buildings and improvements8,574
 8,555
Leasehold improvements1,430
 1,430
Furnishings and equipment2,696
 3,070
Assets being developed for future use33
 
 14,670
 14,992
Accumulated depreciation and amortization(6,650) (6,812)
 $8,020
 $8,180
Note 76 - Deposits
Deposits at December 31, 20172019 and 20162018 consisted of the following classifications:
At
December 31,
2017
 At
December 31,
2016
At
December 31,
2019
 At
December 31,
2018
Amount 
Average
 Rate
 Amount 
Average
 Rate
Amount 
Average
 Rate
 Amount 
Average
 Rate
(Dollars in thousands)(Dollars in thousands)
Non-interest bearing demand$36,919
 % $44,365
 %$47,935
 % $46,690
 %
Interest demand155,199
 0.71
 99,879
 0.33
141,935
 1.19
 134,123
 1.01
Savings105,106
 0.33
 103,163
 0.22
99,036
 0.73
 102,740
 0.63
Money market demand27,350
 0.59
 11,265
 0.30
27,692
 1.38
 16,171
 0.78
Certificates of deposit124,339
 1.52
 103,627
 1.33
156,154
 1.99
 120,855
 1.77
$448,913
 0.78% $362,299
 0.54%$472,752
 1.25% $420,579
 1.01%

A summary of certificates of deposit by maturity at December 31, 20172019 and 20162018 is as follows:

At
December 31,
2017
 At
December 31,
2016
At
December 31,
2019
 At
December 31,
2018
(Dollars in thousands)(Dollars in thousands)
Within one year$41,198
 $51,408
$96,101
 $39,790
One to two years23,396
 15,719
44,279
 34,407
Two to three years18,676
 4,057
10,908
 31,947
Three to four years27,266
 3,328
3,109
 10,552
Four to five years12,302
 27,179
863
 2,949
Thereafter1,501
 1,936
894
 1,210
$124,339
 $103,627
$156,154
 $120,855

The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was approximately $17.4$22.4 million and $19.4$18.1 million at December 31, 20172019 and 2016,2018, respectively. Generally, deposits in excess of $250,000 are not insured by the FDIC.
A summary of interest expense on deposits for the years ended December 31, 20172019 and 20162018 is as follows:

 
Year Ended
 December 31,
 2017 2016
 (Dollars in thousands)
Interest demand and money market demand$526
 $200
Savings and club277
 230
Certificates of deposit1,647
 1,071
 $2,450
 $1,501
Note 8 - Borrowings

 F- 2218 



 
Year Ended
 December 31,
 2019 2018
 (Dollars in thousands)
Interest demand and money market demand$1,670
 $1,257
Savings and club735
 548
Certificates of deposit2,877
 2,029
 $5,282
 $3,834
Note 7 - Borrowings
The Company participates in the FHLB of New York Overnight Advance Program. Advances under this program allow the Company to borrow up to the balance of its qualifying mortgage loans that have been pledged as collateral, less any related outstanding indebtedness. As of December 31, 20172019 and 2016,2018, the Company had $77.6$173.6 million and $75.6$149.9 million, respectively, available for borrowing under this agreement.
Term advances due to the FHLB of NY at December 31, 20172019 and 20162018 consisted of the following:
 
Fixed
 Interest
 
At
 December 31,
 
Fixed
 Interest
 
At
 December 31,
Maturity Rate 2017 2016 Rate 2019 2018
   (Dollars in thousands)   (Dollars in thousands)
November 27, 2017 3.27% $
 $10,000
March 5, 2018 3.46
 10,000
 10,000
July 6, 2020 1.79
 2,675
 2,675
 1.79% $2,675
 $2,675
September 8, 2020 1.75
 5,000
 
 1.75
 5,000
 5,000
November 23, 2020 2.27
 10,000
 
 2.27
 10,000
 10,000
September 8, 2021 1.89
 5,000
 
 1.89
 5,000
 5,000
September 8, 2022 2.01
 5,000
 
 2.01
 5,000
 5,000
 

 $37,675
 $22,675
 

 $27,675
 $27,675
The advances are secured by a blanket assignment of unpledged and qualifying mortgage and commercial real estate loans.
The Company did not have anyhad $23.9 million in overnight advances with the FHLB of NY at a rate of 1.81% as of December 31, 20172019 and 2016.$66.6 million in overnight advances with the FHLB of NY at a rate of 2.60%as of December 31, 2018.
As of December 31, 20172019 and 2016,2018, the Company had a $13.0 million unsecured line of credit with another financial institution. There were no amounts outstanding on the line as of December 31, 20172019 and 2016.2018.

Note 98 – Stockholders' Equity
Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by Federal and State banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors.
The Federal Reserve Board approved final rules on Basel III in July 2013 establishing a new comprehensive capital framework for U.S. banks. Basel III substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions. The minimum regulatory capital requirements became effective for the Company and the Bank on January 1, 2015 and include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets and raised the Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets. The rules also require a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. The final rule also established a new capital conservation buffer, comprised of common equity Tier 1 capital, above the regulatory minimum capital requirements. The phase-in of the capital conservation buffer began on January 1, 2016 at 0.625% of risk-weighted assets and will increaseincreases each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. For 2017,2019 and 2018, the capital conservation buffer was 1.25%.2.500% and 1.875%, respectively.

F- 19



Pursuant to the Federal Reserve’s Small Bank Holding Company Policy Statement, a bank holding company such as the Company with consolidated assets under $3 billion is exempt from regulatory capital requirements provided that: (i) it is not engaged in significant non-banking or off-balance sheet activities; (ii) it does not have a material amount of debt or equity securities registered with the SEC; and (iii) its bank subsidiary is well capitalized. As a result, the minimum capital requirements are not applicable to MSB Financial Corp. as of December 31, 2019 and December 31, 2018.
As of December 31, 2017,2019, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.
The following table presents a reconciliation of GAAP capital and regulatory capital and information as to the Bank's capital levels at the dates presented:

F- 23



Actual 
For capital adequacy
purposes (1)
 
To be well capitalized
under prompt
corrective action
provisions
Actual 
For capital adequacy
purposes (1)
 
To be well capitalized
under prompt
corrective action
provisions
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)(Dollars in thousands)
December 31, 2017:           
December 31, 2019:           
Tier 1 leverage capital ratio           
                 
      
Millington Bank$58,843
 10.72% $21,951
 ≥4.00 $27,439
 ≥5.00$61,991
 10.70% $23,164
 ≥4.00 $28,955
 ≥5.00
MSB Financial Corp.73,025
 13.31
 21,952
 ≥4.00 N/A
 N/A65,375
 11.33
 N/A
 N/A N/A
 N/A
Common equity tier 1 capital ratio                      
Millington Bank58,843
 11.98
 22,098
 ≥4.50 31,919
 ≥6.5061,991
 11.43
 24,396
 ≥4.50 35,239
 ≥6.50
MSB Financial Corp.73,025
 14.87
 22,098
 ≥4.50 N/A
 N/A65,375
 12.06
 N/A
 N/A N/A
 N/A
Tier 1 capital ratio                      
Millington Bank58,843
 11.98
 29,463
 ≥6.00 39,285
 ≥8.0061,991
 11.43
 32,528
 ≥6.00 43,371
 ≥8.00
MSB Financial Corp.73,025
 14.87
 29,463
 ≥6.00 N/A
 N/A65,375
 12.06
 N/A
 N/A N/A
 N/A
Total capital ratio                      
Millington Bank64,304
 13.10
 39,285
 ≥8.00 49,106
 ≥10.0067,801
 12.51
 43,371
 ≥8.00 54,213
 ≥10.00
MSB Financial Corp.78,486
 15.98
 39,285
 ≥8.00 N/A
 N/A71,185
 13.13
 N/A
 N/A N/A
 N/A
(1)Amounts and ratios do not include the capital conservation buffer.
Actual 
For capital adequacy
purposes (1)
 
To be well capitalized
under prompt
corrective action
provisions
Actual 
For capital adequacy
purposes (1)
 
To be well capitalized
under prompt
corrective action
provisions
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)(Dollars in thousands)
December 31, 2016:           
December 31, 2018:           
Tier 1 leverage capital ratio           
                 
      
Millington Bank$55,733
 12.72% $17,520
 ≥4.00 $21,900
 ≥5.00$61,740
 10.71% $23,052
 ≥4.00 $28,816
 ≥5.00
MSB Financial Corp.73,307
 16.74
 17,513
 ≥4.00 N/A
 N/A66,646
 11.56
 N/A
 N/A N/A
 N/A
Common equity tier 1 capital ratio                      
Millington Bank55,733
 15.66
 19,710
 ≥4.50 28,470
 ≥6.5061,740
 11.90
 23,351
 ≥4.50 33,729
 ≥6.50
MSB Financial Corp.73,307
 20.60
 19,702
 ≥4.50 N/A
 N/A66,646
 12.84
 N/A
 N/A N/A
 N/A
Tier 1 capital ratio                      
Millington Bank55,733
 15.66
 21,356
 ≥6.00 28,475
 ≥8.0061,740
 11.90
 31,134
 ≥6.00 41,512
 ≥8.00
MSB Financial Corp.73,307
 20.60
 21,356
 ≥6.00 N/A
 N/A66,646
 12.84
 N/A
 N/A N/A
 N/A
Total capital ratio                      
Millington Bank60,183
 16.91
 28,475
 ≥8.00 35,593
 ≥10.0067,467
 13.00
 41,512
 ≥8.00 51,891
 ≥10.00
MSB Financial Corp.77,757
 21.85
 28,475
 ≥8.00 N/A
 N/A72,373
 13.95
 N/A
 N/A N/A
 N/A

F- 20



(1)Amounts and ratios do not include the capital conservation buffer.
Common Stock Repurchase Plan
The Company announced that on June 2, 2016 it had received the non-objection of the Federal Reserve Bank of New York to purchase up to 112,600 shares of the Company's common stock in order to fund future awards of restricted stock that may be made under the Company's 2016 Equity Incentive Plan that was approved by stockholders at the Annual Meeting of Stockholders held on April 22, 2016. On August 4, 2016, the Company announced that it had approved a stock repurchase plan to purchase up to 595,342 shares of the Company's common stock.
During the year ended December. 31, 2017, On December 17, 2018, the Company did notannounced that it had approved a stock repurchase any additionalplan to repurchase up to 273,150 shares, under this plan. approximately 5% of the outstanding shares of the Company's common stock.
During the year ended December 31, 2016,2019, the Company repurchased 242,379199,202 shares of Company's common stock with an average price of $13.27.$16.40. During the year ended December 31, 2018, the Company repurchased 373,948 shares of Company's common stock with an average price of $17.95.
Note 109 - Lease Commitments
The Company leases certain premises and Total Rental Expenseequipment under operating leases including one branch and the loan operations office. The Company also has a short-term lease for one additional branch that at December 31, 2019, is being negotiated to a longer term lease. At December 31, 2019, the Company had lease liabilities totaling $964,000 and right-of-use assets totaling $902,000 related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. For the twelve months ended December 31, 2019, the weighted average remaining lease term for operating leases was 4.2 years and the weighted average discount rate in the measurement of operating lease liabilities was 3.14%. The incremental borrowing rate for leases is generally determined by the length of the lease and are aligned with the Federal Home Loan Bank advance rates. In addition, the Company did not factor in lease renewals into the calculation as leases are typically renegotiated depending on market conditions.
Lease costs were as follows:

Twelve months ended
December 31,
(Dollars in thousands)2019
Operating lease cost$317
Short-term lease cost182
Total lease Cost$499

Rent expense for the twelve months ended December 31, 2018, prior to the adoption of ASU 2016-02 was $510,000.

There were no sale and leaseback transactions, leverage leases, finance leases, or lease transactions with related parties during the twelve months ended December 31, 2019. At December 31, 2019, the Company had no leases that had not yet commenced.

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:


 F- 2421 



The Company leases two branches and one loan office location under long-term operating leases. Future minimum lease payments by year and in the aggregate, under non-cancellable operating leases with initial or remaining terms of one year or more, consisted of the following at December 31, 2017:
(in thousands)At
December 31,
2017
  
Within one year$506
One to two years358
Two to three years332
Three to four years289
Four to five years198
 1,683
Thereafter356
 $2,039
December 31, 2019
(Dollars in thousands)
Lease payments due:
Within one year$332
After one but within two years289
After two but within three years198
After three but within four years202
After four but within five years154
Total undiscounted cash flows1,175
Discount on cash flows(211)
Total lease liability$964
The total rental expense for all leases was approximately $478,000 and $433,000 for the years ended December 31, 2017 and 2016.

Note 1110 - Income Taxes
The total tax expense consisted of the following for the years ended December 31, 20172019 and 2016:2018:
Year Ended
December 31,
Year Ended
December 31,
2017 20162019 2018
(In thousands)(In thousands)
Current income tax expense:      
Federal$957
 $301
$1,202
 $1,000
State298
 175
656
 518
1,255
 476
1,858
 1,518
Deferred income tax expense (benefit): 
  
 
  
Federal550
 187
(129) 180
State(37) (10)(62) 113
513
 177
(191) 293
$1,768
 $653
$1,667
 $1,811
A reconciliation of the statutory federal income tax at a rate of 34%21%, to the income tax expense included in the statements of income for the year ended December 31, 20172019 and 20162018 is as follows:
Year ended December 31,Year ended December 31,
2017 20162019 2018
Amount 
% of
 Pretax
Income
 Amount 
% of
 Pretax
Income
Amount 
% of
 Pretax
Income
 Amount 
% of
 Pretax
Income
Federal income tax at statutory rate$1,526
 34.0 % $617
 34.0 %$1,212
 21.0 % $1,396
 21.0 %
State tax, net of federal benefit172
 3.8
 109
 6.0
469
 8.1
 498
 7.5
Bank Owned Life Insurance(140) (3.1) (107) (5.9)(116) (2.0) (81) (1.2)
ESOP and stock-based compensation(486) (10.8) 12
 0.7
20
 0.3
 (11) (0.2)
Impact of rate change on net deferred tax assets678
 15.1
 
 
Other18
 0.4
 22
 1.2
82
 1.5
 9
 0.2
$1,768
 39.4 % $653
 36.0 %$1,667
 28.9 % $1,811
 27.3 %


 F- 2522 



For the year ended December 31, 2017, certain directors, executive officers and directors emeriti executed options to purchase 212,468 shares of Common Stock at a per share exercise price of $9.4323.  In lieu of issuing shares of Common Stock upon the exercise of such options, the Company made a cash payment to such optionees equal to the excess of the closing price of the Common Stock on the Nasdaq Stock Market on August 4, 2017 of $17.30 over the per share exercise price of such options of $9.4323 multiplied by the number of options being exercised.  An aggregate of $1.7 million was paid to the optionees. In addition, the change in tax rate included a permanent tax deduction for the year ended December 31, 2017 period due to restricted stock that vested.
The impact of rate change on the net deferred tax assets was attributable to the revaluation of the Company's deferred tax asset as a result of the passage of the Tax Cuts and Jobs Act on December 22, 2017 which significantly reduced corporate tax rates. As a result, the Company recorded an additional tax provision of $678,000 for the revaluation for the year ended December 31, 2017.
The components of the net deferred tax asset at December 31, 20172019 and 20162018 were as follows:
At
 December 31,
 
At
December 31,
At
 December 31,
 
At
December 31,
2017 20162019 2018
(In thousands)(In thousands)
Deferred tax assets:      
Allowances for losses on loans and commitments$1,535
 $1,800
$1,633
 $1,610
Uncollected interest9
 85
225
 48
Benefit plans533
 774
142
 127
Benefit plans AOCI
 81
Restricted stock award36
 63
38
 38
Deferred Rent0
 16
Accrued compensation118
 131
Deferred loan costs151
 0
Lease Liability271
 0
Other55
 55
2,113
 2,803
2,633
 2,025
Deferred tax liabilities 
  
 
  
Depreciation(423) (519)(619) (427)
Deferred loan costs0
 (125)
Right of use asset(254) 0
Other(172) (76)
(1,045) (628)
Net deferred tax asset included in other assets$1,690
 $2,284
$1,588
 $1,397
The company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the state of New Jersey. The company is generally no longer subject to examination for federal for tax years prior to 2016 and the state of New Jersey for tax years prior to 2015. At December 31, 2019 and 2018, the Company had state net operating loss carryforwards of $1.4 million which begin to expire in 2030. Realization of deferred tax assets associated with net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management’s estimate of the temporary deductible differences that may expire prior to their utilization has been recorded at December 31, 2019 and 2018. The deferred tax asset and valuation allowance related to state net operating losses was $100,000 as of December 31, 2019 and 2018.
Retained earnings included $1.5 million at December 31, 20172019 and 20162018 for which no provision for income tax has been made. These amounts represent deductions for bad debt reserves for tax purposes which were only allowed to savings institutions which met certain definitional tests prescribed by the Internal Revenue Code of 1986, as amended (the "Code"). The Small Business Job Protection Act of 1996 (the "Act") eliminated the special bad debt deduction granted solely to thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of the Code if the Bank itself pays a cash dividend in excess of earnings and profits, or liquidates. The Act also provides for the recapture of deductions arising from the "applicable excess reserve" defined as the total amount of reserve over the base year reserve. The Bank's total reserve exceeds the base year reserve and deferred taxes have been provided for this excess.









F- 23

Note 1211 - Benefit Plans


Directors' Retirement Plan
The Bank had a Directors' Retirement Plan, which provided that certain directors meeting specified age and service requirements may retire and continue to be paid. This plan iswas unfunded. Effective September 1, 2016, the Company terminated its Directors' Retirement Plan. The Company hashad between 12 and 24 months from the time the plan was terminated to distribute all funds to the plan's participants. The Company distributed the remaining Directors' Retirement Plan funds of $1.4 million during the month of January 2018.
The following table sets forth the accumulated benefit obligation, the changes in the plan's projected benefit obligation and the plan's funded status as of and for each period presented.

F- 26

Note 12 - Benefit Plans (Continued)


 
For the years ended
December 31,
 2017 2016
 (Dollars in thousands)
Accumulated benefit obligation – ending$1,402
 $1,466
Projected benefit obligation – beginning$1,466
 $1,431
Service cost
 9
Interest cost20
 47
Actuarial (gain) loss
 109
Benefit payments(84) (59)
Curtailment
 (71)
Projected benefit obligation – ending$1,402
 $1,466
Plan assets at fair value – beginning$
 $
Employer contribution84
 59
Benefit payments(84) (59)
Plan assets at fair value – ending$
 $
Funded status at end of year (included in other liabilities)$1,402
 $1,466
Assumptions:   
Discount rate1.41% 1.41%
Rate of compensation increaseN/A
 N/A
Net periodic pension cost included the following:
 
Years Ended
December 31,
 2017 2016
 (Dollars in thousands)
Service cost$
 $9
Interest cost20
 47
Amortization of unrecognized loss
 28
Amortization of unrecognized past service liability202
 (13)
Curtailment credit
 (46)
Net periodic pension cost$222
 $25
Assumptions:   
Discount rate4.50% / 3.50% / 1.12%
 4.50% / 3.50% / 1.12%
Rate of compensation3.00% / N/A
 3.00% / N/A

As of December 31, 2017 and 2016, unrecognized past service liabilities and actuarial losses aggregating approximately $0 and $203,000, respectively, were included, net of income taxes of $0 and $81,000, respectively, in accumulated other comprehensive loss. All of this amount was recognized as a component of net periodic pension cost during the year ending December 31, 2017.
Executive Incentive Retirement Plan
The Bank had an unfunded, non-qualified executive incentive retirement plan covering all eligible executives. The plan provided for either a lump sum payment or equal annual installments for a period of 15 years commencing on the first day of the calendar month following the termination of employment due to retirement, resignation, disability or death. The amount payable was based on the vested balance of the executive's accumulated awards plus interest. The annual awards were based upon the executive's base salary in effect at the beginning of the plan year and the Bank's net income for the prior fiscal year. The percentage vested was based on the sum of the executive's age and years of service. Effective July 1, 2015, the Company terminated its Executive Retirement Plan. The Company distributed the funds to the plan's participants in the third quarter of 2016.

F- 27

Note 12 - Benefit Plans (Continued)


The following table sets forth the accumulated benefit obligation, changes in the plan's projected benefit obligation and the plan's funded status as of and for each period presented:
 
As of and for the
 Year Ended
December 31,
 2017 2016
 (Dollars in thousands)
Accumulated benefit obligation – ending$
 $
Projected benefit obligation – beginning$
 $650
Service cost
 
Interest cost
 24
Actuarial loss
 
Curtailment
 
Benefits paid
 (674)
Projected benefit obligation and funded status – ending
 (included in other liabilities)
$
 $
Plan assets at fair value - beginning$
 $
Employer contribution
 674
Benefit payments
 (674)
Plan assets at fair value - ending$
 $
Assumption: 
  
Discount rate% 4.50%


Net periodic pension cost included the following:
 
Years Ended
 December 31,
 2017 2016
 (Dollars in thousands)
Service cost$
 $
Interest cost
 24
Amortization of unrecognized gain
 (3)
Net periodic pension cost$
 $21
Assumptions:   
Discount rate% 4.00%

The plan will no longer incur expense after 2016.
401(k) Savings Plan
The Bank sponsors a savings and profit sharing plan, pursuant to Section 401(k) of the Code, for all eligible employees. Employees may elect to defer up to 80% of their compensation, subject to IRCCode limitations. The Bank will match 50% of the first 6% of the employee's salary deferral up to a maximum of 3% of each employee's compensation. The Plan expense amounted to approximately $75,000$87,000 and $68,000$88,000 for the years ended December 31, 20172019 and 2016,2018, respectively.
Employee Stock Ownership Plan
Effective upon completion of Old MSB's initial public stock offering in 2007, the Bank established the ESOP for all eligible employees who complete a twelve-month period of employment with the Bank, have attained the age of 21 and have completed at least 1,000 hours of service in a plan year. The ESOP used $2.0 million in proceeds from a term loan obtained from Old MSB to purchase 202,342 shares of Old MSB common stock.

F- 28

Note 12 - Benefit Plans (Continued)


The term loan principal was payable over 48 equal quarterly installments through December 31, 2018. The interest rate on the term loan was 8.25%.
On July 16, 2015, the Company completed a second-step stock conversion that included the purchase of 150,663 shares by the ESOP and the conversion of 202,342 shares of Old MSB's common stock at a conversion rate of 1.1397 to 230,609 shares of Company common stock bringing the total shares to 381,272. The old term loan was refinanced into a new term loan in the amount of $2.3 million which included additional funds of $1.5 million to cover the cost of the newnewly purchased shares. The term loan principal is payable over 80 equal quarterly installments through June 30, 2035. The interest rate on the term loan is 3.25%.
Each quarter, the Bank intends to make discretionary contributions to the ESOP, which will be equal to principal and interest payments required on the term loan. The ESOP may further pay down the loan with dividends paid, if any, on the Company common stock owned by the ESOP.  Shares purchased with the loan proceeds provide collateral for the term loan and are held in a suspense account for future allocations among participants. Base compensation is the basis for allocation to participants of contributions to the ESOP and shares released from the suspense account, as described by the ESOP, in the year of allocation.
ESOP shares pledged as collateral were initially recorded as unallocated ESOP shares in the consolidated statement of financial condition. On a monthly basis, 910 shares are allocated and compensation expense is recorded equal to the number of allocated shares multiplied by the monthly average market price of the Company's common stock and the allocated shares become outstanding for basic earnings per common share computations. The difference between the fair value of shares and the cost of the shares allocated by the ESOP is recorded as an adjustment to paid-in capital.  ESOP compensation expense was approximately $265,000$181,000 and $149,000$210,000 for the years ended December 31, 20172019 and 2016,2018, respectively.


ESOP shares at December 31, 20172019 and 20162018 are summarized as follows:
At
December 31,
2017
 At
December 31,
2016
At
December 31,
2019
 At
December 31,
2018
Allocated shares179,956
 169,030
201,808
 190,882
Shares earned and committed to be released10,926
 10,926
10,926
 10,926
Allocated and earned190,882
 179,956
212,734
 201,808
Total ESOP shares381,272
 381,272
381,272
 381,272
Fair value of unallocated shares$3,388,942
 $2,959,345
$3,033,684
 $3,203,432
Stock-Based Compensation

After shareholder approval in 2016, the MSB Financial Corp. 2016 Equity Incentive Plan (the “2016 Plan”) became effective. In addition, the Company also has the MSB Financial Corp. 2008 Stock Compensation and Incentive Plan (the “2008 Plan”). No future awards are being granted under the 2008 Plan. The 2016 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. Collectively, the 2008 Plan and the 2016 Plan are referred to as Stock Option Plans. Under the 2016 Plan, the Company may grant options to purchase up to

F- 24

Note 11 - Benefit Plans


281,499 shares of Company's common stock and issue up to 112,600 shares of restricted stock. At December 31, 2017,2019, there were 71,05185,985 shares remaining for future option grants and 5,19713,597 shares remaining for future restricted share grants under the plan.
On July 16, 2015, the Company completed a second-step stock conversion that included the conversion of the stock options issued and outstanding under the 2008 Plan at a conversion rate of 1.1397. As a result, the number of options outstanding was increased by the conversion factor and the exercise price per share was converted to $9.4323.

On August 4, 2017, certain directors, executive officers and directors emeriti executedDuring 2019, there were no options to purchase 212,468 shares of Common Stock at a per share exercise price of $9.4323. In lieu of issuing shares of Common Stock upon the exercise of such options, the Company made a cash payment to such optionees equal to the excess of the closing price of the Common Stock on the Nasdaq Stock Market on August 4, 2017 of $17.30 over the per share exercise price of such options of $9.4323 multiplied by the number of options being exercised. An aggregate of $1.7 million was paid to the optionees.awarded.
During 2017,2018, options to purchase 10,556 shares of common stock at $17.30$17.65 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary of the date of grant. The fair value of the options granted, as computed using the Black-ScholesBlack-Sholes option-pricing model, was determined to be $3.71$4.24 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 1.98%2.49%, 6.5 years, 15.41%16.53%, and 0.00%, respectively.
During 2016, options to purchase 210,448 shares of common stock at $13.04 per share were awarded and will expire no later than ten years following the grant date. The options granted vest over a five-year service period, with 20% of the awards vesting on each anniversary date of

F- 29

Note 12 - Benefit Plans (Continued)


grant. The fair value of the options granted, as computed using the Black-Scholes option-pricing model, was determined to be $2.12 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 1.37%, 6.5 years, 11.83%, and 0.00%, respectively.

The risk-free interest rate was based on the U.S. Treasury yield at the option grant date for securities with a term matching the expected life of the options granted. The expected life was calculated using the "simplified" method provided for under Staff Accounting Bulletin No. 110. Expected volatility was calculated based upon the actual price history of the Company's common stock up until the date of the option grants. The dividend yield was not used in the calculation since no dividends were declared since the Company completed the full stock conversion.
A summary of stock options at December 31, 20172019 and 20162018 was as follows:
Year Ended
December 31, 2017
 Year Ended
December 31, 2016
Year Ended
December 31, 2019
 Year Ended
December 31, 2018
Stock Options:Shares 
Weighted-
 Average
 Exercise Price
 Shares 
Weighted-
 Average
 Exercise Price
Shares 
Weighted-
 Average
 Exercise Price
 Shares 
Weighted-
 Average
 Exercise Price
Outstanding at beginning of period472,973
 $10.96
 276,219
 $9.43
185,003
 $13.56
 210,448
 $13.27
Granted10,556
 17.30
 210,448
 13.04

 
 10,556
 17.65
Exercised(273,081) 9.43
 (3,138) 9.43

 
 (10,511) 13.04
Forfeited
 
 (10,556) 13.04

 
 (25,490) 13.04
Outstanding at end of period210,448
 13.27
 472,973
 10.96
185,003
 13.56
 185,003
 13.56
Nonvested at end of period167,271
 13.32
 199,892
 13.05
79,497
 13.88
 116,072
 13.73
Exercisable at end of period43,177
 13.05
 273,081
 9.43
105,506
 13.32
 68,931
 13.25
Weighted-average fair value of awards granted$3.71
  
 $2.12
  $
  
 $4.24
  

The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 20172019 was $322,000.$147,000. The weighted-average period over which the expense is expected to be recognized is 3.51.5 years. At December 31, 2017,2019, the intrinsic value of options exercisable and all options outstanding was approximately $205,000$494,000 and $954,000,$821,000, respectively.

The total amount of compensation cost remaining to be recognized relating to unvested option grants as of December 31, 20162018 was $377,000.$233,000. The weighted-average period over which the expense is expected to be recognized is 4.52.5 years. At December 31, 2016,2018, the intrinsic value of options exercisable and all options outstanding was approximately $1.4 million$322,000 and $1.8 million,$472,000, respectively.
The Company awarded 107,403 shares of restricted stock that vest over a five year period during the year ended December 31, 2016. The fair value of the restricted stock is equal to the fair value of the Company's common stock on the date of grant. For the year ended December 31, 2017,2019, there were 84,32336,963 restricted shares that were unvested and outstanding with a fair value of $13.04. The total amount of compensation cost to be recognized relating to non-vested restricted stock as of December 31, 2017,2019, was $944,000.$345,000. The weighted-average period over which the expense is expected to be recognized is 3.51.5 years.
During the year ended December 31, 20172019 and December 31, 2016,2018, stock-based compensation expense recorded in regard to the options and the restricted stock grants totaled $391,000$327,000 and $207,000, respectively.$328,000 as of December 31, 2019 and 2018.

Note 1312 - Transactions with Officers and Directors
The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its officers, directors, their immediate families, and affiliated companies (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others with the exception that all employees with one year of service, directors and executive officers are offered a 50 basis point reduction for consumer loans or primary residence mortgage loans.. These persons were indebted to the Bank for loans totaling $7.9$8.7 million and $6.7$8.2 million at December 31, 20172019 and 2016,2018, respectively. During the year ended December 31, 2017, $6.32019, $1.4 million of

F- 25



new loans and $900,000$860,000 of repayments were made. During the year endedTotal deposits from related parties at December 31, 2017, the Bank had $4.22019 were $67.6 million in loans related to a director that retired who no longer qualifies as related party.and $43.5 million at December 31, 2018.
Note 1413 - Commitments
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Such commitments involve, to varying degrees, elements of credit, and interest rate risk in excess of the amount recognized in the statements of financial condition.

F- 30



The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
At December 31, 20172019 and 2016,2018, the following financial instruments were outstanding whose contract amounts represent credit risk:
At
December 31,
2017
 At
December 31,
2016
At
December 31,
2019
 At
December 31,
2018
(In thousands)(In thousands)
Commitments to grant loans$25,176
 $3,251
$15,447
 $14,236
Unfunded commitments under lines of credit65,597
 38,463
86,414
 74,123
Standby letters of credit359
 359
513
 159
$91,132
 $42,073
$102,374
 $88,518
At December 31, 2017, the2019, commitments to grant loans included, $95,000 of 1-4 family mortgage loans, $4.5$2.0 million of construction loans,$8.6 $2.5 million of commercial and industrial loans and $10.9 million of commercial and multi-family estate loans. Of the unfunded commitments under lines of credit at December 31, 2019, $12.9 million was available under the Bank's home equity lending program, $374,000 was available under the overdraft protection lending program and $73.1 million was available under commercial lines of credit. 
At December 31, 2018, commitments to grant loans included $281,000 of one-to-four family mortgage loans, $4.8 million of construction loans, $6.9 million of commercial and multi-family real estate loans and $12.0$2.2 million of commercial and industrial loans. Of the unfunded commitments under lines of credit at December 31, 2017, $14.92018, $14.5 million was available under the Bank's home equity lending program, $428,000$414,000 was available under the overdraft protection lending program and $50.2 million was available under commercial lines of credit. 
At December 31, 2016, the commitments to grant loans included $2.3 million of 1-4 family mortgage loans, $700,000 of construction loans and $240,000 of commercial and industrial loans. Of the unfunded commitments under lines of credit at December 31, 2016, $16.5$59.3 million was available under the Bank's home equity lending program, $423,000 was available under the overdraft protection lending program and $21.6 million was available under commercial lines of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but primarily includes residential and income-producing commercial real estate properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Bank requires collateral supporting these letters of credit when deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The fair values of these obligations were immaterial as of December 31, 20172019 and 2016.2018.
Note 1514 - Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.
FASB ASC Topic 820, Fair Market Value Disclosures ("ASC 820"), defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous

F- 26

Note 14 Fair Value Measurements (Continued)

market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
ASC 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

F- 31

Note 15 - Fair Value Measurements (Continued)


Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or     similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Bank did not have any financial assets measured at fair value on a recurring basis as of December 31, 20172019 and 2016.2018.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Certain financial and non-financial 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 following tables summarize those assets measured at fair value on a non-recurring basis as of December 31, 20172019 and 2016:2018:
 December 31, 2017
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total Fair
 Value
  
Impaired loans$
 $
 $6
 $6
 December 31, 2019
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total Fair
 Value
  
Impaired loans$
 $
 $338
 $338


F- 27

Note 14 Fair Value Measurements (Continued)

 December 31, 2016
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total Fair
 Value
  
Impaired loans$
 $
 $2,065
 $2,065
 December 31, 2018
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
 
Total Fair
 Value
  
Impaired loans$
 $
 $350
 $350
For Level 3 input assets measured at fair value on non-recurring basis as of December 31, 20172019 and 2016,2018, the significant unobservable inputs used in fair value measurements were as follows:

F- 32

Note 15 - Fair Value Measurements (Continued)


   December 31, 20172019    
 
Fair Value
Estimate
 
Valuation
Techniques
 
Unobservable
Input
 
Range (Weighted
Average)
 (Dollars in thousands)
Impaired loans$6338 Appraisal of
Collateral
 Appraisal
adjustments
Liquidation
expense
 
475.6% (475.6%0% (0%)
     
   Liquidation
expense
0% (0%20.56% (20.56%)

   December 31, 20162018    
 
Fair Value
Estimate
 
Valuation
Techniques
 
Unobservable
Input
 
Range (Weighted
Average)
 (Dollars in thousands)
Impaired loans$2,065350 Appraisal of
Collateral
 Appraisal
adjustments
Liquidation
expense
 0% to 22.6% (19.4%(0%)
     
   Liquidation
expense
5.4% to 18.3 (6.8%7.3% (7.3%)
An impaired loan is measured for impairment at the time the loan is identified as impaired.  Loans are considered impaired when based on current information and events it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement.  The Company's impaired loans are generally collateral dependent and, as such, are carried at the lower of cost or estimated fair value less estimated selling costs.  Fair values are estimated through current appraisals and adjusted as necessary to reflect current market conditions and as such are classified as Level 3.
Disclosure about Fair Value of Financial Instruments
The fair value of a financial instrument is defined above. Significant estimates were used for the purposes of disclosing fair values. Estimated fair values have been determined using the best available data and estimation methodology suitable for each category of financial instruments. However, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.
The following presents the carrying amount, fair value and placement in the fair value hierarchy as of December 31, 20172019 and 2016,2018, of the Company's financial instruments which are carried on the consolidated statement of financial condition at cost and are not measured or recorded at fair value on a recurring basis. This table excludes financial instruments for which the carrying amount approximates fair value, which includes cash and cash equivalents, FHLB stock, accrued interest receivable, interest and non-interest bearing demand, savings and club deposits, and accrued interest payable.

 F- 3328 

Note 15 -14 Fair Value Measurements (Continued)


Carrying
Amount
 
Fair
Value
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
Carrying
Amount
 
Fair
Value
 
Level 1
Inputs
 
Level 2
Inputs
 
Level 3
Inputs
As of December 31, 2017(In thousands)
As of December 31, 2019(In thousands)
Financial assets:                  
Cash and due from banks$18,453
 $18,453
 $18,453
 $
 $
Securities held to maturity38,482
 38,255
 $
 $38,255
 $
35,827
 35,696
 
 35,696
 
Loans receivable (1)473,405
 472,881
 
 
 472,881
Loans receivable, net (1)508,022
 506,634
 
 
 506,634
Accrued interest receivable1,650
 1,650
 
 90
 1,560
Financial liabilities: 
  
  
  
  
 
  
  
  
  
Certificate of deposits124,339
 125,998
 
 125,998
 
Deposits472,752
 474,233
 
 474,233
 
Advances from Federal Home Loan Bank of New York37,675
 37,400
 
 37,400
 
51,575
 51,674
 
 51,674
 
As of December 31, 2016 
  
  
  
  
Accrued interest payable85
 85
 
 85
 
As of December 31, 2018 
  
  
  
  
Financial assets: 
  
  
  
  
 
  
  
  
  
Cash and due from banks$11,800
 $11,800
 $11,800
 $
 $
Securities held to maturity44,104
 $43,894
 $
 $43,894
 $
39,476
 38,569
 
 38,569
 
Loans receivable (1)368,007
 373,325
 
 
 373,325
Loans receivable, net (1)502,299
 490,177
 
 
 490,177
Accrued interest receivable1,615
 1,615
 
 111
 1,504
Financial liabilities: 
  
  
  
  
 
  
  
  
  
Certificate of deposits103,627
 105,375
 
 105,375
 
Deposits420,579
 421,164
 
 421,164
 
Advances from Federal Home Loan Bank of New York22,675
 23,087
 
 23,087
 
94,275
 93,839
 
 93,839
 
Accrued interest payable86
 86
 
 86
 
(1)Includes impaired loans measured at fair value on a non-recurring basis as discussed above.
Methods and assumptionsManagement used exit prices to estimate the fair values in the table above as of financial assetsDecember 31, 2019 and liabilities previously disclosed are as follows:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Securities Held to Maturity
The fair value for securities held to maturity is based on quoted market prices, where available. If quoted market prices are not available, fair value is estimated using quoted market prices for similar securities.
Loans Receivable
The fair value of loans is based upon a multitude of sources, including assumed current market rates by category and the Bank's current offering rates.  Both fixed and variable rate loan fair values are derived at using a discounted cash flow methodology.  For variable rate loans, repricing terms, including next reprice date, reprice frequency and reprice rate are factored into the discounted cash flow formula.
Federal Home Loan Bank Stock
The carrying amount of FHLB of New York stock approximates fair value since the Company is generally able to redeem this stock at par.
Accrued Interest Receivable and Payable
The carrying amounts of accrued interest receivable and payable approximate fair value due to the short term nature of these instruments.
Deposits
Fair values for demand deposits, savings accounts and club accounts are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.
Advances from Federal Home Loan Bank of New York
Fair values of advances are estimated using discounted cash flow analyses, based on rates currently available to the Company for advances from the FHLB of New York with similar terms and remaining maturities.2018.
Off-Balance Sheet Financial Instruments

F- 34

Note 15 - Fair Value Measurements (Continued)


Fair values of commitments to extend credit are estimated using the fees currently charged to enter into similar agreement, into account market interest rates, the remaining terms, and the present credit worthiness of the counterparties.  As of December 31, 20172019 and 2016,2018, the fair value of the commitments to extend credit was not considered to be material.
Note 1615 - Parent Only Financial Statements
 At
December 31,
2017
 At
December 31,
2016
(In thousands)   
Assets   
Cash and due from banks$11,639
 $15,208
Loan receivable2,094
 2,182
Investments in subsidiaries58,843
 55,611
Other assets501
 223
Total Assets$73,077
 $73,224
Liabilities 
  
Other liabilities$52
 $39
Total Liabilities52
 39
Stockholders' Equity 
  
Common stock58
 57
Paid-in capital51,068
 51,809
Retained earnings23,641
 23,370
Unallocated common stock held by ESOP(1,742) (1,929)
Accumulated other comprehensive loss
 (122)
Total Stockholders' Equity73,025
 73,185
Total Liabilities and Stockholders' Equity$73,077
 $73,224

Condensed Statements of Comprehensive Income
 
Years Ended
 December 31,
 2017 2016
 (In thousands)
Equity in undistributed earnings of subsidiaries$2,846
 $1,323
Interest income70
 72
Non-interest expense(257) (317)
Income Before Income Tax Benefit2,659
 1,078
Income tax benefit(63) (83)
Net Income$2,722
 $1,161
Comprehensive Income$2,844
 $1,118

 F- 3529 



Condensed Statements of Cash Flows
 
Years Ended
December 31,
 2017 2016
 (In thousands)
Cash Flows from Operating Activities   
Net income$2,722
 $1,161
Adjustments to reconcile net income to net cash provided by (used in) operating activities: 
  
Equity in undistributed earnings of subsidiaries(2,846) (1,323)
Net change in other assets and liabilities127
 83
Net Cash Provided by (Used in) Operating Activities3
 (79)
Cash Flows from Investing Activities 
  
Repayment of ESOP loan receivable88
 85
Net Cash Provided by Investing Activities88
 85
Cash Flows from Financing Activities 
  
Repurchase of common stock(108) (3,215)
Proceeds from exercise of stock options571
 30
Cash dividends paid to stockholders(2,451) 
Net exercise of options and repurchase of shares(1,672) 
Purchase of common stock for equity plan
 (1,467)
Net Cash Used in Financing Activities(3,660) (4,652)
Net Decrease in Cash and Cash Equivalents(3,569) (4,646)
Cash and Cash Equivalents - Beginning15,208
 19,854
Cash and Cash Equivalents - Ending$11,639
 $15,208
 At
December 31,
2019
 At
December 31,
2018
(In thousands)   
Assets   
Cash and due from banks$1,389
 $1,953
Loan receivable1,909
 2,003
Investments in subsidiaries61,991
 61,741
Other assets135
 1,015
Total Assets$65,424
 $66,712
Liabilities 
  
Other liabilities$49
 $66
Total Liabilities49
 66
Stockholders' Equity 
  
Common stock52
 54
Paid-in capital41,857
 44,726
Retained earnings24,989
 23,498
Unallocated common stock held by ESOP(1,523) (1,632)
Total Stockholders' Equity65,375
 66,646
Total Liabilities and Stockholders' Equity$65,424
 $66,712

Condensed Statements of Comprehensive Income
 
Years Ended
 December 31,
 2019 2018
 (In thousands)
Dividends from Subsidiaries$4,500
 $2,452
Equity in undistributed earnings of subsidiaries(9) 2,569
Interest income64
 67
Non-interest expense(490) (283)
Income Before Income Tax Benefit4,065
 4,805
Income tax benefit(38) (30)
Net Income$4,103
 $4,835
    

 F- 3630 



Condensed Statements of Cash Flows
 
Years Ended
December 31,
 2019 2018
 (In thousands)
Cash Flows from Operating Activities   
Net income$4,103
 $4,835
Adjustments to reconcile net income to net cash provided by operating activities: 
  
Equity in undistributed earnings of subsidiaries9
 (2,569)
Net change in other assets and liabilities1,191
 (172)
Net Cash Provided by Operating Activities5,303
 2,094
Cash Flows from Investing Activities 
  
Repayment of ESOP loan receivable94
 91
Net Cash Provided by Investing Activities94
 91
Cash Flows from Financing Activities 
  
Repurchase of common stock(3,349) (6,840)
Cash dividends paid to stockholders(2,612) (4,978)
Net exercise of options and repurchase of shares
 (53)
Net Cash Used in Financing Activities$(5,961) $(11,871)
Net Decrease in Cash and Cash Equivalents(564) (9,686)
Cash and Cash Equivalents - Beginning1,953
 11,639
Cash and Cash Equivalents - Ending$1,389
 $1,953
Note 16- Merger Agreement
On December 18, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kearny Financial Corp. (“Kearny”), the parent company of Kearny Bank, pursuant to which the Company will merge with and into Kearny (the “Merger”). As part of the transaction, the Bank will also merge with and into Kearny Bank.
Subject to the terms and conditions of the Merger Agreement, upon consummation of the Merger, each outstanding share of common stock of the Company will be automatically converted into and exchangeable for the right to receive either: (i) $18 in cash (the “Cash Consideration”), or (ii) 1.3 shares of the Kearny’s common stock with cash being paid in lieu of fractional shares (the “Stock Consideration” and, together with the Cash Consideration, the “Merger Consideration”). The Merger Agreement provides that 90% of the outstanding shares of the Company common stock will be converted into Stock Consideration and 10% of the outstanding shares of the Company common stock will be converted into Cash Consideration. Each shareholder of the Company will be entitled to elect the number of shares of the Company common stock held by such shareholder that will be exchanged for the Stock Consideration or the Cash Consideration subject to proration in the event that a selected form of consideration is over-elected.
The Merger Agreement contains customary representations, warranties and covenants from both the Company and Kearny. Among other covenants, the Company has agreed: (i) to convene and hold a meeting of its shareholders to consider and vote upon the Merger, (ii) that, subject to certain exceptions, the board of directors of the Company will recommend the approval of the Merger and the Merger Agreement by its shareholders, and (iii) not to (A) solicit alternative third-party acquisition proposals or, (B) subject to certain exceptions, conduct discussions concerning or provide confidential information in connection with any alternative third-party acquisition proposal. The Merger Agreement contains provisions that provide for the termination of the Merger Agreement in certain circumstances, and such provisions may require the Company to pay to Kearny a termination fee of $3.54 million.
The Merger is expected to close during the second calendar quarter of 2020, subject to the Company receiving the requisite approval of its shareholders, receipt of all regulatory approvals and fulfillment of other customary closing conditions.


F- 31