UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 20172018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-38065

 

PCSB Financial Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

81-4710738

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2651 Strang Blvd, Suite 100

Yorktown Heights, NY

10598

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (914) 248-7272

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

  

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

(Do not check if a small reporting company)

  

Small reporting company

 

 

 

 

 

 

 

 

 

  

  

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for completing with any or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

18,165,11017,804,039 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of February 9, 2018.6, 2019.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Statements of Changes in Shareholders’ Equity

5

 

Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3135

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3646

Item 4.

Controls and Procedures

4146

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

4247

Item 1A.

Risk Factors

4247

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4247

Item 3.

Defaults Upon Senior Securities

4247

Item 4.

Mine Safety Disclosures

4247

Item 5.

Other Information

4247

Item 6.

Exhibits

4348

Signatures

4449

 

 

 

1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PCSB Financial Corporation and Subsidiaries

Consolidated Balance Sheets (unaudited)

(amounts in thousands, except share data)

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

2017

 

 

2017

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

75,778

 

 

$

59,115

 

 

$

141,569

 

 

$

60,684

 

Federal funds sold

 

 

1,328

 

 

 

1,371

 

 

 

1,550

 

 

 

1,461

 

Total cash and cash equivalents

 

 

77,106

 

 

 

60,486

 

 

 

143,119

 

 

 

62,145

 

Investment Securities:

 

 

 

 

 

 

 

 

Held to maturity investment securities, at amortized cost (fair value of

$363,457 and $383,588, respectively)

 

 

367,646

 

 

 

383,551

 

Available for sale securities, at fair value

 

 

102,714

 

 

 

111,889

 

Held to maturity debt securities, at amortized cost (fair value of

$351,701 and $343,188, respectively)

 

 

359,777

 

 

 

353,183

 

Available for sale debt securities, at fair value

 

 

92,686

 

 

 

105,472

 

Total investment securities

 

 

470,360

 

 

 

495,440

 

 

 

452,463

 

 

 

458,655

 

Loans receivable, net of allowance for loan losses of $4,471 and

$5,150, respectively

 

 

838,120

 

 

 

809,648

 

Loans receivable, net of allowance for loan losses of $4,943 and

$4,904, respectively

 

 

904,377

 

 

 

902,336

 

Accrued interest receivable

 

 

4,001

 

 

 

3,693

 

 

 

4,457

 

 

 

4,358

 

Federal Home Loan Bank stock

 

 

2,395

 

 

 

3,132

 

 

 

2,385

 

 

 

2,050

 

Premises and equipment, net

 

 

12,625

 

 

 

12,959

 

 

 

11,429

 

 

 

11,598

 

Deferred tax asset, net

 

 

2,832

 

 

 

4,770

 

 

 

2,436

 

 

 

2,622

 

Foreclosed real estate

 

 

-

 

 

 

977

 

 

 

572

 

 

 

460

 

Bank-owned life insurance

 

 

23,473

 

 

 

23,179

 

 

 

24,026

 

 

 

23,747

 

Goodwill

 

 

6,106

 

 

 

6,106

 

 

 

6,106

 

 

 

6,106

 

Other intangible assets

 

 

495

 

 

 

559

 

 

 

376

 

 

 

433

 

Other assets

 

 

5,755

 

 

 

5,509

 

 

 

5,569

 

 

 

5,677

 

Total assets

 

$

1,443,268

 

 

$

1,426,458

 

 

$

1,557,315

 

 

$

1,480,187

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

$

963,495

 

 

$

952,109

 

 

$

1,063,211

 

 

$

1,025,574

 

Non-interest bearing deposits

 

 

150,834

 

 

 

136,352

 

 

 

162,113

 

 

 

131,883

 

Total deposits

 

 

1,114,329

 

 

 

1,088,461

 

 

 

1,225,324

 

 

 

1,157,457

 

Mortgage escrow funds

 

 

8,229

 

 

 

8,084

 

 

 

9,085

 

 

 

8,803

 

Advances from Federal Home Loan Bank

 

 

30,720

 

 

 

42,598

 

 

 

26,279

 

 

 

18,841

 

Other liabilities

 

 

7,579

 

 

 

7,469

 

 

 

7,845

 

 

 

7,527

 

Total liabilities

 

 

1,160,857

 

 

 

1,146,612

 

 

 

1,268,533

 

 

 

1,192,628

 

Commitments and contingencies

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares

issued or outstanding as of December 31, 2017 and June 30, 2017)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized,

18,165,110 shares issued and outstanding as of December 31, 2017 and

June 30, 2017)

 

 

182

 

 

 

182

 

Preferred stock ($0.01 par value, 10,000,000 shares authorized, no shares

issued or outstanding as of December 31, 2018 and June 30, 2018)

 

 

-

 

 

 

-

 

Common stock ($0.01 par value, 200,000,000 shares authorized, 18,712,295 and 18,165,110 shares issued, and 18,490,225 and 18,165,110 shares outstanding as of December 31, 2018 and June 30, 2018)

 

 

187

 

 

 

182

 

Additional paid in capital

 

 

178,556

 

 

 

177,993

 

 

 

180,003

 

 

 

179,045

 

Retained earnings

 

 

122,906

 

 

 

121,148

 

 

 

131,993

 

 

 

128,365

 

Unallocated common stock of Employee Stock Ownership Plan ("ESOP")

 

 

(13,563

)

 

 

(14,262

)

Unearned compensation - ESOP

 

 

(12,594

)

 

 

(13,083

)

Accumulated other comprehensive loss, net of income taxes

 

 

(5,670

)

 

 

(5,215

)

 

 

(6,471

)

 

 

(6,950

)

Treasury stock, at cost (222,070 shares as of December 31, 2018 and no

shares as of June 30, 2018)

 

 

(4,336

)

 

 

-

 

Total shareholders' equity

 

 

282,411

 

 

 

279,846

 

 

 

288,782

 

 

 

287,559

 

Total liabilities and shareholders' equity

 

$

1,443,268

 

 

$

1,426,458

 

 

$

1,557,315

 

 

$

1,480,187

 

 

See accompanying notes to the consolidated financial statements (unaudited)

2


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Operations (unaudited)

(amounts in thousands, except share and per share data)

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest and dividend income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

9,171

 

 

$

8,238

 

 

$

17,989

 

 

$

16,763

 

 

$

10,321

 

 

$

9,171

 

 

$

20,219

 

 

$

17,989

 

Investment securities

 

 

2,269

 

 

 

1,530

 

 

 

4,514

 

 

 

3,010

 

 

 

2,428

 

 

 

2,269

 

 

 

4,794

 

 

 

4,514

 

Federal funds and other

 

 

217

 

 

 

82

 

 

 

451

 

 

 

186

 

 

 

491

 

 

 

217

 

 

 

836

 

 

 

451

 

Total interest and dividend income

 

 

11,657

 

 

 

9,850

 

 

 

22,954

 

 

 

19,959

 

 

 

13,240

 

 

 

11,657

 

 

 

25,849

 

 

 

22,954

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,307

 

 

 

1,292

 

 

 

2,574

 

 

 

2,576

 

 

 

2,375

 

 

 

1,307

 

 

 

4,431

 

 

 

2,574

 

FHLB advances

 

 

164

 

 

 

31

 

 

 

318

 

 

 

81

 

 

 

121

 

 

 

164

 

 

 

210

 

 

 

318

 

Total interest expense

 

 

1,471

 

 

 

1,323

 

 

 

2,892

 

 

 

2,657

 

 

 

2,496

 

 

 

1,471

 

 

 

4,641

 

 

 

2,892

 

Net interest income

 

 

10,186

 

 

 

8,527

 

 

 

20,062

 

 

 

17,302

 

 

 

10,744

 

 

 

10,186

 

 

 

21,208

 

 

 

20,062

 

Provision for loan losses

 

 

200

 

 

 

562

 

 

 

335

 

 

 

588

 

 

 

6

 

 

 

200

 

 

 

64

 

 

 

335

 

Net interest income after provision for loan losses

 

 

9,986

 

 

 

7,965

 

 

 

19,727

 

 

 

16,714

 

 

 

10,738

 

 

 

9,986

 

 

 

21,144

 

 

 

19,727

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees and service charges

 

 

293

 

 

 

360

 

 

 

569

 

 

 

602

 

 

 

457

 

 

 

412

 

 

 

875

 

 

 

793

 

Bank-owned life insurance

 

 

139

 

 

 

145

 

 

 

279

 

 

 

294

 

Gain on sale of securities, net

 

 

-

 

 

 

-

 

 

 

173

 

 

 

-

 

 

 

55

 

 

 

-

 

 

 

55

 

 

 

173

 

Bank-owned life insurance

 

 

145

 

 

 

160

 

 

 

294

 

 

 

328

 

Settlement on acquired loan

 

 

-

 

 

 

1,615

 

 

 

-

 

 

 

1,615

 

Other

 

 

254

 

 

 

124

 

 

 

370

 

 

 

266

 

 

 

269

 

 

 

135

 

 

 

352

 

 

 

146

 

Total noninterest income

 

 

692

 

 

 

2,259

 

 

 

1,406

 

 

 

2,811

 

 

 

920

 

 

 

692

 

 

 

1,561

 

 

 

1,406

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,823

 

 

 

4,444

 

 

 

9,636

 

 

 

8,694

 

 

 

5,444

 

 

 

4,870

 

 

 

10,584

 

 

 

9,730

 

Occupancy and equipment

 

 

1,296

 

 

 

1,844

 

 

 

2,578

 

 

 

3,135

 

 

 

1,284

 

 

 

1,296

 

 

 

2,525

 

 

 

2,578

 

Communicating and data processing

 

 

482

 

 

 

479

 

 

 

954

 

 

 

970

 

Professional fees

 

 

379

 

 

 

276

 

 

 

792

 

 

 

585

 

 

 

417

 

 

 

379

 

 

 

786

 

 

 

792

 

Advertising

 

 

179

 

 

 

90

 

 

 

344

 

 

 

229

 

Postage, printing, stationary and supplies

 

 

142

 

 

 

131

 

 

 

274

 

 

 

264

 

 

 

178

 

 

 

142

 

 

 

316

 

 

 

274

 

FDIC assessment

 

 

64

 

 

 

106

 

 

 

142

 

 

 

321

 

 

 

124

 

 

 

64

 

 

 

217

 

 

 

142

 

Advertising

 

 

131

 

 

 

179

 

 

 

218

 

 

 

344

 

Amortization of intangible assets

 

 

33

 

 

 

37

 

 

 

65

 

 

 

73

 

 

 

28

 

 

 

33

 

 

 

56

 

 

 

65

 

Other operating expenses

 

 

1,209

 

 

 

866

 

 

 

2,188

 

 

 

1,691

 

 

 

492

 

 

 

683

 

 

 

932

 

 

 

1,124

 

Total noninterest expense

 

 

8,125

 

 

 

7,794

 

 

 

16,019

 

 

 

14,992

 

 

 

8,580

 

 

 

8,125

 

 

 

16,588

 

 

 

16,019

 

Net income before income tax expense

 

 

2,553

 

 

 

2,430

 

 

 

5,114

 

 

 

4,533

 

 

 

3,078

 

 

 

2,553

 

 

 

6,117

 

 

 

5,114

 

Income tax expense

 

 

2,551

 

 

 

758

 

 

 

3,356

 

 

 

1,405

 

 

 

754

 

 

 

2,551

 

 

 

1,464

 

 

 

3,356

 

Net income

 

$

2

 

 

$

1,672

 

 

$

1,758

 

 

$

3,128

 

 

$

2,324

 

 

$

2

 

 

$

4,653

 

 

$

1,758

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

n/a

 

 

$

0.10

 

 

n/a

 

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

Diluted

 

$

0.00

 

 

n/a

 

 

$

0.10

 

 

n/a

 

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

16,791,305

 

 

n/a

 

 

 

16,773,883

 

 

n/a

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

16,852,718

 

 

 

16,791,305

 

 

 

16,860,942

 

 

 

16,773,883

 

Diluted

 

 

16,868,464

 

 

 

16,791,305

 

 

 

16,868,815

 

 

 

16,773,883

 

 

See accompanying notes to the consolidated financial statements (unaudited)

3


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(amounts in thousands)

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

2

 

 

$

1,672

 

 

$

1,758

 

 

$

3,128

 

Net income

 

$

2,324

 

 

$

2

 

 

$

4,653

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized gains/losses before reclassification adjustment

 

 

(717

)

 

 

(1,262

)

 

 

(930

)

 

 

(1,109

)

 

 

506

 

 

 

(717

)

 

 

353

 

 

 

(930

)

Reclassification adjustment for gains realized in net income

 

 

-

 

 

 

-

 

 

 

(139

)

 

 

-

 

 

 

(55

)

 

 

-

 

 

 

(55

)

 

 

(139

)

Net change in unrealized gains/losses

 

 

(717

)

 

 

(1,262

)

 

 

(1,069

)

 

 

(1,109

)

 

 

451

 

 

 

(717

)

 

 

298

 

 

 

(1,069

)

Tax effect

 

 

243

 

 

 

429

 

 

 

363

 

 

 

377

 

 

 

(94

)

 

 

243

 

 

 

(62

)

 

 

363

 

Net of tax

 

 

(474

)

 

 

(833

)

 

 

(706

)

 

 

(732

)

 

 

357

 

 

 

(474

)

 

 

236

 

 

 

(706

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

181

 

 

 

577

 

 

 

362

 

 

 

577

 

Net gain (loss) arising during the period

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Reclassification adjustment for amortization of prior service cost and net gain (loss) included in net periodic pension cost

 

 

145

 

 

 

181

 

 

 

290

 

 

 

362

 

Tax effect

 

 

(61

)

 

 

(196

)

 

 

(123

)

 

 

(196

)

 

 

(31

)

 

 

(61

)

 

 

(61

)

 

 

(123

)

Net of tax

 

 

120

 

 

 

381

 

 

 

239

 

 

 

381

 

 

 

114

 

 

 

120

 

 

 

229

 

 

 

239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental retirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost and net gain included in net periodic pension cost

 

 

8

 

 

 

47

 

 

 

16

 

 

 

47

 

 

 

9

 

 

 

8

 

 

 

18

 

 

 

16

 

Tax effect

 

 

(2

)

 

 

(16

)

 

 

(4

)

 

 

(16

)

 

 

(2

)

 

 

(2

)

 

 

(4

)

 

 

(4

)

Net of tax

 

 

6

 

 

 

31

 

 

 

12

 

 

 

31

 

 

 

7

 

 

 

6

 

 

 

14

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss)

 

 

(348

)

 

 

(421

)

 

 

(455

)

 

 

(320

)

Total other comprehensive income (loss)

 

 

478

 

 

 

(348

)

 

 

479

 

 

 

(455

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$

(346

)

 

$

1,251

 

 

$

1,303

 

 

$

2,808

 

Comprehensive income (loss)

 

$

2,802

 

 

$

(346

)

 

$

5,132

 

 

$

1,303

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

4


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

(amounts in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Unallocated

 

 

Other

 

 

 

 

 

 

Number of

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Common Stock

 

 

Comprehensive

 

 

Total

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

of ESOP

 

 

Loss

 

 

Equity

 

Balance at July 1, 2017

 

18,165,110

 

 

$

182

 

 

$

177,993

 

 

$

121,148

 

 

$

(14,262

)

 

$

(5,215

)

 

$

279,846

 

Net Income

 

-

 

 

 

-

 

 

 

-

 

 

 

1,758

 

 

 

-

 

 

 

-

 

 

 

1,758

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(455

)

 

 

(455

)

Issuance of common stock(1)

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

ESOP shares committed to be released (69,906 shares)

 

-

 

 

 

-

 

 

 

580

 

 

 

-

 

 

 

699

 

 

 

-

 

 

 

1,279

 

Balance at December 31, 2017

 

18,165,110

 

 

$

182

 

 

$

178,556

 

 

$

122,906

 

 

$

(13,563

)

 

$

(5,670

)

 

$

282,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2016

 

-

 

 

$

-

 

 

$

-

 

 

$

117,919

 

 

$

-

 

 

$

(7,970

)

 

$

109,949

 

Net Income

 

-

 

 

 

-

 

 

 

-

 

 

 

3,128

 

 

 

-

 

 

 

-

 

 

 

3,128

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(320

)

 

 

(320

)

Balance at December 31, 2016

 

-

 

 

$

-

 

 

$

-

 

 

$

121,047

 

 

$

-

 

 

$

(8,290

)

 

$

112,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents costs incurred in connection with the Company's initial public offering completed in the prior period.

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Common Stock

 

 

Additional Paid-in Capital

 

 

Retained Earnings

 

 

Unallocated Common Stock of ESOP

 

 

Treasury Stock, at cost

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Equity

 

Balance at July 1, 2018

 

18,165,110

 

 

$

182

 

 

$

179,045

 

 

$

128,365

 

 

$

(13,083

)

 

$

-

 

 

$

(6,950

)

 

$

287,559

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

4,653

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,653

 

Other comprehensive income

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

479

 

 

 

479

 

Common stock dividends declared (1)

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,025

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,025

)

Repurchase of common stock

 

(222,070

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,336

)

 

 

-

 

 

 

(4,336

)

Restricted stock awards granted

 

547,185

 

 

 

5

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

482

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

482

 

ESOP shares committed to be released (48,838 shares)

 

-

 

 

 

-

 

 

 

481

 

 

 

-

 

 

 

489

 

 

 

-

 

 

 

-

 

 

 

970

 

Balance at December 31, 2018

 

18,490,225

 

 

$

187

 

 

$

180,003

 

 

$

131,993

 

 

$

(12,594

)

 

$

(4,336

)

 

$

(6,471

)

 

$

288,782

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2017

 

18,165,110

 

 

$

182

 

 

$

177,993

 

 

$

121,148

 

 

$

(14,262

)

 

$

-

 

 

$

(5,215

)

 

$

279,846

 

Net income

 

-

 

 

 

-

 

 

 

-

 

 

 

1,758

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,758

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(455

)

 

 

(455

)

Issuance of common stock (2)

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

ESOP shares committed to be released (69,906 shares)

 

-

 

 

 

-

 

 

580

 

 

 

-

 

 

699

 

 

 

-

 

 

 

-

 

 

 

1,279

 

Balance at December 31, 2017

 

18,165,110

 

 

$

182

 

 

$

178,556

 

 

$

122,906

 

 

$

(13,563

)

 

$

-

 

 

$

(5,670

)

 

$

282,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Dividends declared were $0.03 and $0.06 per common share for the three and six months ended December 31, 2018, respectively.

 

(2) Represents costs incurred in association with the Company's initial public offering.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

5


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(amounts in thousands)

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

Six Months Ended December 31,

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,758

 

 

$

3,128

 

 

$

4,653

 

 

$

1,758

 

Adjustments to reconcile net income to net cash provided by

operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan loss

 

 

335

 

 

 

588

 

 

 

64

 

 

 

335

 

Depreciation and amortization

 

 

760

 

 

 

705

 

 

 

591

 

 

 

760

 

Amortization of net premiums on securities and net deferred loan

origination costs

 

 

941

 

 

 

607

 

 

 

744

 

 

 

941

 

Net (increase) decrease in accrued interest receivable

 

 

(308

)

 

 

65

 

Net increase in accrued interest receivable

 

 

(99

)

 

 

(308

)

Net loss (gain) on sale of foreclosed real estate

 

 

21

 

 

 

(30

)

 

 

(24

)

 

 

21

 

Net gains on sales of securities

 

 

(173

)

 

 

-

 

 

 

(55

)

 

 

(173

)

Net gains on sales of real estate

 

 

(156

)

 

 

-

 

Write-downs on other real estate owned

 

 

45

 

 

 

-

 

Stock-based compensation

 

 

482

 

 

 

-

 

ESOP Compensation

 

 

1,279

 

 

 

-

 

 

 

970

 

 

 

1,279

 

Earnings from cash surrender value of BOLI

 

 

(294

)

 

 

(328

)

 

 

(279

)

 

 

(294

)

Net accretion of purchase account adjustments

 

 

(361

)

 

 

(438

)

 

 

(188

)

 

 

(361

)

Other adjustments, principally net changes in other assets and liabilities

 

 

2,416

 

 

 

(3,106

)

 

 

793

 

 

 

2,416

 

Net cash provided by operating activities

 

 

6,374

 

 

 

1,191

 

 

 

7,541

 

 

 

6,374

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

(27,463

)

 

 

(52,229

)

 

 

(42,226

)

 

 

(27,463

)

Available for sale

 

 

(15,651

)

 

 

(9,073

)

 

 

-

 

 

 

(15,651

)

Sales of investment securities available for sale

 

 

6,100

 

 

 

-

 

 

 

2,069

 

 

 

6,100

 

Maturities and calls of investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity

 

 

43,060

 

 

 

50,043

 

 

 

35,346

 

 

 

43,060

 

Available for sale

 

 

17,603

 

 

 

24,816

 

 

 

10,943

 

 

 

17,603

 

Principal repayments net of disbursement for loan originations

 

 

17,792

 

 

 

19,715

 

Principal repayments (disbursement), net

 

 

(2,429

)

 

 

17,792

 

Purchase of loans

 

 

(46,657

)

 

 

(6,041

)

 

 

-

 

 

 

(46,657

)

Net redemption of FHLB stock

 

 

737

 

 

 

723

 

Purchase of bank premises and equipment

 

 

(362

)

 

 

(1,431

)

Net (purchase) redemption of FHLB stock

 

 

(335

)

 

 

737

 

Purchases net of sales of bank premises and equipment

 

 

(209

)

 

 

(362

)

Proceeds from sale of foreclosed real estate

 

 

956

 

 

 

254

 

 

 

48

 

 

 

956

 

Net cash (used in) provided by investing activities

 

 

(3,885

)

 

 

26,777

 

Net cash provided by (used in) investing activities

 

 

3,207

 

 

 

(3,885

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

25,881

 

 

 

(4,874

)

Net increase in deposits

 

 

67,867

 

 

 

25,881

 

Net decrease in short-term FHLB advances

 

 

(11,818

)

 

 

-

 

 

 

-

 

 

 

(11,818

)

Proceeds from long-term FHLB advances

 

 

12,500

 

 

 

-

 

Repayment of long-term FHLB advances

 

 

(60

)

 

 

(16,059

)

 

 

(5,062

)

 

 

(60

)

Net increase (decrease) in mortgage escrow funds

 

 

145

 

 

 

(286

)

Net increase in mortgage escrow funds

 

 

282

 

 

 

145

 

Common stock dividends paid

 

 

(1,025

)

 

 

-

 

Issuance of common stock

 

 

(17

)

 

 

-

 

 

 

-

 

 

 

(17

)

Net cash provided by (used in) financing activities

 

 

14,131

 

 

 

(21,219

)

Repurchase of common stock

 

 

(4,336

)

 

 

-

 

Net cash used in financing activities

 

 

70,226

 

 

 

14,131

 

Net increase in cash and cash equivalents

 

 

16,620

 

 

 

6,749

 

 

 

80,974

 

 

 

16,620

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

60,486

 

 

 

41,578

 

 

 

62,145

 

 

 

60,486

 

Cash and cash equivalents at end of period

 

$

77,106

 

 

$

48,327

 

 

$

143,119

 

 

$

77,106

 

 

See accompanying notes to the consolidated financial statements (unaudited)

6


PCSB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited) - (Continued)

(amounts in thousands)

 

 

Six Months Ended December 31,

 

 

2018

 

 

2017

 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

2,844

 

 

$

2,671

 

 

$

4,620

 

 

$

2,844

 

Income taxes

 

 

2,010

 

 

 

134

 

 

 

1,640

 

 

 

2,010

 

Loans transferred to foreclosed real estate and other assets

 

 

-

 

 

 

1,533

 

Loans transferred to foreclosed real estate

 

 

181

 

 

 

-

 

 

See accompanying notes to the consolidated financial statements (unaudited)

 

 

7


PCSB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation

Nature of Operations: PCSB Financial Corporation (the “Holding Company” and together with its direct and indirect subsidiaries, the “Company”) is a Maryland corporation organized by PCSB Bank (the “Bank”) for the purpose of acquiring all of the capital stock of the Bank issued in the Bank's conversion to stock ownership on April 20, 2017. The Company’s shares of common stock are traded on the NASDAQ Capital Market under the symbol “PCSB”. At December 31, 2017,2018, the significant assets of the Holding Company were the capital stock of the Bank, investments retained bycash deposited in the Holding Company,Bank, and a loan to the PCSB Bank Employee Stock Ownership Plan (“ESOP”). The liabilities of the Holding Company were insignificant. The Company is subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended. The Company is subject toamended and regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and the New York State Department of Financial Services (the “NYSDFS”).

PCSB Bank is a community-oriented financial institution that provides financial services to individuals and businesses within its market area of Putnam, Southern Dutchess, Rockland and Westchester Counties in New York. The Bank is a state-chartered stock savingscommercial bank and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s primary regulators are the FDIC and the New York State Department of Financial Services.NYSDFS.

Basis of Presentation:  The unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Holding Company, the Bank and the Bank's threetwo subsidiaries – PCSB Funding Corp., PCSB Commercial Bank and UpCounty Realty Corp. (formerly PCSB Realty Ltd.). PCSB Funding Corp. is a real estate investment trust that holds certain mortgage assets. PCSB Commercial Bank is a state-chartered commercial bank authorized to accept the deposits of local governments in New York State. UpCounty Realty Corp. is a corporation that holds certain properties foreclosed upon by the Bank. On December 31, 2018, in conjunction with the Bank’s charter conversion from a stock savings bank to a commercial bank, the Bank’s wholly-owned subsidiary, PCSB Commercial Bank, merged with and into PCSB Bank. All intercompany transactions and balances have been eliminated in consolidation. Financial information for the periods before the Company’s initial public offering (“IPO”) on April 20, 2017 is thatare those of the Bank only.and its subsidiaries.    

The unaudited consolidated financial statements contained herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the consolidated financial statements contained herein. The annualized results of operations for the current period presented are not necessarily indicative of the results of operations that may be expected for the entire current fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2017,2018, included in the Company's annual report on Form 10-K.

Certain prior period amounts have been reclassified to conform to the current presentation. Reclassifications had no effect on prior period net income or equity.

Use of Estimates:  To prepare financial statements in conformity with accounting principles generally accepted in the United States of America,GAAP management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.  

Note 2. Recent Accounting Pronouncements

The pronouncements discussed below are not intended to be an all-inclusive list, but rather only those pronouncements that could potentially have a material impact on our financial position, results of operations or disclosures.

Accounting Standards Adopted in the Period

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers.Customers,The amendments inand was later amended by ASU 2014-092015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and 2016-20. These updates provide a comprehensive framework for addressing revenue

8


recognition issues that can be applied to all contracts with customers. The amendments in ASU 2014-09 also include improved disclosures to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue that is recognized. For public entities, ASU 2014-09, as amended, is effective for interim and annual reporting periods beginning after December 15, 2017.

While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of PCSB Bank’sthe Company’s revenue comes from financial instruments such as debt securities and loans that are outside the scope of the guidance. The Company’s material revenue streams that are in the scope of ASU 2014-09 are fees on deposit accounts (including interchange fees) and foreclosed real estate gains and losses. All other revenue streams are immaterial or are in the scope of other GAAP requirements which take precedence and therefore are not in the scope of ASU 2014-09. Based on the Company’s analysis, ASU 2014-09 will not materially change the recognition of revenue on service fees on deposit accounts as the contracts are day to day and recognized as the service is provided. Gains and losses on the sale of foreclosed real estate are generally accounted for under ASC 610. However, ASU 2014-09 also added a new Subtopic 610-20 which addresses the recognition of gains and losses on the transfer of nonfinancial and in-substance nonfinancial assets. Gain and loss recognition is not expected to have a materialchange except for foreclosed real estate and other nonfinancial asset sales that are financed by the Company. In the case of financed sales, the Company will need to evaluate each contract to determine whether each contract criteria are met, including whether it is probable that it will collect substantially all consideration to which it is entitled. The Company will also need to evaluate whether the financing terms offered to the buyer of the nonfinancial asset are market terms when determining the transaction price.

The Company has evaluated the impact of ASU 2014-09 and the amendments upon adoption as of July 1, 2018. In evaluating this standard, management has determined that the majority of revenue earned by the Company is from revenue streams not included in the scope of this standard and for in scope revenue streams management determined that, based on the Company’s consolidated financial position or resultsmodified retrospective method, a cumulative-effect adjustment to opening retained earnings as a result of operations. The impact onadopting this standard is not needed. Additional disclosures is currently being evaluated by management.required under ASU 2014-09 are contained in Note 12.

8


In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall.an amendment to “Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement, presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that is more useful for decision-making purposes. Among other changes, ASU 2016-01 wouldwould: (1) require equity securities to be reclassified out of available for sale and measured at fair value with changes in fair value recognized through net income but would allow equity securities that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments wouldimpairment, (2) simplify the impairment assessment of such equity securities and would require enhanced disclosure about these investments. ASU 2016-01 would alsoinvestments, (3) require separate presentation of financial assets and liabilities by measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would eliminate certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities,value for financial assets measured at amortized cost on the amendments inbalance sheet, and (4) require the use of an exit price notion when measuring the fair value of financial instruments. The adoption of ASU 2016-01, are effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption issubsequent amendments, on July 1, 2018 did not permitted. ASU 2016-01 is not expected to have a material impact on the Company’s consolidated financial positionstatements.

In March 2017, the FASB issued ASU 2017-07 “Compensation – Retirement Benefits”. The ASU requires companies that offer employee defined pension plans, other postretirement benefit plans, or resultsother types of operations.benefit plans accounted for under Topic 715 to 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. The impact on disclosuresother components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is currently being evaluated by management.presented. The adoption of ASU 2017-07 resulted in non-service cost credits of $83,000 and $166,000, and $47,000 and $94,000 to be included in other operating expense for the three and six months ended December 31, 2018 and 2017, respectively.

Future Application of Accounting Pronouncements Previously Issued

In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 affects any entity that enters into a lease and is intended to increase the transparency and comparability of financial statements among organizations. The ASU requires, among other changes, a lessee to recognize on its balance sheet a lease asset and a lease liability for those leases previously classified as operating leases. The lease asset would represent the right to use the underlying asset for the lease term and the lease liability would represent the discounted value of the required lease payments to the lessor. The ASU would also require entities to disclose key information about leasing arrangements. ASU 2016-02 isThe

9


amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2019, including interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.within that fiscal year. The Company currently leases eleven branches and two administrative offices. ASU 2016-02 will result in the establishment of a right to use asset and corresponding lease obligation,obligation. The impact to the materiality of whichCompany’s consolidated financial position has yet to be determined by management, however the ASU is not expected to have a material impact on the Company’s consolidated results of operations or disclosures.

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 affects entities holding financial assets that are not accounted for at fair value through net income, including loans, debt securities, and other financial assets. The ASU requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected by recording an allowance for current expected credit losses. ASU 2016-13 isThe amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2020, including interim and annual reporting periods beginning after December 15, 2019.within that fiscal year. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. The Company is actively working through the provisions of the Update. Management has established a steering committee which is identifying the methodologies and the additional data requirements necessary to implement the Update and is evaluating the need for a third-party software service provider to assist in the Company's implementation. Management is currently evaluating the impact that ASU 2016-13 will have on the Company’s consolidated financial position, results of operations and disclosures.

In January 2017, the FASB issued ASU 2017-04 “Intangibles – Goodwill and Other (Topic 350).” ASU 2017-04 simplifies simplifies the test for goodwill impairment, which eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. ASU 2017-14 isThe amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2019, including interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted for interim or annual goodwill impairment testing performed on testing dates after January 1, 2017.within that fiscal year. Management expects ASU 2017-04 will not have a significant impact on itsthe Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08 "Receivables - Non-Refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The ASU requires premiums on callable debt securities to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU 2017-08 isThe amendments in this update will be effective for the Company for the fiscal year beginning on July 1, 2020, including interim and annual reporting periods beginning after December 15, 2019.within that fiscal year. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2017-08 will not have a material impact on the Company’s consolidated financial position, results of operations or disclosures.

910


Note 3. Shareholders' EquityInvestment Securities

The Company completed its initial public offering (“IPO”) on April 20, 2017, in connectionIn association with the Bank’s mutual-to-stock conversion, resulting in gross proceedsadoption of $178.3 million, through the sale of 17,826,408 shares, including 1,453,209 shares soldASU 2016-01, available-for-sale and held-to-maturity debt securities are referred to the PCSB Bank Employee Stock Ownership Plan (ESOP), at the offering price of $10.00 per share. In addition, the Company also contributed 338,702 shares of its common stock and $1.6 million in cash to the PCSB Community Foundation. Expenses related to the offering were $3.7 million, which resulted in net proceeds of $174.6 million prior to the contribution to PCSB Community Foundation. The Company lent $14.5 million to the ESOP and contributed $87.3 million to the Bank, with the remainder of the net proceeds of the offering prior to the contribution to PCSB Community Foundation being retained at the holding company.

Prior to the IPO, the Company had no outstanding shares.

Note 4. Investment Securitiesas investment securities.

The amortized cost, gross unrealized/unrecognized gains and losses and fair value of available for sale and held to maturity debt securities at December 31, 20172018 and June 30, 20172018 were as follows:

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

55,569

 

 

$

-

 

 

$

(545

)

 

$

55,024

 

 

$

56,376

 

 

$

5

 

 

$

(733

)

 

$

55,648

 

Corporate and other debt securities

 

 

8,433

 

 

 

6

 

 

 

(77

)

 

 

8,362

 

 

 

8,378

 

 

 

-

 

 

 

(166

)

 

 

8,212

 

Mortgage-backed securities – residential

 

 

39,692

 

 

 

134

 

 

 

(530

)

 

 

39,296

 

 

 

29,576

 

 

 

14

 

 

 

(764

)

 

 

28,826

 

Equity securities

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

Total available for sale

 

$

103,726

 

 

$

140

 

 

$

(1,152

)

 

$

102,714

 

 

$

94,330

 

 

$

19

 

 

$

(1,663

)

 

$

92,686

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

136,060

 

 

$

-

 

 

$

(1,377

)

 

$

134,683

 

 

$

112,545

 

 

$

22

 

 

$

(1,696

)

 

$

110,871

 

Corporate and other debt securities

 

 

4,000

 

 

 

-

 

 

 

(129

)

 

 

3,871

 

 

 

34,037

 

 

 

18

 

 

 

(358

)

 

 

33,697

 

Mortgage-backed securities – residential

 

 

140,411

 

 

 

141

 

 

 

(1,771

)

 

 

138,781

 

 

 

136,582

 

 

 

42

 

 

 

(3,950

)

 

 

132,674

 

Mortgage-backed securities – collateralized

mortgage obligations

 

 

55,829

 

 

 

4

 

 

 

(892

)

 

 

54,941

 

 

 

47,972

 

 

 

-

 

 

 

(1,470

)

 

 

46,502

 

Mortgage-backed securities – commercial

 

 

31,346

 

 

 

166

 

 

 

(331

)

 

 

31,181

 

 

 

28,641

 

 

 

22

 

 

 

(706

)

 

 

27,957

 

Total held to maturity

 

$

367,646

 

 

$

311

 

 

$

(4,500

)

 

$

363,457

 

 

$

359,777

 

 

$

104

 

 

$

(8,180

)

 

$

351,701

 

 

 

June 30, 2017

 

 

June 30, 2018

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Amortized

 

 

Gross Unrealized/Unrecognized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

63,630

 

 

$

31

 

 

$

(216

)

 

$

63,445

 

 

$

64,389

 

 

$

-

 

 

$

(959

)

 

$

63,430

 

Corporate and other debt securities

 

 

8,460

 

 

 

58

 

 

 

(36

)

 

 

8,482

 

 

 

8,406

 

 

 

-

 

 

 

(171

)

 

 

8,235

 

Mortgage-backed securities – residential

 

 

39,710

 

 

 

363

 

 

 

(143

)

 

 

39,930

 

 

 

34,619

 

 

 

81

 

 

 

(893

)

 

 

33,807

 

Equity securities

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

Total available for sale

 

$

111,832

 

 

$

452

 

 

$

(395

)

 

$

111,889

 

 

$

107,414

 

 

$

81

 

 

$

(2,023

)

 

$

105,472

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

155,559

 

 

$

23

 

 

$

(574

)

 

$

155,008

 

 

$

122,048

 

 

$

-

 

 

$

(2,274

)

 

$

119,774

 

Corporate and other debt securities

 

 

999

 

 

 

-

 

 

 

-

 

 

 

999

 

 

 

4,000

 

 

 

-

 

 

 

(126

)

 

 

3,874

 

Mortgage-backed securities – residential

 

 

143,452

 

 

 

828

 

 

 

(497

)

 

 

143,783

 

 

 

140,478

 

 

 

32

 

 

 

(4,846

)

 

 

135,664

 

Mortgage-backed securities – collateralized

mortgage obligations

 

 

59,476

 

 

 

146

 

 

 

(235

)

 

 

59,387

 

 

 

53,547

 

 

 

-

 

 

 

(1,815

)

 

 

51,732

 

Mortgage-backed securities – commercial

 

 

24,065

 

 

 

412

 

 

 

(66

)

 

 

24,411

 

 

 

33,110

 

 

 

11

 

 

 

(977

)

 

 

32,144

 

Total held to maturity

 

$

383,551

 

 

$

1,409

 

 

$

(1,372

)

 

$

383,588

 

 

$

353,183

 

 

$

43

 

 

$

(10,038

)

 

$

343,188

 

 

1011


During the three and six months ended December 31, 2018, $2.1 million of securities were sold resulting in $55,000 of net realized gains. No securities were sold during the three months ended December 31, 2017.During the six months ended December 31, 2017, the Company sold securities with a carrying amount of $6.6 million of securities were sold resulting in $173,000 of net realized gains. Included in the net realized gain for the six months ended December 31, 2017, was a the disposal of $681,000 of securities classified as held to maturity, resulting in net realized gains of $34,000. These securities were comprised of seasoned mortgage-backed securities where the Company collected a substantial portion (at least 85%) of the principal outstanding at acquisition due to prepayments or scheduled payments payable in equal installments, comprising both principal and interest, over the terms. There was no sales of or realized gains or losses on investment securities for the three or six months ended December 31, 2016.

The following table presents the fair value and carrying amount of debt securities at December 31, 2017,2018, by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

 

 

Held to maturity

 

 

Available for sale

 

 

Held to maturity

 

 

Available for sale

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

Amount

 

 

Value

 

 

Cost

 

 

Value

 

 

(in thousands)

 

 

(in thousands)

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 year or less

 

$

37,492

 

 

$

37,402

 

 

$

11,018

 

 

$

10,981

 

 

$

26,002

 

 

$

25,792

 

 

$

18,417

 

 

$

18,261

 

1 to 5 years

 

 

98,568

 

 

 

97,280

 

 

 

50,984

 

 

 

50,444

 

 

 

91,544

 

 

 

90,080

 

 

 

44,337

 

 

 

43,636

 

5 to 10 years

 

 

-

 

 

 

-

 

 

 

2,000

 

 

 

1,961

 

 

 

25,037

 

 

 

24,989

 

 

 

2,000

 

 

 

1,963

 

Mortgage-backed securities and other

 

 

231,586

 

 

 

228,775

 

 

 

39,692

 

 

 

39,296

 

 

 

217,194

 

 

 

210,840

 

 

 

29,576

 

 

 

28,826

 

Total

 

$

367,646

 

 

$

363,457

 

 

$

103,694

 

 

$

102,682

 

 

$

359,777

 

 

$

351,701

 

 

$

94,330

 

 

$

92,686

 

 

Securities pledged had carrying amounts of $78.2$124.7 million and $95.5$140.5 million at December 31, 20172018 and June 30, 2017,2018, respectively, and were pledged principally to secure FHLB advances and public deposits.

The following table provides information regarding investment securities with unrealized/unrecognized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position at December 31, 20172018 and June 30, 20172018:

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

(in thousands)

 

 

(in thousands)

 

Available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

34,231

 

 

$

(267

)

 

$

20,793

 

 

$

(278

)

 

$

55,024

 

 

$

(545

)

 

$

7,893

 

 

$

(32

)

 

$

43,784

 

 

$

(701

)

 

$

51,677

 

 

$

(733

)

Corporate and other debt securities

 

 

6,336

 

 

 

(77

)

 

 

-

 

 

 

-

 

 

 

6,336

 

 

 

(77

)

 

 

1,983

 

 

 

(31

)

 

 

6,229

 

 

 

(135

)

 

 

8,212

 

 

 

(166

)

Mortgage-backed securities – residential

 

 

20,847

 

 

 

(300

)

 

 

10,604

 

 

 

(230

)

 

 

31,451

 

 

 

(530

)

 

 

-

 

 

 

-

 

 

 

26,235

 

 

 

(764

)

 

 

26,235

 

 

 

(764

)

Total available for sale

 

$

61,414

 

 

$

(644

)

 

$

31,397

 

 

$

(508

)

 

$

92,811

 

 

$

(1,152

)

 

$

9,876

 

 

$

(63

)

 

$

76,248

 

 

$

(1,600

)

 

$

86,124

 

 

$

(1,663

)

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

60,450

 

 

$

(587

)

 

$

67,232

 

 

$

(790

)

 

$

127,682

 

 

$

(1,377

)

 

$

14,824

 

 

$

(169

)

 

$

90,026

 

 

$

(1,527

)

 

 

104,850

 

 

$

(1,696

)

Corporate and other debt securities

 

 

3,871

 

 

 

(129

)

 

 

-

 

 

 

-

 

 

 

3,871

 

 

 

(129

)

 

 

4,971

 

 

 

(65

)

 

 

3,708

 

 

 

(293

)

 

 

8,679

 

 

 

(358

)

Mortgage-backed securities – residential

 

 

95,903

 

 

 

(993

)

 

 

27,052

 

 

 

(778

)

 

 

122,955

 

 

 

(1,771

)

 

 

25,472

 

 

 

(440

)

 

 

102,502

 

 

 

(3,510

)

 

 

127,974

 

 

 

(3,950

)

Mortgage-backed securities – collateralized

mortgage obligations

 

 

41,965

 

 

 

(561

)

 

 

11,973

 

 

 

(331

)

 

 

53,938

 

 

 

(892

)

 

 

2,547

 

 

 

(21

)

 

 

43,955

 

 

 

(1,449

)

 

 

46,502

 

 

 

(1,470

)

Mortgage-backed securities – commercial

 

 

11,089

 

 

 

(126

)

 

 

8,887

 

 

 

(205

)

 

 

19,976

 

 

 

(331

)

 

 

8,662

 

 

 

(55

)

 

 

17,545

 

 

 

(651

)

 

 

26,207

 

 

 

(706

)

Total held to maturity

 

$

213,278

 

 

$

(2,396

)

 

$

115,144

 

 

$

(2,104

)

 

$

328,422

 

 

$

(4,500

)

 

$

56,476

 

 

$

(750

)

 

$

257,736

 

 

$

(7,430

)

 

$

314,212

 

 

$

(8,180

)


 

June 30, 2017

 

 

June 30, 2018

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

Less than 12 months

 

 

12 months or greater

 

 

Total

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

 

 

 

Unrealized/

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

(in thousands)

 

 

(in thousands)

 

Available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

41,900

 

 

$

(200

)

 

$

3,993

 

 

$

(16

)

 

$

45,893

 

 

$

(216

)

 

$

41,762

 

 

$

(569

)

 

$

21,668

 

 

$

(390

)

 

$

63,430

 

 

$

(959

)

Corporate and other debt securities

 

 

1,964

 

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

1,964

 

 

 

(36

)

 

 

6,258

 

 

 

(148

)

 

 

1,977.00

 

 

 

(23.00

)

 

 

8,235

 

 

 

(171

)

Mortgage-backed securities – residential

 

 

18,861

 

 

 

(111

)

 

 

3,200

 

 

 

(32

)

 

 

22,061

 

 

 

(143

)

 

 

13,397

 

 

 

(379

)

 

 

14,718

 

 

 

(514

)

 

 

28,115

 

 

 

(893

)

Total available for sale

 

$

62,725

 

 

$

(347

)

 

$

7,193

 

 

$

(48

)

 

$

69,918

 

 

$

(395

)

 

$

61,417

 

 

$

(1,096

)

 

$

38,363

 

 

$

(927

)

 

$

99,780

 

 

$

(2,023

)

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

113,511

 

 

$

(531

)

 

$

5,981

 

 

$

(43

)

 

$

119,492

 

 

$

(574

)

 

$

46,163

 

 

$

(871

)

 

$

71,611

 

 

$

(1,403

)

 

$

117,774

 

 

$

(2,274

)

Corporate and other debt securities

 

 

999

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

999

 

 

 

-

 

 

 

3,874

 

 

 

(126

)

 

 

-

 

 

 

-

 

 

 

3,874

 

 

 

(126

)

Mortgage-backed securities – residential

 

 

39,754

 

 

 

(467

)

 

 

1,626

 

 

 

(30

)

 

 

41,380

 

 

 

(497

)

 

 

102,496

 

 

 

(3,338

)

 

 

32,490

 

 

 

(1,508

)

 

 

134,986

 

 

 

(4,846

)

Mortgage-backed securities – collateralized

mortgage obligations

 

 

26,622

 

 

 

(141

)

 

 

4,444

 

 

 

(94

)

 

 

31,066

 

 

 

(235

)

 

 

31,124

 

 

 

(884

)

 

 

20,608

 

 

 

(931

)

 

 

51,732

 

 

 

(1,815

)

Mortgage-backed securities – commercial

 

 

9,092

 

 

 

(66

)

 

 

-

 

 

 

-

 

 

 

9,092

 

 

 

(66

)

 

 

21,762

 

 

 

(582

)

 

 

8,629

 

 

 

(395.00

)

 

 

30,391

 

 

 

(977

)

Total held to maturity

 

$

189,978

 

 

$

(1,205

)

 

$

12,051

 

 

$

(167

)

 

$

202,029

 

 

$

(1,372

)

 

$

205,419

 

 

$

(5,801

)

 

$

133,338

 

 

$

(4,237

)

 

$

338,757

 

 

$

(10,038

)

 

As of December 31, 2017,2018, the Company’s security portfolio consisted of $470.4$452.5 million in securities, of which 227237 securities with a fair value of $421.2$400.3 million were in an unrealized loss position.

As of June 30, 2017,2018, the Company’s security portfolio consisted of $495.4$458.7 million in securities, of which 156254 securities with a fair value of $271.9$438.5 million were in an unrealized loss position.

There were no securities as of December 31, 2018 or June 30, 2018 for which the Company believes it is not probable that it will collect all amounts due according to the contractual terms of the security as of December 31, 2017 and June 30, 2017.security. Management believes the unrealized losses are primarily a result of changes in interest rates. The Company has determined that it does not intend to sell, or it is not more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. Therefore, the Company did not consider any securities to be other-than-temporarily impaired as of December 31, 2017 and2018 or June 30, 2017.2018.

 

1213


Note 5.4. Loans Receivable

Loans receivable are summarized as follows (in thousands):

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

2017

 

 

2017

 

 

2018

 

 

2018

 

Mortgage loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

213,716

 

 

$

217,778

 

 

$

248,575

 

 

$

250,578

 

Commercial

 

 

481,169

 

 

 

437,651

 

 

 

499,930

 

 

 

495,265

 

Construction

 

 

16,379

 

 

 

22,404

 

 

 

16,023

 

 

 

17,352

 

Net deferred loan origination costs

 

 

210

 

 

 

397

 

 

 

842

 

 

 

1,041

 

Total mortgages

 

 

711,474

 

 

 

678,230

 

Total mortgage loans

 

 

765,370

 

 

 

764,236

 

Commercial and consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

31,276

 

 

 

33,297

 

 

 

107,899

 

 

 

104,135

 

Other loans secured

 

 

46,056

 

 

 

46,802

 

Home equity lines of credit

 

 

40,158

 

 

 

41,927

 

 

 

35,029

 

 

 

37,395

 

Consumer and installment loans

 

 

12,860

 

 

 

13,765

 

Consumer and overdrafts

 

 

321

 

 

 

745

 

Net deferred loan origination costs

 

 

767

 

 

 

777

 

 

 

701

 

 

 

729

 

Total commercial and consumer loans

 

 

131,117

 

 

 

136,568

 

 

 

143,950

 

 

 

143,004

 

Total loans receivable

 

 

842,591

 

 

 

814,798

 

 

 

909,320

 

 

 

907,240

 

Allowance for loan losses

 

 

(4,471

)

 

 

(5,150

)

 

 

(4,943

)

 

 

(4,904

)

Loans receivable, net

 

$

838,120

 

 

$

809,648

 

 

$

904,377

 

 

$

902,336

 

 

In 2015, the Company completed a merger with CMS Bancorp and its wholly owned subsidiary, CMS Bank. References to acquired loans in this note pertain only to those loans acquired as part of the merger.

13

14


The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six months ended December 31, 20172018 and 20162017 (in thousands):

 

 

Three Months Ended December 31, 2017

 

 

Three Months Ended December 31, 2018

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

407

 

 

$

(5

)

 

$

-

 

 

$

-

 

 

$

402

 

 

$

359

 

 

$

17

 

 

$

-

 

 

$

3

 

 

$

379

 

Commercial

 

 

2,709

 

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

2,686

 

 

 

3,130

 

 

 

245

 

 

 

(114

)

 

 

-

 

 

 

3,261

 

Construction

 

 

1,160

 

 

 

237

 

 

 

(997

)

 

 

-

 

 

 

400

 

 

 

493

 

 

 

(331

)

 

 

-

 

 

 

96

 

 

 

258

 

Commercial loans

 

 

345

 

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

322

 

 

 

825

 

 

 

55

 

 

 

-

 

 

 

-

 

 

 

880

 

Other loans secured

 

 

404

 

 

 

(15

)

 

 

-

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

77

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

74

 

 

 

69

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

82

 

Consumer and installment loans

 

 

140

 

 

 

(7

)

 

 

-

 

 

 

-

 

 

 

133

 

Consumer and overdrafts

 

 

10

 

 

 

7

 

 

 

(9

)

 

 

2

 

 

 

10

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

 

 

73

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

73

 

Total

 

$

5,268

 

 

$

200

 

 

$

(997

)

 

$

-

 

 

$

4,471

 

 

$

4,959

 

 

$

6

 

 

$

(123

)

 

$

101

 

 

$

4,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2016

 

 

Three Months Ended December 31, 2017

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

238

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

238

 

 

$

407

 

 

$

(5

)

 

$

-

 

 

$

-

 

 

$

402

 

Commercial

 

 

2,121

 

 

 

909

 

 

 

-

 

 

 

1

 

 

 

3,031

 

 

 

2,709

 

 

 

(23

)

 

 

-

 

 

 

-

 

 

 

2,686

 

Construction

 

 

302

 

 

 

34

 

 

 

-

 

 

 

-

 

 

 

336

 

 

 

1,160

 

 

 

237

 

 

 

(997

)

 

 

-

 

 

 

400

 

Commercial loans

 

 

559

 

 

 

(458

)

 

 

-

 

 

 

400

 

 

 

501

 

 

 

889

 

 

 

(45

)

 

 

-

 

 

 

-

 

 

 

844

 

Other loans secured

 

 

361

 

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

339

 

Home equity lines of credit

 

 

70

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

70

 

 

 

77

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

414

 

 

 

97

 

 

 

(398

)

 

 

-

 

 

 

113

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

-

 

 

 

2

 

 

 

(2

)

 

 

-

 

 

 

-

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

Total

 

$

4,065

 

 

$

562

 

 

$

(400

)

 

$

401

 

 

$

4,628

 

 

$

5,268

 

 

$

200

 

 

$

(997

)

 

$

-

 

 

$

4,471

 


 

 

Six Months Ended December 31, 2018

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

386

 

 

$

(12

)

 

$

-

 

 

$

5

 

 

$

379

 

Commercial

 

 

3,073

 

 

 

302

 

 

 

(114

)

 

 

-

 

 

 

3,261

 

Construction

 

 

505

 

 

 

(343

)

 

 

-

 

 

 

96

 

 

 

258

 

Commercial loans

 

 

780

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

880

 

Home equity lines of credit

 

 

80

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

82

 

Consumer and installment loans

 

 

7

 

 

 

15

 

 

 

(16

)

 

 

4

 

 

 

10

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

73

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

73

 

Total

 

$

4,904

 

 

$

64

 

 

$

(130

)

 

$

105

 

 

$

4,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2017

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

360

 

 

$

59

 

 

$

(17

)

 

$

-

 

 

$

402

 

Commercial

 

 

2,589

 

 

 

97

 

 

-

 

 

 

-

 

 

 

2,686

 

Construction

 

 

1,150

 

 

 

247

 

 

 

(997

)

 

 

-

 

 

 

400

 

Commercial loans

 

 

949

 

 

 

(105

)

 

 

-

 

 

 

-

 

 

 

844

 

Home equity lines of credit

 

 

76

 

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

Total

 

$

5,150

 

 

$

335

 

 

$

(1,014

)

 

$

-

 

 

$

4,471

 

 

14


 

 

Six Months Ended December 31, 2017

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

360

 

 

$

59

 

 

$

(17

)

 

$

-

 

 

$

402

 

Commercial

 

 

2,589

 

 

 

97

 

 

 

-

 

 

 

-

 

 

 

2,686

 

Construction

 

 

1,150

 

 

 

247

 

 

 

(997

)

 

 

-

 

 

 

400

 

Commercial loans

 

 

440

 

 

 

(118

)

 

 

-

 

 

 

-

 

 

 

322

 

Other loans secured

 

 

365

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

76

 

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

74

 

Consumer and installment loans

 

 

144

 

 

 

(11

)

 

 

-

 

 

 

-

 

 

 

133

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

26

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

65

 

Total

 

$

5,150

 

 

$

335

 

 

$

(1,014

)

 

$

-

 

 

$

4,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31, 2016

 

 

 

Beginning

Allowance

 

 

Provision

(credit)

 

 

Charge-offs

 

 

Recoveries

 

 

Ending

Allowance

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

237

 

 

$

(69

)

 

$

-

 

 

$

70

 

 

$

238

 

Commercial

 

 

2,149

 

 

 

863

 

 

 

-

 

 

 

19

 

 

 

3,031

 

Construction

 

 

269

 

 

 

67

 

 

 

-

 

 

 

-

 

 

 

336

 

Commercial loans

 

 

604

 

 

 

(676

)

 

 

-

 

 

 

573

 

 

 

501

 

Other loans secured

 

 

397

 

 

 

168

 

 

 

(324

)

 

 

98

 

 

 

339

 

Home equity lines of credit

 

 

73

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

70

 

Consumer and installment loans

 

 

313

 

 

 

198

 

 

 

(398

)

 

 

-

 

 

 

113

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Residential

 

 

-

 

 

 

38

 

 

 

(38

)

 

 

-

 

 

 

-

 

Commercial loans

 

 

-

 

 

 

2

 

 

 

(2

)

 

 

-

 

 

 

-

 

Total

 

$

4,042

 

 

$

588

 

 

$

(762

)

 

$

760

 

 

$

4,628

 

 

1516


The following tables present the balance in the allowance for loan losses and the recorded investment in loans, excluding net deferred fees and accrued interest, by portfolio segment, and based on impairment method as of December 31, 20172018 and June 30, 20172018 (in thousands):

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

Residential

 

$

3,499

 

 

$

208,900

 

 

$

1,317

 

 

$

213,716

 

 

$

190

 

 

$

212

 

 

$

65

 

 

$

467

 

 

$

2,367

 

 

$

244,925

 

 

$

1,283

 

 

$

248,575

 

 

$

123

 

 

$

256

 

 

$

73

 

 

$

452

 

Commercial

 

 

2,438

 

 

 

477,238

 

 

 

1,493

 

 

 

481,169

 

 

 

-

 

 

 

2,686

 

 

 

-

 

 

 

2,686

 

 

 

1,413

 

 

 

497,044

 

 

 

1,473

 

 

 

499,930

 

 

 

-

 

 

 

3,261

 

 

 

-

 

 

 

3,261

 

Construction

 

 

2,260

 

 

 

14,119

 

 

 

-

 

 

 

16,379

 

 

 

276

 

 

 

124

 

 

 

-

 

 

 

400

 

 

 

-

 

 

 

16,023

 

 

 

-

 

 

 

16,023

 

 

 

-

 

 

 

258

 

 

 

-

 

 

 

258

 

Commercial loans

 

 

351

 

 

 

30,925

 

 

 

-

 

 

 

31,276

 

 

 

75

 

 

 

247

 

 

 

-

 

 

 

322

 

 

 

1,913

 

 

 

105,986

 

 

 

-

 

 

 

107,899

 

 

 

2

 

 

 

878

 

 

 

-

 

 

 

880

 

Other loans secured

 

 

4,165

 

 

 

41,891

 

 

 

-

 

 

 

46,056

 

 

 

2

 

 

 

387

 

 

 

-

 

 

 

389

 

Home equity lines of credit

 

 

480

 

 

 

39,505

 

 

 

173

 

 

 

40,158

 

 

 

5

 

 

 

69

 

 

 

-

 

 

 

74

 

 

 

685

 

 

 

34,182

 

 

 

162

 

 

 

35,029

 

 

 

13

 

 

 

69

 

 

 

-

 

 

 

82

 

Consumer and installment loans

 

 

-

 

 

 

12,840

 

 

 

20

 

 

 

12,860

 

 

 

-

 

 

 

133

 

 

 

-

 

 

 

133

 

Consumer and overdrafts

 

 

-

 

 

 

321

 

 

 

-

 

 

 

321

 

 

 

-

 

 

 

10

 

 

 

-

 

 

 

10

 

Total

 

$

13,193

 

 

$

825,418

 

 

$

3,003

 

 

$

841,614

 

 

$

548

 

 

$

3,858

 

 

$

65

 

 

$

4,471

 

 

$

6,378

 

 

$

898,481

 

 

$

2,918

 

 

$

907,777

 

 

$

138

 

 

$

4,732

 

 

$

73

 

 

$

4,943

 

 

 

June 30, 2017

 

 

June 30, 2018

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Loans

 

 

Allowance for Loan Losses

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Acquired With

Deteriorated

Credit Quality

 

 

Total

 

Residential

 

$

4,471

 

 

$

211,983

 

 

$

1,324

 

 

$

217,778

 

 

$

131

 

 

$

229

 

 

$

26

 

 

$

386

 

 

$

2,360

 

 

$

246,913

 

 

$

1,305

 

 

$

250,578

 

 

$

154

 

 

$

232

 

 

$

73

 

 

$

459

 

Commercial

 

 

2,411

 

 

 

433,416

 

 

 

1,824

 

 

 

437,651

 

 

 

-

 

 

 

2,589

 

 

 

-

 

 

 

2,589

 

 

 

1,683

 

 

 

492,105

 

 

 

1,477

 

 

 

495,265

 

 

 

-

 

 

 

3,073

 

 

 

-

 

 

 

3,073

 

Construction

 

 

3,661

 

 

 

18,743

 

 

 

-

 

 

 

22,404

 

 

 

997

 

 

 

153

 

 

 

-

 

 

 

1,150

 

 

 

2,260

 

 

 

15,092

 

 

 

-

 

 

 

17,352

 

 

 

276

 

 

 

229

 

 

 

-

 

 

 

505

 

Commercial loans

 

 

356

 

 

 

32,941

 

 

 

-

 

 

 

33,297

 

 

 

7

 

 

 

433

 

 

 

-

 

 

 

440

 

 

 

2,451

 

 

 

101,684

 

 

 

-

 

 

 

104,135

 

 

 

9

 

 

 

771

 

 

 

-

 

 

 

780

 

Other loans secured

 

 

5,813

 

 

 

40,989

 

 

 

-

 

 

 

46,802

 

 

 

2

 

 

 

363

 

 

 

-

 

 

 

365

 

Home equity lines of credit

 

 

610

 

 

 

41,140

 

 

 

177

 

 

 

41,927

 

 

 

5

 

 

 

71

 

 

 

-

 

 

 

76

 

 

 

360

 

 

 

36,867

 

 

 

168

 

 

 

37,395

 

 

 

12

 

 

 

68

 

 

 

-

 

 

 

80

 

Consumer and installment loans

 

 

-

 

 

 

13,723

 

 

 

42

 

 

 

13,765

 

 

 

-

 

 

 

144

 

 

 

-

 

 

 

144

 

Consumer and overdrafts

 

 

-

 

 

 

745

 

 

 

-

 

 

 

745

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

7

 

Total

 

$

17,322

 

 

$

792,935

 

 

$

3,367

 

 

$

813,624

 

 

$

1,142

 

 

$

3,982

 

 

$

26

 

 

$

5,150

 

 

$

9,114

 

 

$

893,406

 

 

$

2,950

 

 

$

905,470

 

 

$

451

 

 

$

4,380

 

 

$

73

 

 

$

4,904

 

 

 


The following tables present information related to loans individually evaluated for impairment (excluding loans acquired with deteriorated credit quality) by class of loans as of December 31, 20172018 and June 30, 20172018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

2,940

 

 

$

2,721

 

 

$

-

 

 

$

1,969

 

 

$

1,923

 

 

$

-

 

Commercial

 

 

2,948

 

 

 

2,438

 

 

 

-

 

 

 

1,490

 

 

 

1,413

 

 

 

-

 

Other loans secured

 

 

7,558

 

 

 

3,088

 

 

 

-

 

Commercial loans

 

 

5,164

 

 

 

1,851

 

 

 

-

 

Home equity lines of credit

 

 

473

 

 

 

469

 

 

 

-

 

 

 

665

 

 

 

596

 

 

 

-

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

747

 

 

 

778

 

 

 

190

 

 

 

384

 

 

 

444

 

 

 

123

 

Construction

 

 

3,257

 

 

 

2,260

 

 

 

276

 

Commercial loans

 

 

351

 

 

 

351

 

 

 

75

 

 

 

62

 

 

 

62

 

 

 

2

 

Other loans secured

 

 

1,077

 

 

 

1,077

 

 

 

2

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

5

 

 

 

90

 

 

 

89

 

 

 

13

 

Total

 

$

19,362

 

 

$

13,193

 

 

$

548

 

 

$

9,824

 

 

$

6,378

 

 

$

138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

June 30, 2018

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

 

Unpaid

Principal

Balance

 

 

Recorded Investment

 

 

Allowance for Loan Losses

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

4,216

 

 

$

4,014

 

 

$

-

 

 

$

1,659

 

 

$

1,576

 

 

$

-

 

Commercial

 

 

2,935

 

 

 

2,411

 

 

 

-

 

 

 

1,765

 

 

 

1,683

 

 

 

-

 

Construction

 

 

404

 

 

 

404

 

 

 

-

 

Commercial loans

 

 

276

 

 

 

277

 

 

 

-

 

 

 

2,254

 

 

 

2,098

 

 

 

-

 

Other loans secured

 

 

9,157

 

 

 

4,702

 

 

 

-

 

Home equity lines of credit

 

 

599

 

 

 

599

 

 

 

-

 

 

 

341

 

 

 

341

 

 

 

-

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

395

 

 

 

457

 

 

 

131

 

 

 

742

 

 

 

784

 

 

 

154

 

Construction

 

 

3,257

 

 

 

3,257

 

 

 

997

 

 

 

3,257

 

 

 

2,260

 

 

 

276

 

Commercial loans

 

 

79

 

 

 

79

 

 

 

7

 

 

 

353

 

 

 

353

 

 

 

9

 

Other loans secured

 

 

1,111

 

 

 

1,111

 

 

 

2

 

Home equity lines of credit

 

 

11

 

 

 

11

 

 

 

5

 

 

 

84

 

 

 

19

 

 

 

12

 

Total

 

$

22,440

 

 

$

17,322

 

 

$

1,142

 

 

$

10,455

 

 

$

9,114

 

 

$

451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



The table below presents the average recorded investment and interest income recognized on loans individually evaluated for impairment, by class of loans, for the three and six months ended December 31, 20172018 and 20162017 (in thousands):

 

Three months ended

 

 

Three months ended

 

Three months ended

 

 

Three months ended

 

December 31, 2017

 

 

December 31, 2016

 

December 31, 2018

 

 

December 31, 2017

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

3,027

 

 

$

124

 

 

$

3,725

 

 

$

3

 

$

1,927

 

 

$

4

 

 

$

3,027

 

 

$

124

 

Commercial

 

2,454

 

 

 

27

 

 

 

2,303

 

 

 

31

 

 

1,417

 

 

 

13

 

 

 

2,454

 

 

 

27

 

Commercial loans

 

-

 

 

 

-

 

 

 

91

 

 

 

1

 

 

2,110

 

 

 

47

 

 

 

3,488

 

 

 

77

 

Other loans secured

 

3,488

 

 

 

77

 

 

 

5,489

 

 

 

66

 

Home equity lines of credit

 

571

 

 

 

20

 

 

 

551

 

 

 

-

 

 

597

 

 

 

1

 

 

 

571

 

 

 

20

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

778

 

 

 

3

 

 

 

-

 

 

 

-

 

 

445

 

 

 

3

 

 

 

778

 

 

 

3

 

Commercial

 

-

 

 

 

-

 

 

 

3,132

 

 

 

25

 

Construction

 

3,008

 

 

 

-

 

 

 

131

 

 

 

-

 

 

1,130

 

 

 

-

 

 

 

3,008

 

 

 

-

 

Commercial loans

 

352

 

 

 

-

 

 

 

-

 

 

 

-

 

 

63

 

 

 

1

 

 

 

1,439

 

 

 

13

 

Other loans secured

 

1,087

 

 

 

13

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

 

89

 

 

 

-

 

 

 

11

 

 

 

-

 

Total

$

14,776

 

 

$

264

 

 

$

15,422

 

 

$

126

 

$

7,778

 

 

$

69

 

 

$

14,776

 

 

$

264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

Six Months Ended

 

 

Six Months Ended

 

December 31, 2017

 

 

December 31, 2016

 

December 31, 2018

 

 

December 31, 2017

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

$

3,431

 

 

$

166

 

 

$

3,753

 

 

$

6

 

$

1,968

 

 

$

11

 

 

$

3,431

 

 

$

166

 

Commercial

 

2,447

 

 

 

54

 

 

 

2,311

 

 

 

63

 

 

1,532

 

 

 

26

 

 

 

2,447

 

 

 

54

 

Construction

 

173

 

 

 

17

 

 

 

-

 

 

 

-

 

 

-

 

 

 

-

 

 

 

173

 

 

 

17

 

Commercial loans

 

-

 

 

 

-

 

 

 

92

 

 

 

2

 

 

2,226

 

 

 

96

 

 

 

4,002

 

 

 

160

 

Other loans secured

 

4,002

 

 

 

160

 

 

 

5,513

 

 

 

134

 

Home equity lines of credit

 

593

 

 

 

20

 

 

 

551

 

 

 

(2

)

 

612

 

 

 

9

 

 

 

593

 

 

 

20

 

With a related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

686

 

 

 

7

 

 

 

-

 

 

 

-

 

 

446

 

 

 

7

 

 

 

686

 

 

 

7

 

Commercial

 

-

 

 

 

-

 

 

 

3,141

 

 

 

52

 

Construction

 

3,115

 

 

 

-

 

 

 

131

 

 

 

-

 

 

1,614

 

 

 

-

 

 

 

3,115

 

 

 

-

 

Commercial loans

 

353

 

 

 

4

 

 

 

-

 

 

 

-

 

 

63

 

 

 

1

 

 

 

1,448

 

 

 

31

 

Other loans secured

 

1,095

 

 

 

27

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

 

89

 

 

 

-

 

 

 

11

 

 

 

-

 

Total

$

15,906

 

 

$

455

 

 

$

15,492

 

 

$

255

 

$

8,550

 

 

$

150

 

 

$

15,906

 

 

$

455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The following table presents the recorded investment in nonaccrual loans and in loans past due over 90 days and still on accrual status, by class of loans as of December 31, 20172018 and June 30, 20172018 (in thousands):

 

 

 

 

 

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

 

 

 

 

 

 

 

 

Loans Past Due Over 90 Days

 

 

Nonaccrual

 

 

and Still Accruing

 

 

Nonaccrual

 

 

and Still Accruing

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

2017

 

 

2017

 

 

2017

 

 

2017

 

 

2018

 

 

2018

 

 

2018

 

 

2018

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,772

 

 

$

2,581

 

 

$

-

 

 

$

-

 

 

$

635

 

 

$

604

 

 

$

-

 

 

$

-

 

Commercial

 

 

258

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

262

 

 

 

-

 

 

 

-

 

Construction

 

 

2,260

 

 

 

3,661

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

-

 

 

 

-

 

Commercial loans

 

 

275

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

278

 

 

 

788

 

 

 

158

 

 

 

-

 

Other loans secured

 

 

1,368

 

 

 

2,959

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

100

 

 

 

302

 

 

 

-

 

 

 

-

 

 

 

374

 

 

 

45

 

 

 

-

 

 

 

-

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,281

 

 

 

1,776

 

 

 

-

 

 

 

-

 

 

 

1,288

 

 

 

1,308

 

 

 

-

 

 

 

-

 

Commercial

 

 

508

 

 

 

497

 

 

 

-

 

 

 

-

 

 

 

543

 

 

 

532

 

 

 

-

 

 

 

-

 

Home equity lines of credit

 

 

369

 

 

 

296

 

 

 

-

 

 

 

-

 

 

 

299

 

 

 

303

 

 

 

-

 

 

 

-

 

Total

 

$

8,191

 

 

$

12,072

 

 

$

-

 

 

$

-

 

 

$

3,417

 

 

$

6,102

 

 

$

158

 

 

$

-

 

 

Nonperforming loans include both smaller-balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The table above excludes nonaccrual acquired loans past due over 90 days that are accounted for as purchased credit impaired loans totaling $1.8 million and $2.7$1.1 million as of both December 31, 20172018 and June 30, 2017, respectively.2018. Such loans are excluded because the loans are in pools that are considered performing. The discounts arising from recording these loans at fair value upon acquisition were due in part to credit quality and the accretable yield is being recognized as interest income over the life of the loans based on expected cash flows.

The following tables present the aging of the recorded investment in past due loans by class of loans as of December 31, 20172018 and June 30, 20172018 (in thousands):

 

 

December 31, 2017

 

 

December 31, 2018

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

-

 

 

$

-

 

 

$

1,632

 

 

$

1,632

 

 

$

153,476

 

 

$

155,108

 

 

$

24

 

 

$

-

 

 

$

553

 

 

$

577

 

 

$

197,263

 

 

$

197,840

 

Commercial

 

 

-

 

 

 

-

 

 

 

258

 

 

 

258

 

 

 

404,223

 

 

 

404,481

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

436,430

 

 

 

436,430

 

Construction

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

2,260

 

 

 

14,119

 

 

 

16,379

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,023

 

 

 

16,023

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

275

 

 

 

275

 

 

 

30,412

 

 

 

30,687

 

 

 

-

 

 

 

-

 

 

 

159

 

 

 

159

 

 

 

107,546

 

 

 

107,705

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

544

 

 

 

544

 

 

 

45,344

 

 

 

45,888

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

 

 

34,306

 

 

 

34,406

 

 

 

18

 

 

 

297

 

 

 

-

 

 

 

315

 

 

 

30,424

 

 

 

30,739

 

Consumer and installment loans

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

12,661

 

 

 

12,671

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

321

 

 

 

321

 

Total originated

 

 

10

 

 

 

-

 

 

 

5,069

 

 

 

5,079

 

 

 

694,541

 

 

 

699,620

 

 

 

42

 

 

 

297

 

 

 

712

 

 

 

1,051

 

 

 

788,007

 

 

 

789,058

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

-

 

 

 

-

 

 

 

1,778

 

 

 

1,778

 

 

 

56,830

 

 

 

58,608

 

 

 

116

 

 

 

-

 

 

 

1,488

 

 

 

1,604

 

 

 

49,131

 

 

 

50,735

 

Commercial

 

 

-

 

 

 

-

 

 

 

1,087

 

 

 

1,087

 

 

 

75,601

 

 

 

76,688

 

 

 

-

 

 

 

-

 

 

 

1,122

 

 

 

1,122

 

 

 

62,378

 

 

 

63,500

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

589

 

 

 

589

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

194

 

 

 

194

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

��

 

168

 

 

 

168

 

Home equity lines of credit

 

 

46

 

 

 

-

 

 

 

296

 

 

 

342

 

 

 

5,410

 

 

 

5,752

 

 

 

70

 

 

 

-

 

 

 

296

 

 

 

366

 

 

 

3,924

 

 

 

4,290

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

189

 

 

 

189

 

Total acquired

 

 

46

 

 

 

-

 

 

 

3,161

 

 

 

3,207

 

 

 

138,787

 

 

 

141,994

 

 

 

186

 

 

 

-

 

 

 

2,906

 

 

 

3,092

 

 

 

115,627

 

 

 

118,719

 

Total

 

$

56

 

 

$

-

 

 

$

8,230

 

 

$

8,286

 

 

$

833,328

 

 

$

841,614

 

 

$

228

 

 

$

297

 

 

$

3,618

 

 

$

4,143

 

 

$

903,634

 

 

$

907,777

 


 

 

June 30, 2017

 

 

June 30, 2018

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-59

 

 

60-89

 

 

90 Days or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

More Past

 

 

Total Past

 

 

 

 

 

 

 

 

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

 

Due

 

 

Due

 

 

Due

 

 

Due

 

 

Current

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

94

 

 

$

275

 

 

$

1,973

 

 

$

2,342

 

 

$

153,390

 

 

$

155,732

 

 

$

-

 

 

$

394

 

 

$

210

 

 

$

604

 

 

$

194,986

 

 

$

195,590

 

Commercial

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

355,247

 

 

 

355,247

 

 

 

-

 

 

 

-

 

 

 

262

 

 

 

262

 

 

 

420,320

 

 

 

420,582

 

Construction

 

 

-

 

 

 

-

 

 

 

3,661

 

 

 

3,661

 

 

 

18,743

 

 

 

22,404

 

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

2,260

 

 

 

15,092

 

 

 

17,352

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,613

 

 

 

31,613

 

 

 

-

 

 

 

-

 

 

 

500

 

 

 

500

 

 

 

102,767

 

 

 

103,267

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

544

 

 

 

544

 

 

 

43,612

 

 

 

44,156

 

Home equity lines of credit

 

 

-

 

 

 

199

 

 

 

103

 

 

 

302

 

 

 

35,246

 

 

 

35,548

 

 

 

-

 

 

 

-

 

 

 

45

 

 

 

45

 

 

 

32,311

 

 

 

32,356

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,435

 

 

 

13,435

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

733

 

 

 

733

 

Total originated

 

 

94

 

 

 

474

 

 

 

6,281

 

 

 

6,849

 

 

 

651,286

 

 

 

658,135

 

 

 

-

 

 

 

394

 

 

 

3,277

 

 

 

3,671

 

 

 

766,209

 

 

 

769,880

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

237

 

 

 

463

 

 

 

1,472

 

 

 

2,172

 

 

 

59,874

 

 

 

62,046

 

 

 

-

 

 

 

232

 

 

 

1,806

 

 

 

2,038

 

 

 

52,950

 

 

 

54,988

 

Commercial

 

 

-

 

 

 

-

 

 

 

1,054

 

 

 

1,054

 

 

 

81,350

 

 

 

82,404

 

 

 

-

 

 

 

-

 

 

 

1,112

 

 

 

1,112

 

 

 

73,571

 

 

 

74,683

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,684

 

 

 

1,684

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

868

 

 

 

868

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,646

 

 

 

2,646

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

296

 

 

 

296

 

 

 

6,083

 

 

 

6,379

 

 

 

30

 

 

 

-

 

 

 

296

 

 

 

326

 

 

 

4,713

 

 

 

5,039

 

Consumer and installment loans

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

330

 

 

 

330

 

Consumer and overdrafts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12

 

 

 

12

 

Total acquired

 

 

237

 

 

 

463

 

 

 

2,822

 

 

 

3,522

 

 

 

151,967

 

 

 

155,489

 

 

 

30

 

 

 

232

 

 

 

3,214

 

 

 

3,476

 

 

 

132,114

 

 

 

135,590

 

Total

 

$

331

 

 

$

937

 

 

$

9,103

 

 

$

10,371

 

 

$

803,253

 

 

$

813,624

 

 

$

30

 

 

$

626

 

 

$

6,491

 

 

$

7,147

 

 

$

898,323

 

 

$

905,470

 

 

Troubled Debt Restructurings

The terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

As of December 31, 20172018 and June 30, 2017,2018, the Company had 1713 and 2012 loans classified as troubled debt restructurings totaling $7.1$4.0 million and $9.9$3.8 million, respectively. The Company has allocated $211,000$130,000 and $145,000,$139,000, respectively, of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 20172018 and June 30, 2017,2018 and has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

The Company modified two loans with a total carrying amount of $428,000, one residential mortgage and one home equity line of credit, in troubled debt restructurings during the six months ended December 31, 2018. The Company did not modify any loans as troubled debt restructuring during the three months ended December 31, 2018 or during the three or six months ended December 31, 2017 or 2016.2017.

The Company had no troubled debt restructurings for which there was a payment default in the three or six months ended December 31, 2018 that were modified in the twelve months prior to default. There were two troubled debt restructuringsrestructuring with a total carrying amount of $1.1 million at December 31, 2017 for which there was a payment default in the six months ended December 31, 2017 that were modifiedand resulted in the twelve months prior to default, resulting in a $66,000 increase to the allowance for loan loss.losses. One default with a carrying amount of $0.8 million,$823,000, has been cured as of December 31, 2017. There were no such defaults during the three months ended December 31, 2017 or the three or six months ended December 31, 2016.2017.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and


commercial real estate loans. This analysis is performed on a monthly basis. The Company utilized the same grading


process for acquired loans as it does for originated loans. The Company uses the following definitions for risk ratings:

Special Mention – Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, 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.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process and loans in groups of homogenous loans are considered to be pass rated loans. These loans are monitored based on delinquency and performance. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

 

December 31, 2017

 

 

December 31, 2018

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

152,995

 

 

$

271

 

 

$

1,842

 

 

$

-

 

 

$

155,108

 

 

$

196,542

 

 

$

553

 

 

$

745

 

 

$

-

 

 

$

197,840

 

Commercial

 

 

401,371

 

 

 

-

 

 

 

3,110

 

 

 

-

 

 

 

404,481

 

 

 

436,290

 

 

 

-

 

 

 

140

 

 

 

-

 

 

 

436,430

 

Construction

 

 

14,119

 

 

 

-

 

 

 

2,260

 

 

 

-

 

 

 

16,379

 

 

 

16,023

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,023

 

Commercial loans

 

 

28,024

 

 

 

-

 

 

 

2,663

 

 

 

-

 

 

 

30,687

 

 

 

103,489

 

 

 

158

 

 

 

4,058

 

 

 

-

 

 

 

107,705

 

Other loans secured

 

 

40,657

 

 

 

-

 

 

 

5,231

 

 

 

-

 

 

 

45,888

 

Home equity lines of credit

 

 

34,306

 

 

 

55

 

 

 

45

 

 

 

-

 

 

 

34,406

 

 

 

30,200

 

 

 

165

 

 

 

374

 

 

 

-

 

 

 

30,739

 

Consumer and installment loans

 

 

12,661

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

12,671

 

Consumer and overdrafts

 

 

321

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

321

 

Total originated

 

 

684,133

 

 

 

336

 

 

 

15,151

 

 

 

-

 

 

 

699,620

 

 

 

782,865

 

 

 

876

 

 

 

5,317

 

 

 

-

 

 

 

789,058

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

57,864

 

 

 

109

 

 

 

635

 

 

 

-

 

 

 

58,608

 

 

 

47,934

 

 

 

358

 

 

 

2,443

 

 

 

-

 

 

 

50,735

 

Commercial

 

 

74,687

 

 

 

-

 

 

 

2,001

 

 

 

-

 

 

 

76,688

 

 

 

60,653

 

 

 

831

 

 

 

2,016

 

 

 

-

 

 

 

63,500

 

Commercial loans

 

 

589

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

589

 

 

 

188

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

194

 

Other loans secured

 

 

168

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

168

 

Home equity lines of credit

 

 

5,286

 

 

 

-

 

 

 

466

 

 

 

-

 

 

 

5,752

 

 

 

3,828

 

 

 

71

 

 

 

391

 

 

 

-

 

 

 

4,290

 

Consumer and installment loans

 

 

189

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

189

 

Total acquired

 

 

138,783

 

 

 

109

 

 

 

3,102

 

 

 

-

 

 

 

141,994

 

 

 

112,603

 

 

 

1,266

 

 

 

4,850

 

 

 

-

 

 

 

118,719

 

Total

 

$

822,916

 

 

$

445

 

 

$

18,253

 

 

$

-

 

 

$

841,614

 

 

$

895,468

 

 

$

2,142

 

 

$

10,167

 

 

$

-

 

 

$

907,777

 


 

 

June 30, 2017

 

 

June 30, 2018

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Originated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

153,165

 

 

$

-

 

 

$

2,567

 

 

$

-

 

 

$

155,732

 

 

$

194,341

 

 

$

571

 

 

$

678

 

 

$

-

 

 

$

195,590

 

Commercial

 

 

352,203

 

 

 

134

 

 

 

2,910

 

 

 

-

 

 

 

355,247

 

 

 

418,370

 

 

 

-

 

 

 

2,212

 

 

 

-

 

 

 

420,582

 

Construction

 

 

18,743

 

 

 

-

 

 

 

3,661

 

 

 

-

 

 

 

22,404

 

 

 

15,092

 

 

 

-

 

 

 

2,260

 

 

 

-

 

 

 

17,352

 

Commercial loans

 

 

28,944

 

 

 

-

 

 

 

2,669

 

 

 

-

 

 

 

31,613

 

 

 

98,205

 

 

 

167

 

 

 

4,895

 

 

 

-

 

 

 

103,267

 

Other loans secured

 

 

37,267

 

 

 

-

 

 

 

6,889

 

 

 

-

 

 

 

44,156

 

Home equity lines of credit

 

 

35,246

 

 

 

58

 

 

 

244

 

 

 

-

 

 

 

35,548

 

 

 

32,167

 

 

 

144

 

 

 

45

 

 

 

-

 

 

 

32,356

 

Consumer and installment loans

 

 

13,405

 

 

 

-

 

 

 

30

 

 

 

-

 

 

 

13,435

 

Consumer and overdrafts

 

 

733

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

733

 

Total originated

 

 

638,973

 

 

 

192

 

 

 

18,970

 

 

 

-

 

 

 

658,135

 

 

 

758,908

 

 

 

882

 

 

 

10,090

 

 

 

-

 

 

 

769,880

 

Acquired:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

58,665

 

 

 

-

 

 

 

3,381

 

 

 

-

 

 

 

62,046

 

 

 

51,858

 

 

 

249

 

 

 

2,881

 

 

 

-

 

 

 

54,988

 

Commercial

 

 

80,082

 

 

 

-

 

 

 

2,322

 

 

 

-

 

 

 

82,404

 

 

 

71,832

 

 

 

842

 

 

 

2,009

 

 

 

-

 

 

 

74,683

 

Commercial loans

 

 

1,684

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,684

 

 

 

857

 

 

 

11

 

 

 

-

 

 

 

-

 

 

 

868

 

Other loans secured

 

 

2,646

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,646

 

Home equity lines of credit

 

 

5,906

 

 

 

-

 

 

 

473

 

 

 

-

 

 

 

6,379

 

 

 

4,641

 

 

 

-

 

 

 

398

 

 

 

-

 

 

 

5,039

 

Consumer and installment loans

 

 

330

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

330

 

Consumer and overdrafts

 

 

12

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12

 

Total acquired

 

 

149,313

 

 

 

-

 

 

 

6,176

 

 

 

-

 

 

 

155,489

 

 

 

129,200

 

 

 

1,102

 

 

 

5,288

 

 

 

-

 

 

 

135,590

 

Total

 

$

788,286

 

 

$

192

 

 

$

25,146

 

 

$

-

 

 

$

813,624

 

 

$

888,108

 

 

$

1,984

 

 

$

15,378

 

 

$

-

 

 

$

905,470

 

 

Purchased Credit Impaired Loans

The Company has acquired loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of December 31, 20172018 and June 30, 20172018 is as follows (in thousands):

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

2017

 

 

2017

 

 

2018

 

 

2018

 

Residential

 

$

1,252

 

 

$

1,298

 

 

$

1,210

 

 

$

1,232

 

Commercial

 

 

1,493

 

 

 

1,824

 

 

 

1,473

 

 

 

1,477

 

Home equity lines of credit

 

 

173

 

 

 

177

 

 

 

162

 

 

 

168

 

Consumer and installment loans

 

 

20

 

 

 

42

 

Carrying amount, net of allowance of $65 and $26, respectively

 

$

2,938

 

 

$

3,341

 

Carrying amount, net of allowance of $73 and $73, respectively

 

$

2,845

 

 

$

2,877

 

 

The allowance for loan losslosses on purchased credit impaired loans increased $39,000was unchanged during the three and six months ended December 31, 2017.2018.

Accretable yield, or income expected to be collected, for acquired loans is as follows (in thousands):

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Beginning balance

 

$

375

 

 

$

532

 

 

$

403

 

 

$

578

 

 

$

232

 

 

$

532

 

 

$

245

 

 

$

578

 

New loans acquired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Accretion income

 

 

(24

)

 

 

(46

)

 

 

(52

)

 

 

(92

)

 

 

(13

)

 

 

(46

)

 

 

(26

)

 

 

(92

)

Reclassification from non-accretable difference

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Disposals

 

 

(113

)

 

 

-

 

 

 

(113

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Ending balance

 

$

238

 

 

$

486

 

 

$

238

 

 

$

486

 

 

$

219

 

 

$

486

 

 

$

219

 

 

$

486

 

 


Note 6.5. Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) balances, net of tax (in thousands):

 

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at October 1, 2018

 

$

(1,657

)

 

$

(5,035

)

 

$

(257

)

 

$

(6,949

)

Other comprehensive income before reclassifications

 

 

506

 

 

 

-

 

 

 

-

 

 

 

506

 

Amounts reclassified from accumulated other comprehensive income

 

 

(55

)

 

 

145

 

 

 

9

 

 

 

99

 

Less tax effect

 

 

(94

)

 

 

(31

)

 

 

(2

)

 

 

(127

)

Net other comprehensive income

 

 

357

 

 

 

114

 

 

 

7

 

 

 

478

 

Balance at December 31, 2018

 

$

(1,300

)

 

$

(4,921

)

 

$

(250

)

 

$

(6,471

)

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at October 1, 2017

 

$

(195

)

 

$

(4,883

)

 

$

(244

)

 

$

(5,322

)

 

$

(195

)

 

$

(4,883

)

 

$

(244

)

 

$

(5,322

)

Other comprehensive loss before reclassifications

 

 

(717

)

 

 

-

 

 

 

-

 

 

 

(717

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

181

 

 

 

8

 

 

 

189

 

Less tax effect

 

 

243

 

 

 

(61

)

 

 

(2

)

 

 

180

 

Net other comprehensive (loss) income

 

 

(474

)

 

 

120

 

 

 

6

 

 

 

(348

)

Balance at December 31, 2017

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2018

 

$

(1,536

)

 

$

(5,150

)

 

$

(264

)

 

$

(6,950

)

Other comprehensive income before reclassifications

 

 

353

 

 

 

-

 

 

 

-

 

 

 

353

 

Amounts reclassified from accumulated other comprehensive income

 

 

(55

)

 

 

290

 

 

 

18

 

 

 

253

 

Tax effect

 

 

(62

)

 

 

(61

)

 

 

(4

)

 

 

(127

)

Net other comprehensive income

 

 

236

 

 

 

229

 

 

 

14

 

 

 

479

 

Balance at December 31, 2018

 

$

(1,300

)

 

$

(4,921

)

 

$

(250

)

 

$

(6,471

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2017

 

$

37

 

 

$

(5,002

)

 

$

(250

)

 

$

(5,215

)

Other comprehensive loss before reclassifications

 

 

(717

)

 

 

-

 

 

 

-

 

 

 

(717

)

 

 

(930

)

 

 

-

 

 

 

-

 

 

 

(930

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

181

 

 

 

8

 

 

 

189

 

 

 

(139

)

 

 

362

 

 

 

16

 

 

 

239

 

Tax effect

 

 

243

 

 

 

(61

)

 

 

(2

)

 

 

180

 

 

 

363

 

 

 

(123

)

 

 

(4

)

 

 

236

 

Net other comprehensive (loss) income

 

 

(474

)

 

 

120

 

 

 

6

 

 

 

(348

)

 

 

(706

)

 

 

239

 

 

 

12

 

 

 

(455

)

Balance at December 31, 2017

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for

sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 1, 2016

 

$

624

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,869

)

Other comprehensive loss before reclassifications

 

 

(1,262

)

 

 

-

 

 

 

-

 

 

 

(1,262

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

577

 

 

 

47

 

 

 

624

 

Tax effect

 

 

429

 

 

 

(196

)

 

 

(16

)

 

 

217

 

Net other comprehensive (loss) income

 

 

(833

)

 

 

381

 

 

 

31

 

 

 

(421

)

Balance at December 31, 2016

 

$

(209

)

 

$

(7,302

)

 

$

(779

)

 

$

(8,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2017

 

$

37

 

 

$

(5,002

)

 

$

(250

)

 

$

(5,215

)

Other comprehensive loss before reclassifications

 

 

(930

)

 

 

-

 

 

 

-

 

 

 

(930

)

Amounts reclassified from accumulated other comprehensive (loss) income

 

 

(139

)

 

 

362

 

 

 

16

 

 

 

239

 

Tax effect

 

 

363

 

 

 

(123

)

 

 

(4

)

 

 

236

 

Net other comprehensive (loss) income

 

 

(706

)

 

 

239

 

 

 

12

 

 

 

(455

)

Balance at December 31, 2017

 

$

(669

)

 

$

(4,763

)

 

$

(238

)

 

$

(5,670

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized

gain (loss) on

available for sale securities

 

 

Unrealized loss

on pension

benefits

 

 

Unrealized loss

on SERP

benefits

 

 

Total

 

Balance at July 1, 2016

 

$

523

 

 

$

(7,683

)

 

$

(810

)

 

$

(7,970

)

Other comprehensive loss before reclassifications

 

 

(1,109

)

 

 

-

 

 

 

-

 

 

 

(1,109

)

Amounts reclassified from accumulated other comprehensive income

 

 

-

 

 

 

577

 

 

 

47

 

 

 

624

 

Tax effect

 

 

377

 

 

 

(196

)

 

 

(16

)

 

 

165

 

Net other comprehensive (loss) income

 

 

(732

)

 

 

381

 

 

 

31

 

 

 

(320

)

Balance at December 31, 2016

 

$

(209

)

 

$

(7,302

)

 

$

(779

)

 

$

(8,290

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Note 67.. Post-Retirement Benefits

Employee Pension Plan: The Company maintains a non-contributory defined benefit pension plan that covers employees meeting specific requirements as to age and length of service. The Company’s contributions to this qualified plan are determined on the basis of (i) the maximum amount that can be deducted for federal income tax purposes, and (ii) the amount determined by a consulting actuary as necessary to avoid an accumulated funding deficiency as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). Contributions are intended to provide for benefits attributed to service to date. On February 15, 2017, the Board of Directors approved the freezing of the defined benefit pension plan effective May 1, 2017.

Supplemental Retirement Plans: The Company also maintains unfunded and non-qualified supplemental retirement plans ("SERP") to provide pension benefits in addition to those provided under the qualified pension plan.

Net periodic benefit cost and other amounts recognized in other comprehensive income for the three and six months ended December 31, 20172018 and 20162017 (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Three Months Ended

 

 

December 31, 2017

 

 

December 31, 2016

 

 

December 31, 2018

 

 

December 31, 2017

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

 

Defined

Benefit

Plan

 

 

Supplemental

Retirement

Plans

 

Service cost

 

$

-

 

 

$

107

 

 

$

184

 

 

$

81

 

 

$

-

 

 

$

147

 

 

$

-

 

 

$

107

 

Interest cost

 

 

242

 

 

 

25

 

 

 

253

 

 

 

29

 

 

 

250

 

 

 

26

 

 

 

242

 

 

 

25

 

Expected return on plan assets

 

 

(503

)

 

 

-

 

 

 

(464

)

 

 

-

 

 

 

(513

)

 

 

-

 

 

 

(503

)

 

 

-

 

Amortization of prior net loss

 

 

-

 

 

 

-

 

 

 

361

 

 

 

23

 

 

 

145

 

 

 

9

 

 

 

-

 

 

 

-

 

Amortization of prior service cost

 

 

181

 

 

 

8

 

 

 

(72

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

181

 

 

 

8

 

Net periodic (benefit) cost

 

$

(80

)

 

$

140

 

 

$

262

 

 

$

133

 

 

$

(118

)

 

$

182

 

 

$

(80

)

 

$

140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

Six Months Ended

 

 

Six Months Ended

 

 

December 31, 2017

 

 

December 31, 2016

 

 

December 31, 2018

 

 

December 31, 2017

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

 

Defined Benefit Plan

 

 

Supplemental Retirement Plan

 

Service cost

 

$

-

 

 

$

220

 

 

$

369

 

 

$

161

 

 

$

-

 

 

$

295

 

 

$

-

 

 

$

220

 

Interest cost

 

 

484

 

 

 

50

 

 

 

507

 

 

 

58

 

 

 

500

 

 

 

52

 

 

 

484

 

 

 

50

 

Expected return on plan assets

 

 

(1,006

)

 

 

-

 

 

 

(962

)

 

 

-

 

 

 

(1,026

)

 

 

-

 

 

 

(1,006

)

 

 

-

 

Amortization of prior net loss

 

 

-

 

 

 

-

 

 

 

721

 

 

 

47

 

 

 

290

 

 

 

18

 

 

 

-

 

 

 

0

 

Amortization of prior service cost

 

 

362

 

 

 

16

 

 

 

(144

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

362

 

 

 

16

 

Net periodic cost

 

$

(160

)

 

$

66

 

 

$

491

 

 

$

266

 

 

Net periodic (benefit) cost

 

$

(236

)

 

$

365

 

 

$

(160

)

 

$

286

 

 

The Company made no contributions to the defined benefit plan during the three and six months ended December 31, 20172018 and expects to make no contributions to the plan for the year ending June 30, 2018.2019.

Employee Stock Ownership Plan

On January 1, 2017, the Company established an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Company stock. The plan is a tax-qualified retirement plan for the benefit of Company employees. TheOn April 20, 2017 Company granted a loan to the ESOP for the purchase of 1,453,209 shares of the Company’s common stock at a price of $10.00 per share. The loan obtained by the ESOP from the Company to purchase the common stock is payable annually over 15 years at a rate per annum equal to the Prime Rate, reset annually on January 1st (4.00%(4.5% at December 31, 2017)2018). Loan payments are principally funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. The balance of the ESOP loan at December 31, 20172018 was $13.6$12.6 million. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits. The number of shares committed to be released annually is 96,881 through 2032.


Shares held by the ESOP include the following:following (dollars in thousands):

 

 

 

December 31, 2017

 

 

June 30, 2017

 

Allocated

 

 

96,881

 

 

 

-

 

Committed to be allocated

 

 

-

 

 

 

26,975

 

Unallocated

 

 

1,356,328

 

 

 

1,426,234

 

Total shares

 

 

1,453,209

 

 

 

1,453,209

 

 

 

December 31, 2018

 

 

June 30, 2018

 

Allocated to participants

 

 

193,762

 

 

 

144,923

 

Unearned

 

 

1,259,447

 

 

 

1,308,286

 

Total ESOP shares

 

 

1,453,209

 

 

 

1,453,209

 

 

 

 

 

 

 

 

 

 

Fair value of unearned shares

 

$

24,635

 

 

$

25,996

 

 

 

 

 

 

 

 

 

 

The fair value of unallocated shares was $25.8 million at December 31, 2017.

Total compensation expense recognized in connection with the ESOP for the three and six months ended December 31, 2018 was $477,000 and $970,000, respectively, and for the three and six months ended December 31, 2017 was $672,000 and $1.3 million, respectively. There was no ESOP compensation expense for the three or six months ended December 31, 2016.

Note 8.7. Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, 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.  

Investment Securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs), or a broker's opinion of value (Level 3 inputs).  

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Appraisals are generally obtained annually and may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management performs a review of all appraisals, including any such adjustments.

Foreclosed Real Estate: Assets acquired through or instead of loan foreclosure are initially recorded at fair value, less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value, less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.


Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department, as well as a third-party specialist, where deemed appropriate, reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Once appraisals are considered appropriate, management discounts the appraised value for estimated selling costs, such as legal, broker, and property maintenance and insurance costs.  The most recent analysis performed indicated discount rates ranging between 10% and 20% should be applied to properties with appraisals performed.

Derivatives: The Company’s derivative assets and liabilities consist of transactions as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.

Assets and liabilities measured at fair value are summarized below (in thousands):

 

 

Fair Value Measurements

 

 

Fair Value Measurements

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

55,024

 

 

$

-

 

 

$

55,024

 

 

$

-

 

 

$

55,648

 

 

$

-

 

 

$

55,648

 

Corporate and other debt securities

 

 

-

 

 

 

8,362

 

 

 

-

 

 

 

8,362

 

 

 

-

 

 

 

8,212

 

 

 

-

 

 

 

8,212

 

Mortgage-backed securities – residential

 

 

-

 

 

 

39,296

 

 

 

-

 

 

 

39,296

 

 

 

-

 

 

 

28,826

 

 

 

-

 

 

 

28,826

 

Equity securities

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Derivatives – interest rate contracts

 

 

-

 

 

 

343

 

 

 

-

 

 

 

343

 

Total assets at fair value

 

$

-

 

 

$

102,714

 

 

$

-

 

 

$

102,714

 

 

$

-

 

 

$

93,029

 

 

$

-

 

 

$

93,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives – interest rate contracts

 

$

-

 

 

$

343

 

 

$

-

 

 

$

343

 

Total liabilities at fair value

 

$

-

 

 

$

343

 

 

$

-

 

 

$

343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

-

 

 

$

-

 

 

$

265

 

 

$

265

 

 

$

-

 

 

$

-

 

 

$

526

 

 

$

526

 

Construction

 

 

-

 

 

 

-

 

 

 

1,984

 

 

 

1,984

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

206

 

 

 

206

 

 

 

-

 

 

 

-

 

 

 

62

 

 

 

62

 

Other loans secured

 

 

-

 

 

 

-

 

 

 

500

 

 

 

500

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

72

 

 

 

72

 

 

 

-

 

 

 

-

 

 

 

88

 

 

 

88

 

Foreclosed real estate

 

 

-

 

 

 

-

 

 

 

572

 

 

 

572

 

Total assets at fair value

 

$

-

 

 

$

-

 

 

$

3,027

 

 

$

3,027

 

 

$

-

 

 

$

-

 

 

$

1,248

 

 

$

1,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

63,445

 

 

$

-

 

 

$

63,445

 

Corporate and other debt securities

 

 

-

 

 

 

8,482

 

 

 

-

 

 

 

8,482

 

Mortgage-backed securities – residential

 

 

-

 

 

 

39,930

 

 

 

-

 

 

 

39,930

 

Equity securities

 

 

-

 

 

 

32

 

 

 

-

 

 

 

32

 

Total assets at fair value

 

 

-

 

 

$

111,889

 

 

$

-

 

 

$

111,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

-

 

 

$

-

 

 

$

1,126

 

 

$

1,126

 

Construction

 

 

-

 

 

 

-

 

 

 

2,260

 

 

 

2,260

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

72

 

 

 

72

 

Other loans secured

 

 

 

 

 

 

 

 

 

 

1,609

 

 

 

1,609

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

5

 

 

 

5

 

Foreclosed real estate

 

 

-

 

 

 

-

 

 

 

977

 

 

 

977

 

Total assets at fair value

 

$

-

 

 

$

-

 

 

$

6,049

 

 

$

6,049

 


 

 

Fair Value Measurements

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and agency obligations

 

$

-

 

 

$

63,430

 

 

$

-

 

 

$

63,430

 

Corporate and other debt securities

 

 

-

 

 

 

8,235

 

 

 

-

 

 

 

8,235

 

Mortgage-backed securities – residential

 

 

-

 

 

 

33,807

 

 

 

-

 

 

 

33,807

 

Total assets at fair value

 

$

-

 

 

$

105,472

 

 

$

-

 

 

$

105,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a non-recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

$

-

 

 

$

-

 

 

$

688

 

 

$

688

 

Construction

 

 

-

 

 

 

-

 

 

 

1,984

 

 

 

1,984

 

Commercial loans

 

 

-

 

 

 

-

 

 

 

845

 

 

 

845

 

Home equity lines of credit

 

 

-

 

 

 

-

 

 

 

7

 

 

 

7

 

Foreclosed real estate

 

 

-

 

 

 

-

 

 

 

460

 

 

 

460

 

Total assets at fair value

 

$

-

 

 

$

-

 

 

$

3,984

 

 

$

3,984

 

There were no transfers between levels within the fair value hierarchy during the three orand six months ended December 31, 2018 and 2017.

 

Impaired loans in the preceding table above had a carrying amount of $3.4 million,$676,000, and a remaining valuation allowance of $405,000$131,000 at December 31, 2017,2018, as compared to $6.3$3.9 million and $1.1 million,$451,000, respectively, as of June 30, 2017.2018. Impaired loans measured at fair value incurred no net charge-offs and resulted in an additional credit for loan losses of $7,000 during the six months ended December 31, 2018. Impaired loans measured at fair value as of December 31, 2017 incurred $997,000 of net charge-offs and resulted in an additional provision for loan losses of $405,000 during the six months ended December 31, 2017. Impaired loans measured at fair value as of December 31, 2016 incurred $38,000 of net charge-offs and resulted in an additional provision for loan losses of $814,000 during the three months ended December 31, 2016.


The following tables present quantitative information about Level 3 fair value measurements for selected financial instruments measured at fair value on a non-recurring basis at December 31, 20172018 and June 30, 20172018 (dollars in thousands):

 

 

 

 

 

 

Valuation

 

Unobservable

 

Range or

 

 

 

 

 

 

Valuation

 

Unobservable

 

Range or

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Rate Used

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Rate Used

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

265

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

4.2% to 21.1%

 

 

$

526

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - construction

 

 

1,984

 

 

Sales contract

 

n/a

 

n/a

 

 

 

 

 

 

Sales contract

 

Discount to sales contract

 

-24.3% to -10.3%

 

Impaired loans - commercial loans

 

 

206

 

 

Discounted cash flow

 

Discount rate

 

6.0%

 

 

 

62

 

 

Discounted cash flow

 

Discount rate

 

7.0% to 7.5%

 

Impaired loans - other loans secured

 

 

500

 

 

Sales contract

 

n/a

 

n/a

 

Impaired loans - home equity lines of credit

 

 

72

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

4.2% to 21.1%

 

 

 

88

 

 

Discounted cash flow

 

Discount rate

 

6.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales contract

 

Discount to sales contract

 

-24.3% to -10.3%

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Foreclosed real estate

 

 

572

 

 

Sales comparison

 

Adjustments for

differences in

sales comparables

 

-25.0% to 45.0%

 

 

��

 

 

 

 

 

 

 

 

 

 

June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans - residential mortgages

 

$

1,126

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

-5.1% to 7.8%

 

 

$

688

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

-5.1% to 20.9%

 

 

 

 

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

 

 

 

 

 

Discounted cash flow

 

Discount rate

 

5.4% to 6.3%

 

Impaired loans - construction

 

 

2,260

 

 

Cost approach

 

Discount for distressed property

 

 

50.0%

 

 

 

1,984

 

 

Sales contract

 

Discount to sales contract

 

9.8%

 

Impaired loans - commercial

 

 

72

 

 

Discounted cash flow

 

Adjustments for

differences in sales

comparables

 

7.0% to 7.5%

 

Impaired loans - other loans secured

 

 

1,609

 

 

Discounted cash flow

 

Discount rate

 

 

6.0%

 

Impaired loans - commercial loans

 

 

845

 

 

Discounted cash flow

 

Discount rate

 

5.3% to 7.5%

 

 

 

 

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

 

0.0%

 

 

 

 

 

 

Sales contract

 

Discount to sales contract

 

9.8%

 

Impaired loans - home equity lines of credit

 

 

5

 

 

Discounted cash flow

 

Discount rate

 

 

6.3%

 

 

 

7

 

 

Sales comparison

 

Adjustments for

differences in sales

comparables

 

-5.1% to 20.9%

 

 

 

 

 

 

Discounted cash flow

 

Discount rate

 

6.3%

 

Foreclosed real estate

 

 

977

 

 

Sales comparison

 

Adjustments for

differences in

sales comparables

 

-23.4% to 7.2%

 

 

 

460

 

 

Sales comparison

 

Adjustments for

differences in

sales comparables

 

-8.1% to -0.4%

 

 


The following is a summary of the carrying amounts and estimated fair values of the Company’s financial assets and liabilities (in thousands) (none of which are held for trading purposes):

 

 

Carrying

 

 

Fair Value Measurements

 

 

Carrying

 

 

Fair Value Measurements

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

143,119

 

 

$

143,119

 

 

$

-

 

 

$

-

 

 

$

143,119

 

Investment securities held to maturity

 

 

359,777

 

 

 

-

 

 

 

351,701

 

 

 

-

 

 

 

351,701

 

Investment securities available for sale

 

 

92,686

 

 

 

-

 

 

 

92,686

 

 

 

-

 

 

 

92,686

 

Loans receivable, net

 

 

904,377

 

 

 

-

 

 

 

-

 

 

 

884,574

 

 

 

884,574

 

Accrued interest receivable

 

 

4,457

 

 

 

-

 

 

 

1,366

 

 

 

3,091

 

 

 

4,457

 

Federal Home Loan Bank stock

 

 

2,385

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Derivative assets - interest rate contracts

 

 

343

 

 

 

-

 

 

 

343

 

 

 

-

 

 

 

343

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

 

803,970

 

 

 

803,970

 

 

 

-

 

 

 

-

 

 

 

803,970

 

Time deposits

 

 

421,354

 

 

 

-

 

 

 

424,037

 

 

 

-

 

 

 

424,037

 

Mortgage escrow funds

 

 

9,085

 

 

 

9,085

 

 

 

-

 

 

 

-

 

 

 

9,085

 

FHLB advances

 

 

26,279

 

 

 

-

 

 

 

26,299

 

 

 

-

 

 

 

26,299

 

Derivative liabilities - interest rate contracts

 

 

343

 

 

 

-

 

 

 

343

 

 

 

-

 

 

 

343

 

June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,106

 

 

$

77,106

 

 

$

-

 

 

$

-

 

 

$

77,106

 

 

$

62,145

 

 

$

62,145

 

 

$

-

 

 

$

-

 

 

$

62,145

 

Investment securities held to maturity

 

 

367,646

 

 

 

-

 

 

 

363,253

 

 

 

204

 

 

 

363,457

 

 

 

353,183

 

 

 

-

 

 

 

343,188

 

 

 

-

 

 

 

343,188

 

Investment securities available for sale

 

 

102,714

 

 

 

-

 

 

 

102,714

 

 

 

-

 

 

 

102,714

 

 

 

105,472

 

 

 

-

 

 

 

105,472

 

 

 

-

 

 

 

105,472

 

Loans receivable, net

 

 

838,120

 

 

 

-

 

 

 

-

 

 

 

834,729

 

 

 

834,729

 

 

 

902,336

 

 

 

-

 

 

 

-

 

 

 

882,319

 

 

 

882,319

 

Accrued interest receivable

 

 

4,001

 

 

 

-

 

 

 

1,291

 

 

 

2,710

 

 

 

4,001

 

 

 

4,358

 

 

 

-

 

 

 

1,402

 

 

 

2,956

 

 

 

4,358

 

Federal Home Loan Bank stock

 

 

2,395

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

2,050

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

 

802,782

 

 

 

802,782

 

 

 

-

 

 

 

-

 

 

 

802,782

 

 

 

765,084

 

 

 

765,084

 

 

 

-

 

 

 

-

 

 

 

765,084

 

Time deposits

 

 

311,547

 

 

 

-

 

 

 

314,386

 

 

 

-

 

 

 

314,386

 

 

 

392,373

 

 

 

-

 

 

 

394,205

 

 

 

-

 

 

 

394,205

 

Mortgage escrow funds

 

 

8,229

 

 

 

8,229

 

 

 

-

 

 

 

-

 

 

 

8,229

 

 

 

8,803

 

 

 

8,803

 

 

 

-

 

 

 

-

 

 

 

8,803

 

FHLB advances

 

 

30,720

 

 

 

-

 

 

 

30,633

 

 

 

-

 

 

 

30,633

 

 

 

18,841

 

 

 

-

 

 

 

20,574

 

 

 

-

 

 

 

20,574

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,486

 

 

$

60,486

 

 

$

-

 

 

$

-

 

 

$

60,486

 

Investment securities held to maturity

 

 

383,551

 

 

 

-

 

 

 

383,318

 

 

 

270

 

 

 

383,588

 

Investment securities available for sale

 

 

111,889

 

 

 

-

 

 

 

111,889

 

 

 

-

 

 

 

111,889

 

Loans receivable, net

 

 

809,648

 

 

 

-

 

 

 

-

 

 

 

817,814

 

 

 

817,814

 

Accrued interest receivable

 

 

3,693

 

 

 

-

 

 

 

1,243

 

 

 

2,450

 

 

 

3,693

 

Federal Home Loan Bank stock

 

 

3,132

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, money market deposits and savings accounts

 

 

793,681

 

 

 

793,681

 

 

 

-

 

 

 

-

 

 

 

793,681

 

Time deposits

 

 

294,780

 

 

 

-

 

 

 

297,508

 

 

 

-

 

 

 

297,508

 

Mortgage escrow funds

 

 

8,084

 

 

 

8,084

 

 

 

-

 

 

 

-

 

 

 

8,084

 

FHLB advances

 

 

42,598

 

 

 

-

 

 

 

45,504

 

 

 

-

 

 

 

45,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents: The carrying amountsIn connection with the adoption of cash and short-term instruments approximate fair values and are classified as Level 1.

Loans Receivable, Net: For valuation purposes, the loan portfolio was segregated into its significant categories such as one-to-four family residential mortgage loans, other mortgage loans, consumer loans and commercial loans.  These categories were further analyzed, where appropriate, into components basedASU 2016-01 on significant financial characteristics such as type of interest rate (adjustable or fixed). For adjustable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilizedJuly 1, 2018, we refined our methodology to estimate the fair value of loans do not necessarily representour loan portfolio using an exit price.price notion resulting in prior periods no longer being comparable. The fairexit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, national and regional market trends and other adjustments, utilizing publicly available rates and indices. The application of an exit price notion requires the use of significant judgment. The prior period estimate of loans receivable, net was determined using an entrance price methodology based only on the discounted value of loans is considered Level 3.contracted cash flows based on prevailing interest rates.

FHLB Stock: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest approximates fair value.


Deposits: The fair values disclosed for demand deposits (e.g., non-interest-bearing demand, NOW, money market, savings deposits and escrow accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) and are considered Level 1. Fair values for time deposits are estimated using a discounted cash flows calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits, resulting in a Level 2 classification.

FHLB Advances: Fair value of the advances is estimated using a discounted cash flow calculation that applies current FHLB interest rates for advances of similar maturity to the Company's current advances maturities schedule, resulting in a Level 2 classification.

Note 9.8. Regulatory Capital

The following is a summary of the Company’s and Bank’s actual capital amounts and ratios as of December 31, 20172018 and June 30, 2017,2018, compared to the required ratios for minimum capital adequacy and for classification as well capitalized (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under Prompt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under Prompt

 

 

 

 

 

For Capital Adequacy

 

 

Corrective Action

 

 

 

 

 

For Capital Adequacy

 

 

Corrective Action

 

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

 

Bank Actual

 

 

Purposes

 

 

Provisions

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

195,169

 

 

 

13.8

%

 

$

56,400

 

 

 

4.0

%

 

$

70,500

 

 

 

5.0

%

 

$

205,731

 

 

 

13.8

%

 

$

59,702

 

 

 

4.0

%

 

$

74,628

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

195,169

 

 

 

21.6

 

 

 

40,591

 

 

 

4.5

 

 

 

58,632

 

 

 

6.5

 

 

 

205,731

 

 

 

20.7

 

 

 

44,406

 

 

 

4.5

 

 

 

64,141

 

 

 

6.5

 

Tier 1

 

 

195,169

 

 

 

21.6

 

 

 

54,122

 

 

 

6.0

 

 

 

72,162

 

 

 

8.0

 

 

 

205,731

 

 

 

20.7

 

 

 

59,208

 

 

 

6.0

 

 

 

78,943

 

 

 

8.0

 

Total

 

 

199,640

 

 

 

22.1

 

 

 

72,162

 

 

 

8.0

 

 

 

90,203

 

 

 

10.0

 

 

 

210,674

 

 

 

21.2

 

 

 

78,973

 

 

 

8.0

 

 

 

98,679

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

282,716

 

 

 

19.9

%

 

$

56,713

 

 

 

4.0

%

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

282,716

 

 

 

31.3

 

 

 

40,632

 

 

 

4.5

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Tier 1

 

 

282,716

 

 

 

31.3

 

 

 

54,176

 

 

 

6.0

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

 

287,187

 

 

 

31.8

 

 

 

72,234

 

 

 

8.0

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCSB Bank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

190,990

 

 

 

13.7

%

 

$

55,949

 

 

 

4.0

%

 

$

69,936

 

 

 

5.0

%

 

$

200,488

 

 

 

13.6

%

 

$

58,924

 

 

 

4.0

%

 

$

73,655

 

 

 

5.0

%

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

39,631

 

 

 

4.5

 

 

 

57,245

 

 

 

6.5

 

 

 

200,488

 

 

 

21.1

 

 

 

42,745

 

 

 

4.5

 

 

 

61,743

 

 

 

6.5

 

Tier 1

 

 

190,990

 

 

 

21.7

 

 

 

52,841

 

 

 

6.0

 

 

 

70,455

 

 

 

8.0

 

 

 

200,488

 

 

 

21.1

 

 

 

56,994

 

 

 

6.0

 

 

 

75,991

 

 

 

8.0

 

Total

 

 

196,140

 

 

 

22.3

 

 

 

70,455

 

 

 

8.0

 

 

 

88,069

 

 

 

10.0

 

 

 

205,392

 

 

 

21.6

 

 

 

75,991

 

 

 

8.0

 

 

 

94,989

 

 

 

10.0

 

PCSB Financial Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage (Tier 1)

 

$

278,528

 

 

 

20.0

%

 

$

55,839

 

 

 

4.0

%

 

N/A

 

 

N/A

 

 

$

287,991

 

 

 

19.5

%

 

$

58,948

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Risk-based:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

39,631

 

 

 

4.5

 

 

N/A

 

 

N/A

 

 

 

287,991

 

 

 

30.3

 

 

 

42,783

 

 

 

4.5

 

 

N/A

 

 

N/A

 

Tier 1

 

 

278,528

 

 

 

31.6

 

 

 

52,841

 

 

 

6.0

 

 

N/A

 

 

N/A

 

 

 

287,991

 

 

 

30.3

 

 

 

57,044

 

 

 

6.0

 

 

N/A

 

 

N/A

 

Total

 

 

283,678

 

 

 

32.2

 

 

 

70,455

 

 

 

8.0

 

 

N/A

 

 

N/A

 

 

 

292,895

 

 

 

30.8

 

 

 

76,058

 

 

 

8.0

 

 

N/A

 

 

N/A

 

 

In addition to the ratios above, the Basel III Capital Rules have established that community banking institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will bewas phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reachesreached 2.5% on January 1, 2019).


Management believes that as of December 31, 20172018 and June 30, 2017,2018, the Bank and Company met all capital adequacy requirements to which they wereit was subject, including the capital conservation buffer of 1.875% and 1.250% as of both December 31, 20172018 and June 30, 2017.2018, respectively. Further, the most recent FDIC notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification. As a result of recent regulatory reform, the Company is no longer subject to consolidated capital requirements, as the Company’s total consolidated assets do not exceed $3 billion, and thus the consolidated capital ratios are no longer required to be disclosed in the financial statements.


Note 10.9. Earnings Per Share

Basic earnings per share representsEPS is calculated by dividing net income available to common stockholders dividedshareholders by the weighted-averageweighted average number of common shares outstanding during the period. Unallocated ESOP

Diluted EPS is calculated in a similar manner, except that the denominator includes the number of additional common shares are not deemedthat would have been outstanding forif potentially dilutive common shares were issued using the treasury stock method.

The following table provides factors used in the earnings per share calculations.computation for the three and six months ended December 31, 2018 and 2017.

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(dollars in thousands, except share and per share data)

 

Net income applicable to common stock

 

$

2,324

 

 

$

2

 

 

$

4,653

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

18,124,242

 

 

 

18,165,110

 

 

 

18,144,676

 

 

 

18,165,110

 

Less: Average unallocated ESOP shares

 

 

(1,271,524

)

 

 

(1,373,805

)

 

 

(1,283,734

)

 

 

(1,391,227

)

Average number of common shares outstanding used to calculate basic earnings per common share

 

 

16,852,718

 

 

 

16,791,305

 

 

 

16,860,942

 

 

 

16,773,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of equity-based awards

 

 

15,746

 

 

 

-

 

 

 

7,873

 

 

 

-

 

Average number of common shares outstanding used to calculate diluted earnings per common share

 

 

16,868,464

 

 

 

16,791,305

 

 

 

16,868,815

 

 

 

16,773,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

Diluted

 

$

0.14

 

 

$

-

 

 

$

0.28

 

 

$

0.10

 

Stock options for 1,339,293 shares of common stock were not considered in computing diluted earnings per common share for both the three and six months ended December 31, 2018 because they were antidilutive. There were no potentially dilutive common stock equivalents during the three or six months ended December 31, 2017. Earnings per share data

Note 10. Derivatives and Hedging

Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide service to customers. The Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk exposure resulting from such transactions. These interest rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current period earnings.

The Company had no interest rate swaps at June 30, 2018. The following table presents summary information about the interest rate swaps as of December 31, 2018:

 

 

December 31,

 

(dollars in thousands)

 

2018

 

Notional amounts

 

$

16,648

 

Weighted average pay rates

 

 

4.40

%

Weighted average receive rates

 

 

4.40

%

Weighted average maturity

 

9.83 years

 

Fair value of combined interest rate swaps

 

$

-

 


Note 11. Revenue From Contracts With Customers

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on July 1, 2018. Under ASC 2014-09, an entity is not applicablerequired to recognize revenue for the periodstransfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  ASU 2014-09 also requires disclosure of sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, as well as qualitative and quantitative disclosure related to contracts with certain customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

In accordance with ASU 2014-09, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. The Company applies the following five steps to properly recognize revenue:

1.

Identify the contract with a customer

2.

Identify the performance obligations in the contract

3.

Determine the transaction price

4.

Allocate the transaction price to performance obligations in the contract

5.

Recognize revenue when (or as) the Company satisfies a performance obligation

The Company’s in-scope revenue streams that are subject to the accounting standard are: (1) fees and service charges on deposit accounts (including interchange fees), which, are included on the Consolidated Statements of Operations as “Fees and service charges” and (2) gains on the sale of foreclosed real estate. For the three and six months ended December 31, 2016 because2018 fees and services charges totaled $457,000 and $875,000, of which and $424,000 and $816,000, respectively, were in-scope revenue streams. For the three and six months ended December 31, 2017 fees and services charges totaled $412,000 and $793,000, of which $309,000 and $600,000, respectively, were in-scope revenue streams.

Fees and Service Charges on Deposit Accounts. The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payments, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company had not yet been formed and had no shares outstanding at a Company or Bank level.

 

 

Three months ended

December 31, 2017

 

 

Six months ended

December 31, 2017

 

 

 

(amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

2

 

 

$

1,758

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

18,165,110

 

 

 

18,165,110

 

Less: Average unallocated ESOP shares

 

 

1,373,805

 

 

 

1,391,227

 

Average number of common shares outstanding used to calculate basic earnings per common share

 

 

16,791,305

 

 

 

16,773,883

 

 

 

 

 

 

 

 

 

 

Earnings per Common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

$

0.10

 

Diluted

 

$

0.00

 

 

$

0.10

 

Note 11. Income Taxes

On December 22, 2017, as partfulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the Tax Cuts and Jobs Act,month, representing the federal government enacted comprehensive tax reform containing provisions with a number of impacts on corporate income taxes, the most significant ofperiod over which provides a decrease in the corporate income tax rate from 34% to 21% for tax years beginning on or after January 1, 2018. The Company is required to re-measure as of the date the law is enacted, its net deferred tax assets to reflect the income tax rate expected to be effective when deferred tax positions will be realized. As a result, the Company recorded a re-measurement charge through income tax expense of $1.8 millionsatisfied the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance. For the three and six months ended December 31, 2018 fees and service charges on deposit accounts were $310,000 and $597,000, and for the three and six months ended December 31, 2017.2017 fees and service charges on deposit accounts were $211,000 and $407,000, respectively.

 

Although management does not expectInterchange Income. The Company earns interchange fees from debit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the $1.8 million re-measurement chargeunderlying transaction value and are recognized daily, concurrently with the transaction processing services provided to change materially, the charge is provisional ascardholder. For the three and six months ended December 31, 2018 interchange income was $114,000 and $219,000, and for the three and six months ended December 31, 2017 interchange income was $98,000 and $193,000, respectively.

Gain/Losses on Sales of Foreclosed Real Estate. The Company records a gain or loss from the sale of foreclosed real estate when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company continuesfinances the sale of foreclosed real estate to finalize its analysisthe buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. The Company recorded $24,000 and $14,000 gains on sale of foreclosed real estate for the three and six months ended December 31, 2018 or 2017, respectively.


Note 12. Stock-Based Compensation

On October 24, 2018, the Company’s shareholders approved the PCSB Financial Corporation 2018 Equity Incentive Plan (the “Plan”), which permits the grant of stock options and restricted stock and/or restricted stock units. The total number of shares that may be granted under the Plan is 2,543,115, of which 1,816,511 shares may be granted as stock options and 726,604 shares may be granted as restricted stock and restricted stock units. Concurrent with the approval of the Plan, on October 24, 2018, 431,039 stock options and 183,884 restricted stock awards (“RSAs”) were granted to non-employee directors. Additionally, on November 14, 2018 the Board of Directors approved employee grants of 908,254 stock options and 363,301 RSAs. All grants of stock options and RSAs have a 5-year vesting period. Total compensation cost that has been charged against income for the Plan was $482,000 for the three and six months ended December 31, 2018.

Restricted Stock Awards

RSAs provide for the issuance of shares to both employees and non-employee directors. These awards generally vest over a 5-year period, with 20% vesting each year on the anniversary of the award, however may not vest more rapidly than over a three-year period. All awards were made at the fair value of common stock on the grant date. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at grant date. The fair value of the stock was determined to be the closing price of the stock on the NASDAQ exchange. Total shares available for grant under the Plan are 726,604, of which 547,185 shares were issued as of December 31, 2018.

The following table presents a summary of RSA activity during the period ended December 31, 2018.

 

 

 

 

 

Number of Shares

 

 

Weighted-Average Grant Date Fair Value

 

Unvested allocated shares outstanding at July 1, 2018

 

 

 

 

 

-

 

 

$

-

 

Shares granted

 

 

 

 

 

547,185

 

 

 

19.02

 

Shares vested

 

 

 

 

 

-

 

 

 

-

 

Shares forfeited

 

 

 

 

 

-

 

 

 

-

 

Unvested allocated shares at December 31, 2018

 

 

 

 

 

547,185

 

 

$

19.02

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018, there was $9.8 million of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 4.9 years.

Stock Option Awards

Stock options awarded to employees under the Plan are considered incentive stock options (ISOs), up to applicable limits. Option awards are generally granted with an exercise price equal to the market price of the Company’s deferred tax inventory,common stock at the date of grant. Those issued to non-employee directors, as well as other facts and circumstances that existed asthose exceeding ISO limitations, are considered non-qualified stock options (NQSOs). Options generally vest over a 5-year period, with 20% vesting each year on the anniversary of the law’s enactment date thataward, however may not vest more rapidly than over a three-year period, and have a contractual term of 10 years. The Company has a policy of using shares held as a treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy the current level of exercisable share options.

The fair value of each option award is needed in order to complete the accounting requirements under ASC Topic 740 Income Taxes; and is subject to revision during the measurement period for up to one year fromestimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the tax law change.assumptions noted in the following table. Expected volatilities are based on the historical volatilities of a peer group of publicly-traded financial institutions. The expected term of options granted is based on the simplified “mid-point” approach which utilizes the weighted average vesting period and contractual term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.


The fair value of options granted during the current year was determined using the following weighted-average assumptions as of grant date.

 

 

 

 

 

 

Risk-free interest rate

 

 

 

3.03

%

Expected term

 

 

 

6.50

 

Expected stock price volatility

 

 

 

18.26

%

Dividend yield

 

 

 

0.63

%

Weighted average fair value of options granted

 

 

$

4.61

 

As of December 31, 2018, there was $6.0 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 4.9 years.

The following table presents a summary of activity related to stock options granted under the Stock Plans, and changes during the period then ended:

 

Number of Options

 

 

Weighted-Average Exercise Price

 

 

Weighted-Average Remaining Contractual Years

 

 

Aggregate Intrinsic Value

 

 

(dollars in thousands, except share and per share data)

 

Options outstanding at July 1, 2018

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Options granted

 

1,339,293

 

 

 

19.04

 

 

 

 

 

 

 

 

 

Options expired

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options exercised

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2018

 

1,339,293

 

 

$

19.04

 

 

 

9.9

 

 

$

701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully vested and expected to vest

 

1,339,293

 

 

$

19.04

 

 

 

9.9

 

 

$

701

 

Exercisable at December 31, 2018

 

-

 

 

$

-

 

 

 

 

 

 

$

-

 

Note 13. Subsequent Events

Subsequent to December 31, 2018, the Company repurchased 686,186 shares of common stock, at an average cost of $20.36 per share, resulting in a total of 908,256 shares repurchased, at an average cost of $20.15, which completes the Company’s current stock repurchase plan.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

Management’s discussion and analysis of financial condition at December 31, 20172018 and June 30, 2017,2018, and results of operations for the three and six months ended December 31, 20172018 and 20162017 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q and with the audited financial statements included in the annual report on Form 10-K for the fiscal year ended June 30, 2017.2018.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning.  These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;

statements regarding our business plans, prospects, growth and operating strategies;

statements regarding the quality of our loan and investment portfolios; and

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

general economic conditions, either nationally or in our market areas, that are worse than expected;

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

our ability to access cost-effective funding;

fluctuations in real estate values and both residential and commercial real estate market conditions;

demand for loans and deposits in our market area;

our ability to continue to implement our business strategies;

competition among depository and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

adverse changes in the securities or credit markets;

changes in laws or government regulations or policies affecting financial institutions, including changes in tax laws, regulatory fees, and capital requirements, including as a result of Basel III;

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

our ability to enter new markets successfully and capitalize on growth opportunities;

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

changes in consumer spending, borrowing and savings habits;


 

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

our ability to retain key employees;

our compensation expense associated with equity allocated or awarded to our employees; and

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Additional factors that may affect our results are discussed in the Prospectusannual report on Form 10-K for the fiscal year ended June 30, 2018, under the heading “Risk Factors.”

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. The company assumes no obligation to update any forward looking statements except as may be required by applicable law or regulation.

Critical Accounting Policies

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Loan Losses. The allowance for loan losses is established as probable incurred losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

Income Taxes. We recognize income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled.

Goodwill. Goodwill resulting from business combination transactions is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquired, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. We recognized goodwill in connection with our acquisition of CMS Bancorp, Inc.

 

Comparison of Financial Condition at December 31, 20172018 and June 30, 20172018

 

Total Assets. Total assets increased $16.8$77.1 million, or 1.2%5.2%, to $1.44$1.56 billion at December 31, 20172018 from $1.43$1.48 billion at June 30, 2017.2018. The increase is primarily the result of increases of $28.5 million in net loans and $16.6$81.0 million in cash and cash equivalents and $2.0 million in net loans receivable, partially offset by decreasesa decrease of $25.1$6.2 million in total investment securities, $1.9 million in deferred tax assets, and $977,000 in foreclosed real estate.securities.

 

Cash and Cash Equivalents. Cash and cash equivalents increased $16.6$81.0 million, or 27.5%130.3%, to $77.1$143.1 million at December 31, 20172018 from $60.5$62.1 million at June 30, 2017.2018. The increase was primarily attributable to a $25.1$67.9 million increase in deposits, a $7.5 million increase in FHLB advances and a $12.8 million decrease in total investmentavailable for sale securities, and a $14.2 million increase in liabilities, partially offset by a $28.5$6.6 million increase in net loansheld to maturity securities and a $3.4$2.0 million decreaseincrease in all other assets.loans receivable.

 

Securities Held-to-Maturity. Total securities held to maturity decreased $15.9increased $6.6 million, or 4.1%1.9%, to $367.7$359.8 million at December 31, 20172018 from $383.6$353.2 million at June 30, 2017.2018. This decreaseincrease was primarily caused by $19.5$42.2 million of purchases, which includes $30.0 million of corporate bonds, partially offset by $22.1 million in amortization of mortgage-backed securities, and $13.5 million of maturities of U.S. government and agency obligations.

Securities Available for Sale. Total securities available for sale decreased $12.8 million, or 12.1%, to $92.7 million at December 31, 2018 from $105.5 million at June 30, 2018. This decline was primarily due to $8.0 million of net maturities of U.S. government and agency obligations, partially offset by net purchases of $3.0$5.0 million of corporate and other debt securities and $593,000 of mortgage-backed securities.

Securities Available for Sale. Total securities available for sale decreased $9.2 million, or 8.2%, to $102.7 million at December 31, 2017 from $111.9 million at June 30, 2017. This decline was primarily due to $8.1 million of net


maturities of U.S. government and agency obligations, $6.0 million in salesamortization of mortgage backed securities, andnet of sales, offset by a $1.1 million increase$298,000 decrease in net unrealized losses driven primarily by an increase in market interest rates, partially offset by $6.0 million of net purchases of mortgage backed securities.losses.

 

Net Loans Receivable. Net loans receivable increased $28.5$2.0 million, or 3.5%0.2%, to $838.1$904.3 million at December 31, 20172018 from $809.6$902.3 million at June 30, 2017.2018. The increase is primarily due to an increasewas the result of $43.5$75.3 million inof originations, partially offset by $73.3 million of net amortization and prepayments on the remaining portfolio, including $25.0 million of loan prepayments on four commercial mortgage loans partially offset by decreases of $6.0 million in construction loans, $4.1 million inand one residential mortgage loans, $2.0 million in commercial loans and $1.8 million in home equity credit lines. The Company purchased $46.7 million of commercial mortgage loans during the six months ended December 31, 2017.loan.

 


Deposits. Total deposits increased $25.9$67.9 million, or 2.4%,5.9% to $1.11$1.23 billion at December 31, 20172018 from $1.09$1.16 billion at June 30, 2017.2018. This increase primarily reflects a $16.8increases of $71.3 million increasein money market accounts, $30.2 million in demand deposits, $29.0 million in time deposits and a $17.4$5.4 million increase in demand deposits and NOW accounts, partially offset by an $8.3decrease of $68.0 million decrease in savings accounts. The increase in total deposits included a $7.5 million net increase in brokered time deposits and money market accounts.a transient balance of $28.4 million in one non-interest bearing customer account, the majority of which has been withdrawn from the Bank as of the filing date of this Form 10-Q. Excluding this transient balance, deposit growth year to date is $39.5 million or 3.4%.

 

Federal Home Loan Bank Advances. Federal Home Loan Bank advances decreased $11.9increased $7.5 million, or 27.9%39.5%, to $30.7$26.3 million at December 31, 20172018 from $42.6$18.8 million at June 30, 2017,2018. The increase is primarily due to $11.8$12.5 million of additional long-term advances offset by $5.1 million in maturities of short-term advances.and paydowns.

 

Total Shareholder’sShareholders’ Equity. Total shareholders’ equity increased $2.6$1.2 million, or 0.9%0.4%, to $282.4$288.8 million at December 31, 20172018 from $279.8$287.6 million at June 30, 2017.2018. This increase was primarily due to net income of $1.8$4.7 million and a $1.3 million$970,000 reduction in unearned ESOP shares for plan shares earned during the period.period, partially offset by the repurchase of $4.3 million in common stock and $1.0 million of cash dividends paid in the current year. As of   December 31, 2018, the Company had repurchased 222,070 shares, at an average cost of $19.52 per share, which represents 24% of the 908,256 shares authorized for repurchase under the existing plan. At December 31, 2017,2018, the Company’s book value per share was $15.55,and tangible book value per share were $15.62 and $15.27, respectively, compared to $15.41$15.83 and $15.47, respectively, at June 30, 2017.2018. At December 31, 2017,2018, the Bank was considered “well capitalized” under applicable regulatory guidelines.

 

Comparison of Operating Results for the Three Months Ended December 31, 20172018 and 20162017

 

General. Net income decreased $1.7was $2.3 million or 99.9%,for the three months ended December 31, 2018 compared to $2,000 for the three months ended December 31, 2017 compared to $1.7 million for the three months ended December 31, 2016.2017. The decreaseincrease was primarily due to a $1.8 million increasedecrease in income tax expense, a $1.6 million decrease$558,000 increase in net interest income, a $228,000 increase in non-interest income and a $331,000 increase in non-interest expenses, partially offset by $1.7 million increase in net interest income and a $362,000$194,000 decrease in the provision for loan losses.losses, partially offset by a $455,000 increase in non-interest expense.

 

Net Interest Income. Net interest income increased $1.7$558,000, or 5.5%, to $10.7 million or 19.5%,for the three months ended December 31, 2018 compared to $10.2 million for the three months ended December 31, 2017 compared to a $8.5 million for the three months ended December 31, 2016.2017. The increase primarily reflects a $170.4$79.5 million increase in total average net interest-earning assets and an 11-basis point increase in theassets. The net interest margin towas 3.00% for the three months ended December 31, 2017 compared to 2.89% for2018 unchanged from the three months ended December 31, 2016.2017, as asset growth and a higher yielding asset mix offset the increased cost of funds driven by higher market interest rates. The increase in average net interest-earning assets primarily reflects the investment of the net proceeds received in the Company’s initial public offering completed in April 2017.loan portfolio growth.

 

Interest and Dividend Income. Interest and dividend income increased $1.8$1.5 million, or 18.3%13.6%, to $13.2 million for the three months ended December 31, 2018 compared to a $11.7 million for the three months ended December 31, 2017 compared to a $9.9 million for the three months ended December 31, 2016.2017. The increase primarily reflects a $174.1$79.5 million increase in total average interest-earning assets and an 11-basisa 25 basis point increase in the yield on total interest-earning assets. The increase in yield is due to the shift from generally lower yielding investment securities to generally higher yielding loans, as well as the increase in market interest rates.

 

Interest income on loans receivable increased $933,000,$1.2 million, or 11.3%12.5%, primarily due to a $65.1an $81.8 million increase in the average balance of loans receivable to $827.6$909.4 million for the three months ended December 31, 20172018 from $762.5$827.6 million for the same period last year, and an 11-basisa 10 basis point increase in the average yield on loans to 4.43%4.53% for the three months ended December 31, 20172018 from 4.32%4.43% for the same period last year.

 

Interest income on securities increased $739,000,$159,000, or 48.3%7.0%, primarily due to a $110.7 million increase in the average balance of securities and a 23-basis29 basis point increase in the average yield on securities to 1.92%2.21% for the current-year periodthree months ended December 31, 2018 from 1.69%1.92% for the same period last year.year, partially offset by a $33.7 million decrease in the average balance of securities. The increase in the yield on securities was primarily due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.rates.

 

Interest income on other interest-earning assets, primarily consisting of cash balances at correspondent banks including the Federal Reserve, increased $135,000,$274,000, or 164.6%126.3%, due primarily due to a 100-basis$31.5 million increase in the average balance of the interest-earning assets to $85.9 million for the three months ended December 31, 2018 from $54.4 million for the same period last year, and a 69 basis point increase in the average yield on other interest-earning assets to 1.58%2.27% for the three months ended December 31,


2017 2018 from 0.58% for the same period last year, partially offset by a $1.7 million decrease in the average balance to $54.3 million for the three months ended December 31, 2017 compared to a $56.0 million1.58% for the same period last year. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates.


Interest Expense. Interest expense increased $148,000,$1.0 million, or 11.2%69.7%, to $2.5 million for the three months ended December 31, 2018 compared to $1.5 million for the three months ended December 31, 2017 compared2017. The increase primarily reflects a 35basis point increase in the average cost of interest-bearing liabilities to $1.3 million0.94% for the three months ended December 31, 2016. The increase primarily reflects2018 from 0.59% for the same period last year, and a $3.7$66.8 million increase in the average balance on interest bearing liabilities and a 6-basis point increase in the average cost to 0.59% for the three months ended December 31, 2017 from 0.53% for the same period last year.liabilities.

 

Interest expense on interest-bearing deposits increased $15,000,$1.1 million, or 1.2%81.7%, primarily due to a 2-basis37 basis point increase in the average cost of interest- bearing deposits to 0.54%0.91% for the three months ended December 31, 20172018 from 0.52%0.54% for the same period last year, partially offset by a $25.3and an $80.0 million decreaseincrease in the average balance to $1.04 billion for the three months ended December 31, 2018 from $957.8 million for the three months ended December 31, 2017 from $983.1 million for the three months ended December 31, 2016.2017. The increase in the average rate paid on interest-bearing deposits was primarily caused primarily by an 8-basis80 basis point increase in the average rate paid on money market accounts, and a 56 basis point increase in the average rate paid on time deposits as the Bank offered specialincreased rates and termson these deposits due to attract customers.the increase in market interest rates.

 

Interest expense on Federal Home Loan Bank advances increased $133,000,decreased $43,000, or 429.0%26.2%, primarily due to a $28.9$13.2 million increasedecrease in the average balance to $35.3$22.1 million for the three months ended December 31, 20172018 from $6.4$35.3 million for the same period last year, partially offset by an 11-basisa 30 basis point decreaseincrease in the average cost to 1.85%2.15% for the three months ended December 31, 20172018 from 1.96%1.85% for the same period last year. The decreaseincrease in the average cost is primarily due to a shorter average termhigher rates on advances innew borrowings and the current year compared to the same period last year.maturity of lower cost borrowings.

 

Provision for Loan Losses. The provision for loan losses decreased by $362,000$194,000 to $6,000 for the three months ended December 31, 2018, compared to $200,000 for the three months ended December 31, 2017, compared to $562,0002017. Charge-offs, net of recoveries, were $22,000 for the three months ended December 31, 2016 primarily due30, 2018 compared toincreases in specific reserves on impaired loans in the prior year period. Charge-offs, net of recoveries, were $997,000 for the three months ended December 31, 2017 compared to net recoveries of $1,000 for the three months ended December 31, 2016.2017. In the currentprior year period, the Company recorded a $997,000 charge-off of a specific reserve recorded in a prior period on a construction loan. Loans classified as substandard decreased $8.1 million, or 44.3%, to $10.2 million as of December 31, 2018, from $18.3 million at December 31, 2017. Non-performing loans as a percent of total loans receivable was 0.39% as of December 31, 2018, a decrease from 0.97% as of December 31, 2017.

 

Non-Interest Income. Non-interest income decreased $1.6 million,increased $228,000, or 69.4%32.9% to $920,000 for the three months ended December 31, 2018 compared to a $692,000 for the three months ended December 31, 2017 compared to a $2.3 million for the three months ended December 31, 2016.2017. The decreaseincrease was caused primarily by a one-time settlement$155,000 gain on an acquired loanthe sale of $1.6 millionbank premises, a $55,000 gain on the sale of securities, and $76,000 of swap income recorded in the current period, partially offset by $99,000 of loan-related income recorded in the prior year.year quarter.

 

Non-Interest Expense. Non-interest expense increased $331,000,$455,000, or 4.2%5.6%, to $8.6 million for the three months ended December 31, 2018 compared to $8.1 million for the three months ended December 31, 2017 compared2017. The increase was caused primarily by a $574,000 increase in salaries and employee benefits, partially offset by a $110,000 decrease in losses on a receivable. The increase in salaries and employee benefits was primarily due to $7.8$482,000 of stock-based compensation expense recorded in the current quarter, as well as a $199,000 increase in salaries as a result of additional staffing, partially offset by lower retirement and medical benefits costs.

Income Tax Expense. Income tax expense decreased $1.8 million, or 70.4%, to $754,000 for the three months ended December 31, 2016. The increase was caused primarily by increases of $379,000 in salaries and benefits, $343,000 in other operating expenses, $103,000 in professional fees, and $89,000 in advertising expense, partially offset by a $548,000 decrease in occupancy and equipment expense and a $42,000 decrease in FDIC assessment. The increase in salaries and benefits was due primarily to a $301,000 increase in retirement expenses, resulting primarily2018 from ESOP compensation expense not incurred in the prior period, and a $159,000 increase due to increased staffing, partially offset by a $97,000 decrease in benefits expense due primarily to lower health care costs. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment expense was due primarily to a $521,000 lease obligation write-off recorded in the prior year.

Income Tax Expense. Income tax expense increased $1.8 million, or 236.5%, to $2.6 million for the three months ended December 31, 2017 from $758,000 for the three months ended December 31, 2016.2017. The increasedecrease was caused primarily by thea $1.8 million estimated re-measurementone-time deferred tax remeasurement charge recorded in the current quarter requiredprior year period in connectionconjunction with tax law changes contained inthe passing of the Tax Cuts and JobsJob Act, however the Company expects to benefit in the future from the decrease in the federalwhich reduced corporate income tax raterates from 34% to 21%. The effective income tax rate was 99.9%24.5% for the three months ended December 31, 20172018 compared to 31.2%31.3% for the three months ended December 31, 2016.2017. Excluding the effect of the one-time charge in the prior year, the Company fully realized the benefits of the reduction in the Federal corporate income tax rate from 34% to 21%, which became effective in January 2018.


 

Comparison of Operating Results for the Six Months Ended December 31, 20172018 and 20162017

 

General. Net income decreased $1.4increased $2.9 million, or 43.8%164.7%, to $4.7 million for the six months ended December 31, 2018 compared to $1.8 million for the six months ended December 31, 2017 compared2017. The increase was primarily due to $3.1a $1.9 million decrease in income tax expense, a $1.1 million increase in net interest income, a $271,000 decrease in the provision for loan losses, and a $155,000 increase in non-interest income, partially offset by a $569,000 increase in non-interest expense.                                  


Net Interest Income. Net interest income increased $1.1 million, or 5.7%, to $21.2 million for the six months ended December 31, 2016. The decrease was primarily due to a $2.0 million increase in income tax expense, a $1.4 million decrease in non-interest income, and a $1.0 million increase in non-interest expenses, partially offset by a $2.8 million increase in net interest income and a $253,000 decrease in the provision for loan losses.

Net Interest Income. Net interest income increased $2.8 million, or 16.0%,2018 compared to $20.1 million for the six months ended December 31, 2017 compared2017. The increase primarily reflects a $67.5 million increase in average interest-earning assets and a 2 basis point increase in the net interest margin to a $17.3 million2.97% for the six months ended December 31, 2016. The increase primarily reflects a $167.0 million increase in average net interest-earning assets and a 6-basis point increase in the net interest margin2018 compared to 2.95% for the six months ended December 31, 2017 compared to 2.89% for the six months ended December 31, 2016.. The increase in average net interest-earning assets primarily reflects the loan portfolio growth, and an increase in other interest-earning assets, partially offset by a decrease in investment of the net proceeds received in the Company’s initial public offering completed in April 2017.securities.

 

Interest and Dividend Income. Interest and dividend income increased $3.0$2.8 million, or 15.0%12.6%, to $25.8 million for the six months ended December 31, 2018 compared to a $23.0 million for the six months ended December 31, 2017 compared to $20.0 million for the six months ended December 31, 2016.2017. The increase primarily reflects a $164.1$67.5 million increase in total average interest-earning assets and a 4-basis24 basis point increase in the yield on total interest-earning assets. The increase in yield is due to the increase in market interest rates, as well as the shift from generally lower yielding investment securities to generally higher yielding loans.

 

Interest income on loans receivable increased $1.2$2.2 million, or 7.3%12.4%, primarily due to a $51.1an $85.8 million increase in the average balance of loans receivable to $820.4$906.2 million for the six months ended December 31, 20172018 from $769.3$820.4 million for the same period last year, and a 3-basisan 8 basis point increase in the average yield on loans to 4.38%4.46% for the six months ended December 31, 20172018 from 4.35%4.38% for the same period last year.

 

Interest income on securities increased $1.5 million,$280,000, or 50.0%6.2%, primarily due to a $111.0 million increase in the average balance of securities and a 25-basis27 basis point increase in the average yield on securities to 1.88%2.15% for the current-year periodsix months ended December 31, 2018 from 1.63%1.88% for the same period last year.year, partially offset by a $33.0 million decrease in the average balance of securities. The increase in the yield on securities was primarily due primarily to an increase in market interest rates as well as an increase in the percentage of the portfolio being invested in generally higher-yielding mortgage-backed securities.rates.

 

Interest income on other interest-earning assets, primarily consisting of cash balances at correspondent banks including the Federal Reserve, increased $265,000,$385,000, or 142.5%85.4%, due primarily due to a $2.0 million increase in the average balance and an 83-basis72 basis point increase in the average yield on other interest-earning assets to 1.45%2.17% for the sixthree months ended December 31, 20172019 from 0.62%1.45% for the same period last year.year, and due to $14.7 million increase in the average balance of the interest-earning assets. The increase in the yield on other interest-earning assets was due primarily to an increase in market interest rates. The increase in average balances is a result of investing securities cash inflows into loan growth.

 

Interest Expense. Interest expense increased $235,000,$1.7 million, or 8.8%60.5%, to $4.6 million for the six months ended December 31, 2018 compared to $2.9 million for the six months ended December 31, 2017 compared to $2.7 million for the six months ended December 31, 2016.2017. The increase primarily reflects a 5-basis29basis point increase in the average cost of interest-bearing liabilities to 0.58%0.87% for the threesix months ended December 31, 20172018 from 0.58% for the same period last year, and a $58.0 million increase in the average balance on interest bearing liabilities.

Interest expense on interest-bearing deposits increased $1.9 million, or 72.1%, primarily due to a 32 basis point increase in the average cost of deposits to 0.85% for the six months ended December 31, 2018 from 0.53% for the same period last year, partially offset byand a $2.9$75.9 million decreaseincrease in the average balance on interest-bearing liabilities.

Interest expense on interest-bearing deposits decreased $2,000, or 0.1%, primarily due to a $30.3 million decrease in$1.04 billion for the average balance tosix months ended December 31, 2018 from $959.5 million for the six months ended December 31, 2017 from a $989.8 million for the six months ended December 31, 2016, partially offset by a 1-basis point increase in the average cost of deposits to 0.53% for the six months ended December 31, 2017 from 0.52% for the same period last year. The decrease in the average balance of interest-bearing deposits primarily reflects lower average savings and time deposit balances.2017. The increase in the average rate paid on interest-bearing deposits was caused primarily by an 8-basisa 75 basis point increase in the average rate paid on money market accounts and a 50 basis point increase in the average rate paid on time deposits as the Bank offered specialincreased rates and termson these deposits due to attract customers.the increase in market interest rates.

 

Interest expense on Federal Home Loan Bank advances increased $237,000,decreased $108,000, or 292.6%34.0%, primarily due to a $27.4$17.8 million increasedecrease in the average balance to $38.3$20.5 million for the six months ended December 31, 20162018 from $10.9$38.3 million for the same period last year, and partially offset by a 17-basis38 basis point increase in the average cost to 1.65%2.03% for the six months ended December 31, 20172018 from 1.48%1.65% for the same period last year. The increase in the average cost is primarily due to a longer average termhigher rates on advances innew borrowings and the current year compared to the same period last year.maturity of lower cost borrowings.

 

Provision for Loan Losses. The provision for loan losses decreased by $253,000$271,000 to $64,000 for the six months ended December 31, 2018, compared to $335,000 for the six months ended December 31, 2017,2017. Charge-offs, net of recoveries, were $25,000 for the six months ended December 30, 2018 compared to $588,000$1.0 million for the six months ended December 31, 2016 primarily due2017.

Non-Interest Income. Non-interest income increased $155,000, or 11.0% to


increases in specific reserves on impaired loans in the prior year period. Charge-offs, net of recoveries, were $1.0 $1.6 million and $70,000 for the six months ended December 31, 2017 and 2016, respectively.

Non-Interest Income. Non-interest income decreased $1.4 million, or 50.0%2018 compared to a $1.4 million for the six months ended December 31, 2017 compared2017. The increase was caused primarily by a $155,000 gain on the sale of bank premises and $147,000 of swap income, partially offset by a decrease of $118,000 in gain on the sale of securities.


Non-Interest Expense. Non-interest expense increased $569,000, or 3.6%, to $2.8$16.6 million for the six months ended December 31, 2016. The decrease was caused primarily by a one-time settlement on an acquired loan of $1.6 million in the prior year partially offset by a $173,000 gain on the sale of securities recognized in the current year.

Non-Interest Expense. Non-interest expense increased $1.0 million, or 6.9%,2018 compared to $16.0 million for the six months ended December 31, 2017 compared to $15.0 million for the six months ended December 31, 2016.2017. The increase was caused primarily caused by increases of $942,000an $854,000 increase in salaries and employee benefits, $497,000 in other operating expenses, $207,000 in professional fees and $115,000 in advertising expense, partially offset by decreases of $126,000 in advertising, $110,000 in losses on a $557,000 decreasereceivable and $49,000 in occupancy and equipment expense and a $179,000 decrease in FDIC assessment.other non-interest expenses. The increase in salaries and employee benefits was due primarily to a $591,000 net increase in retirement expenses and a $385,000 increase due to increased staffing. The increase in other operating expenses was caused primarily by increases in Director and Officer insurance and data processing fees. The increase in professional fees was due primarily to expenses related to being a public company. The decrease in occupancy and equipment$482,000 of stock-based compensation expense was caused primarily by a $521,000 lease obligation write-off recorded in the prior year.current year, as well as a $527,000 increase in salaries as a result of additional staffing, partially offset by lower retirement and medical benefits costs.

 

Income Tax Expense. Income tax expense increased $2.0decreased $1.9 million, or 138.9%56.4%, to $1.5 million for the six months ended December 31, 2018 from $3.4 million for the six months ended December 31, 2017 from $1.4 million for the six months ended December 31, 2016.2017. The increasedecrease was caused primarily by thea $1.8 million estimated re-measurementone-time deferred tax remeasurement charge recorded in the current quarter requiredprior year in connectionconjunction with tax law changes contained inthe passing of the Tax Cuts and JobsJob Act, however the Company expects to benefit in the future from the decrease in the federalwhich reduced corporate income tax raterates from 34% to 21%. The effective income tax rate was 65.6%23.9% for the six months ended December 31, 2017 as2018 compared to 31.0%31.4% for the six months ended December 31, 2016.2017. Excluding the effect of the one-time charge in the prior year, the Company fully realized the benefits of the reduction in the Federal corporate income tax rate from 34% to 21%, which became effective in January 2018.

 

 

 

 

 

 

 

 

 


Net Interest Income

Average Balance Sheet and Interest Rates. The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Nonaccrual loans are included in average balances only. Amortization of loan fees is included in interest income on loans.

 

 

Three months ended December 31,

 

 

Three Months Ended December 31,

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

827,614

 

 

$

9,171

 

 

 

4.43

%

 

$

762,538

 

 

$

8,238

 

 

 

4.32

%

 

$

909,368

 

 

$

10,321

 

 

 

4.53

%

 

$

827,614

 

 

$

9,171

 

 

 

4.43

%

Securities

 

 

473,641

 

 

 

2,269

 

 

 

1.92

 

 

 

362,954

 

 

 

1,530

 

 

 

1.69

 

Investment securities

 

 

439,919

 

 

 

2,428

 

 

 

2.21

 

 

 

473,641

 

 

 

2,269

 

 

 

1.92

 

Other interest-earning assets

 

 

54,388

 

 

 

217

 

 

 

1.58

 

 

 

56,045

 

 

 

82

 

 

 

0.58

 

 

 

85,874

 

 

 

491

 

 

 

2.27

 

 

 

54,388

 

 

 

217

 

 

 

1.58

 

Total interest-earning assets

 

 

1,355,643

 

 

 

11,657

 

 

 

3.44

 

 

 

1,181,537

 

 

 

9,850

 

 

 

3.33

 

 

 

1,435,161

 

 

 

13,240

 

 

 

3.69

 

 

 

1,355,643

 

 

 

11,657

 

 

 

3.44

 

Non-interest-earning assets

 

 

58,665

 

 

 

 

 

 

 

 

 

 

 

58,604

 

 

 

 

 

 

 

 

 

 

 

57,567

 

 

 

 

 

 

 

 

 

 

 

58,665

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

$

1,240,141

 

 

 

 

 

 

 

 

 

 

$

1,492,728

 

 

 

 

 

 

 

 

 

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

112,147

 

 

 

48

 

 

 

0.17

 

 

$

105,647

 

 

 

44

 

 

 

0.16

 

 

$

116,381

 

 

 

52

 

 

 

0.18

 

 

$

112,147

 

 

 

48

 

 

 

0.17

 

Money market accounts

 

 

29,014

 

 

 

22

 

 

 

0.30

 

 

 

31,874

 

 

 

21

 

 

 

0.26

 

 

 

101,078

 

 

 

280

 

 

 

1.10

 

 

 

29,014

 

 

 

22

 

 

 

0.30

 

Savings accounts and escrow

 

 

509,888

 

 

 

309

 

 

 

0.24

 

 

 

527,779

 

 

 

327

 

 

 

0.25

 

 

 

416,687

 

 

 

252

 

 

 

0.24

 

 

 

509,888

 

 

 

309

 

 

 

0.24

 

Time deposits

 

 

306,756

 

 

 

928

 

 

 

1.20

 

 

 

317,757

 

 

 

900

 

 

 

1.12

 

 

 

403,652

 

 

 

1,791

 

 

 

1.76

 

 

 

306,756

 

 

 

928

 

 

 

1.20

 

Total interest-bearing deposits

 

 

957,805

 

 

 

1,307

 

 

 

0.54

 

 

 

983,057

 

 

 

1,292

 

 

 

0.52

 

 

 

1,037,798

 

 

 

2,375

 

 

 

0.91

 

 

 

957,805

 

 

 

1,307

 

 

 

0.54

 

Federal Home Loan Bank advances

 

 

35,293

 

 

 

164

 

 

 

1.85

 

 

 

6,354

 

 

 

31

 

 

 

1.96

 

 

 

22,106

 

 

 

121

 

 

 

2.15

 

 

 

35,293

 

 

 

164

 

 

 

1.85

 

Total interest-bearing liabilities

 

 

993,098

 

 

 

1,471

 

 

 

0.59

 

 

 

989,411

 

 

 

1,323

 

 

 

0.53

 

 

 

1,059,904

 

 

 

2,496

 

 

 

0.94

 

 

 

993,098

 

 

 

1,471

 

 

 

0.59

 

Non-interest-bearing deposits

 

 

130,614

 

 

 

 

 

 

 

 

 

 

 

123,135

 

 

 

 

 

 

 

 

 

 

 

135,470

 

 

 

 

 

 

 

 

 

 

 

130,614

 

 

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

7,765

 

 

 

 

 

 

 

 

 

 

 

15,101

 

 

 

 

 

 

 

 

 

 

 

6,506

 

 

 

 

 

 

 

 

 

 

 

7,765

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,131,477

 

 

 

 

 

 

 

 

 

 

 

1,127,647

 

 

 

 

 

 

 

 

 

 

 

1,201,880

 

 

 

 

 

 

 

 

 

 

 

1,131,477

 

 

 

 

 

 

 

 

 

Total equity

 

 

282,831

 

 

 

 

 

 

 

 

 

 

 

112,494

 

 

 

 

 

 

 

 

 

 

 

290,848

 

 

 

 

 

 

 

 

 

 

 

282,831

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

$

1,240,141

 

 

 

 

 

 

 

 

 

 

$

1,492,728

 

 

 

 

 

 

 

 

 

 

$

1,414,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

10,186

 

 

 

 

 

 

 

 

 

 

$

8,527

 

 

 

 

 

 

 

 

 

 

$

10,744

 

 

 

 

 

 

 

 

 

 

$

10,186

 

 

 

 

 

Interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

2.85

 

 

 

 

 

 

 

 

 

 

 

2.80

 

 

 

 

 

 

 

 

 

 

 

2.75

 

 

 

 

 

 

 

 

 

 

 

2.85

 

Net interest margin (2)

 

 

 

 

 

 

 

 

 

 

3.00

 

 

 

 

 

 

 

 

 

 

 

2.89

 

 

 

 

 

 

 

 

 

 

 

3.00

 

 

 

 

 

 

 

 

 

 

 

3.00

 

Average interest-earning assets to interest-bearing liabilities

 

 

136.51

%

 

 

 

 

 

 

 

 

 

 

119.42

%

 

 

 

 

 

 

 

 

 

 

135.40

%

 

 

 

 

 

 

 

 

 

 

136.51

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents annualized net interest income divided by average interest-earning assets.

 

 


 

Six months ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2018

 

 

2017

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

Average

Balance

 

 

Interest/

Dividends

 

 

Average

Rate

 

 

(dollars in thousands)

 

 

(dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

820,429

 

 

$

17,989

 

 

 

4.38

%

 

$

769,340

 

 

$

16,763

 

 

 

4.35

%

 

$

906,194

 

 

$

20,219

 

 

 

4.46

%

 

$

820,429

 

 

$

17,989

 

 

 

4.38

%

Securities

 

 

479,833

 

 

 

4,514

 

 

 

1.88

 

 

 

368,855

 

 

 

3,010

 

 

 

1.63

 

Investment securities

 

 

446,795

 

 

 

4,794

 

 

 

2.15

 

 

 

479,833

 

 

 

4,514

 

 

 

1.88

 

Other interest-earning assets

 

 

61,822

 

 

 

451

 

 

 

1.45

 

 

 

59,800

 

 

 

186

 

 

 

0.62

 

 

 

76,548

 

 

 

836

 

 

 

2.17

 

 

 

61,822

 

 

 

451

 

 

 

1.45

 

Total interest-earning assets

 

 

1,362,084

 

 

 

22,954

 

 

 

3.37

 

 

 

1,197,995

 

 

 

19,959

 

 

 

3.33

 

 

 

1,429,537

 

 

 

25,849

 

 

 

3.61

 

 

 

1,362,084

 

 

 

22,954

 

 

 

3.37

 

Non-interest-earning assets

 

 

58,453

 

 

 

 

 

 

 

 

 

 

 

56,929

 

 

 

 

 

 

 

 

 

 

 

53,731

 

 

 

 

 

 

 

 

 

 

 

58,453

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

$

1,254,924

 

 

 

 

 

 

 

 

 

 

$

1,483,268

 

 

 

 

 

 

 

 

 

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

113,458

 

 

 

97

 

 

 

0.17

 

 

$

107,803

 

 

 

88

 

 

 

0.16

 

 

$

117,893

 

 

 

105

 

 

 

0.18

 

 

$

113,458

 

 

 

97

 

 

 

0.17

 

Money market accounts

 

 

29,557

 

 

 

43

 

 

 

0.29

 

 

 

31,642

 

 

 

42

 

 

 

0.26

 

 

 

79,891

 

 

 

419

 

 

 

1.04

 

 

 

29,557

 

 

 

43

 

 

 

0.29

 

Savings accounts and escrow

 

 

514,102

 

 

 

633

 

 

 

0.25

 

 

 

528,580

 

 

 

654

 

 

 

0.25

 

 

 

439,615

 

 

 

540

 

 

 

0.25

 

 

 

514,102

 

 

 

633

 

 

 

0.25

 

Time deposits

 

 

302,382

 

 

 

1,801

 

 

 

1.18

 

 

 

321,775

 

 

 

1,792

 

 

 

1.10

 

 

 

397,994

 

 

 

3,367

 

 

 

1.68

 

 

 

302,382

 

 

 

1,801

 

 

 

1.18

 

Total interest-bearing deposits

 

 

959,499

 

 

 

2,574

 

 

 

0.53

 

 

 

989,800

 

 

 

2,576

 

 

 

0.52

 

 

 

1,035,393

 

 

 

4,431

 

 

 

0.85

 

 

 

959,499

 

 

 

2,574

 

 

 

0.53

 

Federal Home Loan Bank advances

 

 

38,346

 

 

 

318

 

 

 

1.65

 

 

 

10,914

 

 

 

81

 

 

 

1.48

 

 

 

20,463

 

 

 

210

 

 

 

2.03

 

 

 

38,346

 

 

 

318

 

 

 

1.65

 

Total interest-bearing liabilities

 

 

997,845

 

 

 

2,892

 

 

 

0.58

 

 

 

1,000,714

 

 

 

2,657

 

 

 

0.53

 

 

 

1,055,856

 

 

 

4,641

 

 

 

0.87

 

 

 

997,845

 

 

 

2,892

 

 

 

0.58

 

Non-interest-bearing deposits

 

 

132,491

 

 

 

 

 

 

 

 

 

 

 

126,951

 

 

 

 

 

 

 

 

 

 

 

130,425

 

 

 

 

 

 

 

 

 

 

 

132,491

 

 

 

 

 

 

 

 

 

Other non-interest-bearing liabilities

 

 

8,026

 

 

 

 

 

 

 

 

 

 

 

15,394

 

 

 

 

 

 

 

 

 

 

 

6,894

 

 

 

 

 

 

 

 

 

 

 

8,026

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,138,362

 

 

 

 

 

 

 

 

 

 

 

1,143,059

 

 

 

 

 

 

 

 

 

 

 

1,193,175

 

 

 

 

 

 

 

 

 

 

 

1,138,362

 

 

 

 

 

 

 

 

 

Total equity

 

 

282,175

 

 

 

 

 

 

 

 

 

 

 

111,865

 

 

 

 

 

 

 

 

 

 

 

290,093

 

 

 

 

 

 

 

 

 

 

 

282,175

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

$

1,254,924

 

 

 

 

 

 

 

 

 

 

$

1,483,268

 

 

 

 

 

 

 

 

 

 

$

1,420,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

20,062

 

 

 

 

 

 

 

 

 

 

$

17,302

 

 

 

 

 

 

 

 

 

 

$

21,208

 

 

 

 

 

 

 

 

 

 

$

20,062

 

 

 

 

 

Interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

2.79

 

 

 

 

 

 

 

 

 

 

 

2.80

 

 

 

 

 

 

 

 

 

 

 

2.74

 

 

 

 

 

 

 

 

 

 

 

2.79

 

Net interest margin (2)

 

 

 

 

 

 

 

 

 

 

2.95

 

 

 

 

 

 

 

 

 

 

 

2.89

 

 

 

 

 

 

 

 

 

 

 

2.97

 

 

 

 

 

 

 

 

 

 

 

2.95

 

Average interest-earning assets to interest-bearing liabilities

 

 

136.50

%

 

 

 

 

 

 

 

 

 

 

119.71

%

 

 

 

 

 

 

 

 

 

 

135.39

%

 

 

 

 

 

 

 

 

 

 

136.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents annualized net interest income divided by average interest-earning assets.

 

Rate/Volume Analysis. The following tables set forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


 

 

Three Months Ended December 31,

 

 

 

2018 versus 2017

 

 

 

Rate

 

 

Volume

 

 

Net

 

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

218

 

 

$

932

 

 

$

1,150

 

Investment securities

 

 

288

 

 

 

(129

)

 

 

159

 

Other interest-earning assets

 

 

110

 

 

 

164

 

 

 

274

 

Total interest-earning assets

 

 

616

 

 

 

967

 

 

 

1,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

1

 

 

 

3

 

 

 

4

 

Money market accounts

 

 

135

 

 

 

123

 

 

 

258

 

Savings and escrow accounts

 

 

15

 

 

 

(72

)

 

 

(57

)

Time deposits

 

 

514

 

 

 

349

 

 

 

863

 

Federal Home Loan Bank advances

 

 

24

 

 

 

(67

)

 

 

(43

)

Total interest-bearing liabilities

 

 

689

 

 

 

336

 

 

 

1,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in net interest income

 

$

(73

)

 

$

631

 

 

$

558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31,

2017 versus 2016

 

 

 

Rate

 

 

Volume

 

 

Net

 

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

169

 

 

$

764

 

 

$

933

 

Securities

 

 

127

 

 

 

612

 

 

 

739

 

Other interest-earning assets

 

 

136

 

 

 

(1

)

 

 

135

 

Total interest-earning assets

 

 

432

 

 

 

1,375

 

 

 

1,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

2

 

 

 

2

 

 

 

4

 

Money market accounts

 

 

2

 

 

 

(1

)

 

 

1

 

Savings and escrow accounts

 

 

(9

)

 

 

(9

)

 

 

(18

)

Time deposits

 

 

62

 

 

 

(34

)

 

 

28

 

Federal Home Loan Bank advances

 

 

(2

)

 

 

135

 

 

 

133

 

Total interest-bearing liabilities

 

 

55

 

 

 

93

 

 

 

148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in net interest income

 

$

377

 

 

$

1,282

 

 

$

1,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended December 31,

 

 

Six months ended December 31,

2017 versus 2016

 

 

2018 versus 2017

 

 

Rate

 

 

Volume

 

 

Net

 

 

Rate

 

 

Volume

 

 

Net

 

 

(in thousands)

 

 

(in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

50

 

 

$

1,176

 

 

$

1,226

 

 

$

302

 

 

$

1,928

 

 

$

2,230

 

Securities

 

 

277

 

 

 

1,227

 

 

 

1,504

 

Investment securities

 

 

537

 

 

 

(257

)

 

 

280

 

Other interest-earning assets

 

 

252

 

 

 

13

 

 

 

265

 

 

 

256

 

 

 

129

 

 

 

385

 

Total interest-earning assets

 

 

579

 

 

 

2,416

 

 

 

2,995

 

 

 

1,095

 

 

 

1,800

 

 

 

2,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

4

 

 

 

5

 

 

 

9

 

 

 

4

 

 

 

4

 

 

 

8

 

Money market accounts

 

 

4

 

 

 

(3

)

 

 

1

 

 

 

228

 

 

 

148

 

 

 

376

 

Savings and escrow accounts

 

 

(9

)

 

 

(12

)

 

 

(21

)

 

 

23

 

 

 

(116

)

 

 

(93

)

Time deposits

 

 

120

 

 

 

(111

)

 

 

9

 

 

 

893

 

 

 

673

 

 

 

1,566

 

Federal Home Loan Bank advances

 

 

10

 

 

 

227

 

 

 

237

 

 

 

63

 

 

 

(171

)

 

 

(108

)

Total interest-bearing liabilities

 

 

129

 

 

 

106

 

 

 

235

 

 

 

1,211

 

 

 

538

 

 

 

1,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in net interest income

 

$

450

 

 

$

2,310

 

 

$

2,760

 

 

$

(116

)

 

$

1,262

 

 

$

1,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans and investment securities, have longer maturities than our liabilities, consisting primarily of deposits and FHLB advances. As a result, a principal part of our business strategy is to manage our exposure to changes in market interest rates. Accordingly, we have established a management-level Asset/Liability Management Committee, which takes initial responsibility for developing an asset/liability management process and related procedures, establishing and monitoring reporting systems and developing asset/liability strategies. On at least a quarterly basis, the Asset/Liability Management Committee reviews asset/liability management with the Investment Asset/Liability Committee that has been established by the Board of Directors. This committee also reviews any changes in strategies as well as the performance of any specific asset/liability management actions that have been implemented previously. On a quarterly basis, an outside consulting firm provides us with detailed information and analysis as to asset/liability


management, including our interest rate risk profile. Ultimate responsibility for effective asset/liability management rests with our Board of Directors.  


We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. The net proceeds from the offering have increased our capital and provided management with greater flexibility to manage our interest rate risk, including the following strategies:strategies; originating loans with adjustable interest rates; utilizing interest rate swap contracts; promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.  

Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form of capitalequity ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest rates increase 100 and 200 basis points from current market rates and that interest rates decrease 100 and 200 basis points from current market rates. Based on the recent increases in the fed funds rate, as of December 31, 2018 we have removed the 150 basis point decrease scenario in favor of a 200 basis point decrease to evaluate NPV.  

The following table presents the estimated changes in our NPV that would result from changes in market interest rates at December 31, 20172018 and June 30, 2017.2018. All estimated changes presented in the table are within the policy limits approved by our Board of Directors.

 

 

NPV

 

 

NPV as Percent of Portfolio

Value of Assets

 

 

NPV

 

 

NPV as Percent of Portfolio

Value of Assets

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

Basis Point Change in Interest Rates

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

EVE

Ratio

 

 

Change

(in bps)

 

 

Dollar

Amount

 

 

Dollar

Change

 

 

Percent

Change

 

 

NPV

Ratio

 

 

Change

(in bps)

 

December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

289,504

 

 

$

(38,771

)

 

 

(11.8

)

%

 

21.83

%

 

 

(148

)

 

$

308,618

 

 

$

(36,471

)

 

 

(10.6

)

%

 

21.14

%

 

 

(128

)

100

 

 

311,392

 

 

 

(16,883

)

 

 

(5.1

)

 

 

22.77

 

 

 

(54

)

 

 

329,290

 

 

 

(15,799

)

 

 

(4.6

)

 

 

21.95

 

 

 

(47

)

-

 

 

328,275

 

 

-

 

 

-

 

 

 

23.31

 

 

-

 

 

 

345,089

 

 

-

 

 

-

 

 

 

22.42

 

 

-

 

(100)

 

 

336,479

 

 

 

8,204

 

 

 

2.5

 

 

 

23.28

 

 

 

(3

)

 

 

350,412

 

 

 

5,323

 

 

 

1.5

 

 

 

22.26

 

 

 

(16

)

(200)

 

 

348,014

 

 

 

2,925

 

 

 

0.8

 

 

 

21.73

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

200

 

$

290,781

 

 

$

(35,848

)

 

 

(11.0

)

%

 

21.62

%

 

 

(130

)

 

$

282,017

 

 

$

(50,676

)

 

 

(15.2

)

%

 

20.75

%

 

 

(219

)

100

 

 

311,728

 

 

 

(14,901

)

 

 

(4.6

)

 

 

22.49

 

 

 

(42

)

 

 

313,606

 

 

 

(19,087

)

 

 

(5.7

)

 

 

22.25

 

 

 

(69

)

-

 

 

326,629

 

 

-

 

 

-

 

 

 

22.92

 

 

-

 

 

 

332,693

 

 

-

 

 

-

 

 

 

22.94

 

 

-

 

(100)

 

 

331,139

 

 

 

4,510

 

 

 

1.4

 

 

 

22.69

 

 

 

(22

)

 

 

342,520

 

 

 

9,827

 

 

 

3.0

 

 

 

23.02

 

 

 

8

 

(150)

 

 

348,648

 

 

 

15,955

 

 

 

4.8

 

 

 

23.14

 

 

 

20

 

 

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Liquidity and Capital Resources

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.


We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2017,2018, cash and cash equivalents totaled $77.1$143.1 million, an increase from $60.5$62.1 million as of June 30, 2017. Securities2018. Debt securities classified as available for sale, which provide an additional source of liquidity, totaled $102.7$92.7 million at December 31, 2017,2018, a decrease from $111.9$105.5 million as of June 30, 2017.2018.

We had the ability to borrow up to $332.2$294.6 million and $350.7$314.9 million from the Federal Home Loan Bank of New York, at December 31, 20172018 and June 30, 2017, $30.72018, respectively, of which $26.3 million and $42.6$18.8 million of which was outstanding as of December 31, 20172018 and June 30, 2017,2018, respectively. We also had an available line of credit with the Federal Reserve Bank of New York’s discount window program of $87.0$119.6 million and $85.9$122.1 million as of December 31, 20172018 and June 30, 2017,2018, respectively, none of which was outstanding at either date.

We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. If loan demand was to increase faster than expected, or any unforeseen demand or commitment was to occur, we could access our borrowing capacity with the Federal Home Loan Bank of New York or the Federal Reserve Bank of New York.

We had $91.4$108.4 million and $77.6$99.7 million of loan commitments outstanding as of December 31, 20172018 and June 30, 2017,2018, respectively, and $36.6$61.2 million and $45.4$59.5 million as of December 31, 20172018 and June 30, 2017,2018, respectively, of approved, but unadvanced, funds to borrowers. We also had $750,000$1.7 million and $705,000$1.4 million in outstanding letters of credit at December 31, 20172018 and June 30, 2017,2018, respectively.  

Time deposits due within one year of December 31, 20172018 totaled $116.8$177.4 million, an increasea decrease of $9.7$5.9 million from $107.1$183.3 million as of June 30, 2017.2018. If these deposits do not remain with us, we will be required to seek other sources of funds, including other time deposits and Federal Home Loan Bank of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the time deposits at December 31, 2017.2018. We believe, however, based on past experience that a significant portion of our time deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The Holding Company is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividends to its stockholders and for other corporate purposes. The Holding Company’s primary source of liquidity is dividend payments it may receive from the Bank. The Bank’s ability to pay dividends to the Holding Company is governed by applicable laws and regulations. At December 31, 2018, 2017, the Holding Company (on an unconsolidated, stand-alone basis) had liquid assets of $72.8$67.8 million.

Capital Resources. The Company and Bank are subject to various regulatory capital requirements administered by the New York State Department of Financial Services and the Federal Deposit Insurance Corporation. At December 31, 2017,2018, the Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines. See Note 9 to the accompanying unaudited financial statementsstatements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is included in Part I, Item 2 of this report under "Management of Market Risk".

Item 4. 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 the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2017.2018. Based on that evaluation, the


Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

During the quarter ended December 31, 2017,2018, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. will not have a material impact on the Company’s consolidated financial position, results of operations or disclosures

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We areThe Company is not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2017, we were2018, the Company was not involved in any legal proceedings the outcome of which we believeit believes would be material to ourits consolidated financial condition or results of operations.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017,2018, filed with the Securities and Exchange Commission. As of December 31, 2017, except for the additional risk factor described below,2018, the risk factors of the Company have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended June 30, 2017.2018.


We may be adversely affected by recent changes in U.S. tax laws and regulations.

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Included in this legislation is a reduction of the corporate income tax rate from 34% to 21%. In addition, other changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes. These recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New York. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities

(a)

Not applicable

None

(b)

Not applicable

(c)

On October 24, 2018, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company may repurchase up to 908,256 shares, or 5.0% of the Company’s then outstanding common stock.

The following table presents information regarding stock repurchases by the Company during the quarter ended December 31, 2018.

 

 

Total number of shares purchased

 

 

Average price paid per share

 

 

Total number of shares purchased as part of publicly announced plans or programs

 

 

Maximum number of shares that may yet be purchased under the plans or programs

 

October 1, 2018 through October 31, 2018

 

 

 

 

$

 

 

 

 

 

 

908,256

 

November 1, 2018 through November 30, 2018

 

 

29,200

 

 

 

20.02

 

 

 

29,200

 

 

 

879,056

 

December 1, 2018 through December 31, 2018

 

 

192,870

 

 

 

19.45

 

 

 

192,870

 

 

 

686,186

 

Total

 

 

222,070

 

 

$

19.52

 

 

 

222,070

 

 

 

 

 

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.


Item 6. Exhibits

 

Exhibit

Number

 

Description

 

 

 

   3.1

 

Articles of Incorporation of PCSB Financial Corporation (1)

 

 

 

   3.2

 

Bylaws of PCSB Financial Corporation (2)

 

 

 

10.1

PCSB Financial Corporation 2018 Equity Incentive Plan (3)

 31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

   32

 

Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(3)

 

 

 

  101

 

The following materials for the quarter ended December 31, 2017,2018, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income,Operations, (iii) Consolidated Statements of Comprehensive Income, (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements (3)(4)

 

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215052).

(3)

Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the 2018 Annual Meeting of Stockholders.

(4)

Furnished, not filed.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

PCSB FINANCIAL CORPORATION

 

 

 

Date:  February 9, 20188, 2019

 

/s/ Joseph D. Roberto

 

 

Joseph D. Roberto

 

 

Chairman, President and Chief Executive Officer

 

 

 

Date:  February 9, 20188, 2019

 

/s/ Scott D. Nogles

 

 

Scott D. Nogles

 

 

Executive Vice President and Chief Financial Officer

 

 

4449