UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 SeptemberJune 30, 20192020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to to
Commission file number: 001-37981
HV BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania |
| 46-4351868 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901
(Address of Principal Executive Offices and Zip Code)
(267) 280-4000
(Registrant's Telephone Number, Including Area Code)
3501 Mason Mill Road, Suite 401, Huntingdon Valley, PA 19006
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, $0.01 par value |
| HVBC |
| The NASDAQ Stock Market, LLC |
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 every Interactive Data File required to be submitted 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 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” or an “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☒ |
| Smaller reporting company |
| ☒ |
Emerging growth company |
| ☒ |
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|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of NovemberAugust 10, 2019,2020, there were 2,268,9172,235,160 outstanding shares of the issuer’s common stock.
INDEX |
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| Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3 – Quantitative and Qualitative Disclosures about Market Risk |
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| Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
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PART I – FINANCIAL INFORMATION
Item 1 – Consolidated Financial Statements – Unaudited
HV BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Financial Condition as of SeptemberJune 30, 20192020 and June 30,December 31, 2019 (Dollars in thousands, except share and per share data)
|
| At September 30, |
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| At June 30, |
|
| At June 30, |
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| At December 31, |
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|
| 2019 |
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| 2019 |
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| 2020 |
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| 2019 |
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Assets |
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Cash and due from banks |
| $ | 1,521 |
|
| $ | 1,345 |
|
| $ | 1,553 |
|
| $ | 1,473 |
|
Interest-earning deposits with banks |
|
| 24,419 |
|
|
| 17,519 |
|
|
| 26,360 |
|
|
| 19,152 |
|
Federal funds sold |
|
| 1,315 |
|
|
| 1,370 |
|
|
| 738 |
|
|
| — |
|
Cash and cash equivalents |
|
| 27,255 |
|
|
| 20,234 |
|
|
| 28,651 |
|
|
| 20,625 |
|
Investment securities available-for-sale, at fair value |
|
| 21,588 |
|
|
| 35,236 |
|
|
| 18,639 |
|
|
| 21,156 |
|
Equity securities |
|
| 500 |
|
|
| 500 |
|
|
| 500 |
|
|
| 500 |
|
Loans held for sale, at fair value |
|
| 39,013 |
|
|
| 33,748 |
|
|
| 43,485 |
|
|
| 37,876 |
|
Loans receivable, net of allowance for loan losses of $1,334 at September 30, 2019 and $1,182 at June 30, 2019 |
|
| 248,581 |
|
|
| 240,786 |
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Loans receivable, net of allowance for loan losses of $1,845 at June 30, 2020 and $1,437 at December 31, 2019 |
|
| 309,563 |
|
|
| 255,032 |
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Bank-owned life insurance |
|
| 6,216 |
|
|
| 6,175 |
|
|
| 6,331 |
|
|
| 6,255 |
|
Restricted investment in bank stock |
|
| 1,553 |
|
|
| 1,662 |
|
|
| 1,618 |
|
|
| 1,552 |
|
Premises and equipment, net |
|
| 2,338 |
|
|
| 2,254 |
|
|
| 2,762 |
|
| �� | 2,501 |
|
Operating lease right-of-use assets |
|
| 5,783 |
|
|
| — |
|
|
| 7,937 |
|
|
| 5,979 |
|
Accrued interest receivable |
|
| 974 |
|
|
| 1,111 |
|
|
| 1,251 |
|
|
| 967 |
|
Mortgage banking derivatives |
|
| 1,823 |
|
|
| 1,679 |
|
|
| 2,716 |
|
|
| 1,204 |
|
Mortgage servicing rights |
|
| 508 |
|
|
| — |
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Other assets |
|
| 935 |
|
|
| 810 |
|
|
| 777 |
|
|
| 939 |
|
Total Assets |
| $ | 356,559 |
|
| $ | 344,195 |
|
| $ | 424,738 |
|
| $ | 354,586 |
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Liabilities and Shareholders' Equity |
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Liabilities |
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Deposits |
| $ | 284,576 |
|
| $ | 275,130 |
|
| $ | 300,571 |
|
| $ | 283,767 |
|
Advances from the Federal Home Loan Bank |
|
| 27,000 |
|
|
| 28,000 |
|
|
| 27,000 |
|
|
| 27,000 |
|
Advances from the Federal Reserve's Paycheck Protection Program liquidity facility ("PPPLF") |
|
| 47,834 |
|
|
| — |
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Operating lease liabilities |
|
| 5,757 |
|
|
| — |
|
|
| 8,117 |
|
|
| 6,023 |
|
Securities sold under agreements to repurchase |
|
| 2,104 |
|
|
| 3,789 |
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Advances from borrowers for taxes and insurance |
|
| 1,376 |
|
|
| 2,600 |
|
|
| 2,492 |
|
|
| 2,138 |
|
Deferred gain on sale - leaseback of building |
|
| — |
|
|
| 278 |
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Deferred income taxes, net |
|
| 87 |
|
|
| 112 |
|
|
| 499 |
|
|
| 97 |
|
Other liabilities |
|
| 2,375 |
|
|
| 1,606 |
|
|
| 2,968 |
|
|
| 1,962 |
|
Total Liabilities |
|
| 323,275 |
|
|
| 311,515 |
|
|
| 389,481 |
|
|
| 320,987 |
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Shareholders’ Equity |
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Preferred Stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and June 30, 2019 |
|
| — |
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|
| — |
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Common Stock, $0.01 par value, 20,000,000 shares authorized; 2,268,917 shares issued and outstanding as of September 30, 2019 and June 30, 2019 |
|
| 23 |
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| 23 |
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Treasury Stock, at cost (208 shares at September 30, 2019 and June 30, 2019) |
|
| (3 | ) |
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| (3 | ) | ||||||||
Preferred Stock, $0.01 par value, 2,000,000 shares authorized; no shares issued and outstanding as of June 30, 2020 and December 31, 2019 |
|
| — |
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| — |
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Common Stock, $0.01 par value, 20,000,000 shares authorized; 2,270,725 and 2,269,125 shares issued as of June 30, 2020 and December 31, 2019, respectively; 2,239,253 and 2,268,917 shares outstanding as of June 30, 2020 and December 31, 2019, respectively |
|
| 23 |
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| 23 |
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Treasury Stock, at cost (31,472 shares at June 30, 2020 and 208 December 31, 2019) |
|
| (379 | ) |
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| (3 | ) | ||||||||
Additional paid-in capital |
|
| 20,676 |
|
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| 20,611 |
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| 20,893 |
|
|
| 20,740 |
|
Retained earnings |
|
| 14,766 |
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| 14,156 |
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|
| 16,618 |
|
|
| 14,973 |
|
Accumulated other comprehensive (loss) income |
|
| (31 | ) |
|
| 70 |
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Accumulated other comprehensive income (loss) |
|
| 158 |
|
|
| (18 | ) | ||||||||
Unearned Employee Stock Option Plan |
|
| (2,147 | ) |
|
| (2,177 | ) |
|
| (2,056 | ) |
|
| (2,116 | ) |
Total Shareholders' Equity |
|
| 33,284 |
|
|
| 32,680 |
|
|
| 35,257 |
|
|
| 33,599 |
|
Total Liabilities and Shareholders' Equity |
| $ | 356,559 |
|
| $ | 344,195 |
|
| $ | 424,738 |
|
| $ | 354,586 |
|
See Notes to the Unaudited Consolidated Financial Statements
2
HV BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income for the Three and Six Months Ended SeptemberJune 30, 20192020 and 2018;2019; (Dollars in thousands, except per share data)
|
| For the Three Months Ended September 30, |
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
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|
| 2019 |
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| 2018 |
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| 2020 |
|
| 2019 |
|
| 2020 |
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| 2019 |
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Interest Income |
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Interest and fees on loans |
| $ | 2,789 |
|
| $ | 2,299 |
|
| $ | 3,170 |
|
| $ | 2,520 |
|
| $ | 5,946 |
|
| $ | 4,850 |
|
Interest and dividends on investments: |
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Taxable |
|
| 104 |
|
|
| 101 |
|
|
| 92 |
|
|
| 112 |
|
|
| 188 |
|
|
| 221 |
|
Nontaxable |
|
| 70 |
|
|
| 75 |
|
|
| 12 |
|
|
| 72 |
|
|
| 23 |
|
|
| 144 |
|
Interest on mortgage-backed securities and collateralized mortgage obligations |
|
| 53 |
|
|
| 103 |
|
|
| 39 |
|
|
| 86 |
|
|
| 92 |
|
|
| 188 |
|
Interest on interest-earning deposits |
|
| 95 |
|
|
| 73 |
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Interest on interest-earning deposits and federal funds sold |
|
| 15 |
|
|
| 69 |
|
|
| 105 |
|
|
| 184 |
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Total Interest Income |
|
| 3,111 |
|
|
| 2,651 |
|
|
| 3,328 |
|
|
| 2,859 |
|
|
| 6,354 |
|
|
| 5,587 |
|
Interest Expense |
|
|
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|
|
|
|
|
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|
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Interest on deposits |
|
| 877 |
|
|
| 514 |
|
|
| 575 |
|
|
| 721 |
|
|
| 1,352 |
|
|
| 1,410 |
|
Interest on advances from the Federal Home Loan Bank |
|
| 158 |
|
|
| 99 |
|
|
| 164 |
|
|
| 116 |
|
|
| 320 |
|
|
| 161 |
|
Interest on advances from the Federal Reserve PPPLF |
|
| 19 |
|
|
| — |
|
|
| 19 |
|
|
| — |
| ||||||||
Interest on securities sold under agreements to repurchase |
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
Total Interest Expense |
|
| 1,036 |
|
|
| 614 |
|
|
| 758 |
|
|
| 838 |
|
|
| 1,691 |
|
|
| 1,573 |
|
Net interest income |
|
| 2,075 |
|
|
| 2,037 |
|
|
| 2,570 |
|
|
| 2,021 |
|
|
| 4,663 |
|
|
| 4,014 |
|
Provision for Loan Losses |
|
| 244 |
|
|
| 59 |
|
|
| 450 |
|
|
| 287 |
|
|
| 561 |
|
|
| 528 |
|
Net interest income after provision for loan losses |
|
| 1,831 |
|
|
| 1,978 |
|
|
| 2,120 |
|
|
| 1,734 |
|
|
| 4,102 |
|
|
| 3,486 |
|
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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Fees for customer services |
|
| 51 |
|
|
| 72 |
|
|
| 31 |
|
|
| 38 |
|
|
| 70 |
|
|
| 68 |
|
Increase in cash surrender value of bank-owned life insurance |
|
| 41 |
|
|
| 40 |
|
|
| 38 |
|
|
| 40 |
|
|
| 76 |
|
|
| 79 |
|
Gain on sale of loans, net |
|
| 1,680 |
|
|
| 901 |
|
|
| 2,327 |
|
|
| 407 |
|
|
| 3,956 |
|
|
| 1,297 |
|
Gain on sale of available-for-sale securities, net |
|
| 211 |
|
|
| — |
|
|
| 141 |
|
|
| 4 |
|
|
| 141 |
|
|
| 8 |
|
Gain (Loss) from derivative instruments, net |
|
| 177 |
|
|
| (317 | ) | ||||||||||||||||
Gain from derivative instruments, net |
|
| 1,080 |
|
|
| 769 |
|
|
| 1,464 |
|
|
| 1,164 |
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Change in fair value of loans held-for-sale |
|
| 40 |
|
|
| 61 |
|
|
| 287 |
|
|
| 682 |
|
|
| 293 |
|
|
| 306 |
|
Other |
|
| 5 |
|
|
| 1 |
|
|
| 41 |
|
|
| 4 |
|
|
| 89 |
|
|
| 8 |
|
Total Non-Interest Income |
|
| 2,205 |
|
|
| 758 |
|
|
| 3,945 |
|
|
| 1,944 |
|
|
| 6,089 |
|
|
| 2,930 |
|
Non-Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 2,192 |
|
|
| 1,260 |
|
|
| 2,368 |
|
|
| 1,913 |
|
|
| 4,781 |
|
|
| 3,504 |
|
Occupancy |
|
| 465 |
|
|
| 254 |
|
|
| 450 |
|
|
| 384 |
|
|
| 883 |
|
|
| 706 |
|
Federal deposit insurance premiums |
|
| 4 |
|
|
| 70 |
|
|
| 63 |
|
|
| 53 |
|
|
| 120 |
|
|
| 115 |
|
Data processing related operations |
|
| 214 |
|
|
| 171 |
|
|
| 246 |
|
|
| 187 |
|
|
| 475 |
|
|
| 376 |
|
Professional fees |
|
| 169 |
|
|
| 201 |
|
|
| 145 |
|
|
| 149 |
|
|
| 336 |
|
|
| 281 |
|
Other expenses |
|
| 558 |
|
|
| 422 |
|
|
| 707 |
|
|
| 458 |
|
|
| 1,313 |
|
|
| 862 |
|
Total Non-Interest Expense |
|
| 3,602 |
|
|
| 2,378 |
|
|
| 3,979 |
|
|
| 3,144 |
|
|
| 7,908 |
|
|
| 5,844 |
|
Income before income taxes |
|
| 434 |
|
|
| 358 |
|
|
| 2,086 |
|
|
| 534 |
|
|
| 2,283 |
|
|
| 572 |
|
Income Tax Expense |
|
| 101 |
|
|
| 88 |
|
|
| 590 |
|
|
| 126 |
|
|
| 638 |
|
|
| 102 |
|
Net Income |
| $ | 333 |
|
| $ | 270 |
|
| $ | 1,496 |
|
| $ | 408 |
|
| $ | 1,645 |
|
| $ | 470 |
|
Net Income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
| $ | 0.16 |
|
| $ | 0.13 |
|
| $ | 0.73 |
|
| $ | 0.20 |
|
| $ | 0.80 |
|
| $ | 0.23 |
|
Diluted |
| $ | 0.16 |
|
| $ | 0.13 |
|
| $ | 0.73 |
|
| $ | 0.20 |
|
| $ | 0.80 |
|
| $ | 0.23 |
|
See Notes to the Unaudited Consolidated Financial Statements | See Notes to the Unaudited Consolidated Financial Statements |
| See Notes to the Unaudited Consolidated Financial Statements |
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3
HV BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended SeptemberJune 30, 20192020 and 20182019 (Dollars in thousands)
|
| For the Three Months Ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Comprehensive Income, Net of Taxes |
|
|
|
|
|
|
|
|
Net Income |
| $ | 333 |
|
| $ | 270 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities (pre-tax $66 and ($122), respectively) |
|
| 61 |
|
|
| (86 | ) |
Reclassification for gains included in income (pre-tax ($211) and $0, respectively)(1) |
|
| (162 | ) |
|
| — |
|
Other comprehensive loss |
|
| (101 | ) |
|
| (86 | ) |
Comprehensive Income |
| $ | 232 |
|
| $ | 184 |
|
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Comprehensive Income, Net of Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 1,496 |
|
| $ | 408 |
|
| $ | 1,645 |
|
| $ | 470 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities (pre-tax $264 and $533, and $391 and $885, respectively) |
|
| 186 |
|
|
| 375 |
|
|
| 275 |
|
|
| 624 |
|
Reclassification for gains included in income (pre-tax ($141) and ($4) and ($141) and ($8), respectively) (1) |
|
| (99 | ) |
|
| (3 | ) |
|
| (99 | ) |
|
| (6 | ) |
Other comprehensive income |
|
| 87 |
|
|
| 372 |
|
|
| 176 |
|
|
| 618 |
|
Comprehensive Income |
| $ | 1,583 |
|
| $ | 780 |
|
| $ | 1,821 |
|
| $ | 1,088 |
|
(1) | Amounts are included in gain on sale of available-for-sale securities on the Consolidated Statements of Income as a separate element within non-interest income. Income tax expense is included in the Consolidated Statements of Income. |
See Notes to the Unaudited Consolidated Financial Statements
4
HV BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended SeptemberJune 30, 20192020 and 20182019 (Dollars in thousands, except per share data)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income |
|
| Unearned ESOP Shares |
|
| Total |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Unearned ESOP Shares |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||
Balance, July 1, 2019 |
|
| 2,268,917 |
|
| $ | 23 |
|
| $ | (3 | ) |
| $ | 20,611 |
|
| $ | 14,156 |
|
| $ | 70 |
|
| $ | (2,177 | ) |
| $ | 32,680 |
| ||||||||||||||||||||||||||||||||
Balance, April 1, 2020 |
|
| 2,259,052 |
|
| $ | 23 |
|
| $ | (148 | ) |
| $ | 20,831 |
|
| $ | 15,122 |
|
| $ | 71 |
|
| $ | (2,086 | ) |
| $ | 33,813 |
| ||||||||||||||||||||||||||||||||
ESOP shares committed to be released |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| 30 |
|
Treasury stock purchased |
|
| (19,799 | ) |
|
| — |
|
|
| (231 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (231 | ) | ||||||||||||||||||||||||||||||||
Stock option expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Restricted stock expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 333 |
|
|
| — |
|
|
| — |
|
|
| 333 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,496 |
|
|
| — |
|
|
| — |
|
|
| 1,496 |
|
Adoption of ASU 2016-02, Leases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 277 |
|
|
| — |
|
|
| — |
|
|
| 277 |
| ||||||||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (101 | ) |
|
| — |
|
|
| (101 | ) | ||||||||||||||||||||||||||||||||
Balance, September 30, 2019 |
|
| 2,268,917 |
|
| $ | 23 |
|
| $ | (3 | ) |
| $ | 20,676 |
|
| $ | 14,766 |
|
| $ | (31 | ) |
| $ | (2,147 | ) |
| $ | 33,284 |
| ||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 87 |
|
|
| — |
|
|
| 87 |
| ||||||||||||||||||||||||||||||||
Balance, June 30, 2020 |
|
| 2,239,253 |
|
| $ | 23 |
|
| $ | (379 | ) |
| $ | 20,893 |
|
| $ | 16,618 |
|
| $ | 158 |
|
| $ | (2,056 | ) |
| $ | 35,257 |
|
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Shares |
|
| Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Unearned ESOP Shares |
|
| Total |
| ||||||||
Balance, July 1, 2018 |
|
| 2,259,125 |
|
| $ | 23 |
|
| $ | — |
|
| $ | 20,368 |
|
| $ | 13,277 |
|
| $ | (648 | ) |
| $ | (2,299 | ) |
| $ | 30,721 |
|
ESOP shares committed to be released |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| 34 |
|
Stock option expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
Restricted stock expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 270 |
|
|
| — |
|
|
| — |
|
|
| 270 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (86 | ) |
|
| — |
|
|
| (86 | ) |
Balance, September 30, 2018 |
|
| 2,259,125 |
|
| $ | 23 |
|
| $ | — |
|
| $ | 20,435 |
|
| $ | 13,547 |
|
| $ | (734 | ) |
| $ | (2,268 | ) |
| $ | 31,003 |
|
|
|
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Unearned ESOP Shares |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, April 1, 2019 |
|
| 2,259,125 |
|
| $ | 23 |
|
| $ | — |
|
| $ | 20,548 |
|
| $ | 13,748 |
|
| $ | (302 | ) |
| $ | (2,208 | ) |
| $ | 31,809 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 31 |
|
|
| 34 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury stock purchased |
|
| (208 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 408 |
|
|
| — |
|
|
| — |
|
|
| 408 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 372 |
|
|
| — |
|
|
| 372 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards |
|
| 10,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 |
|
| 2,268,917 |
|
| $ | 23 |
|
| $ | (3 | ) |
| $ | 20,611 |
|
| $ | 14,156 |
|
| $ | 70 |
|
| $ | (2,177 | ) |
| $ | 32,680 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Unearned ESOP Shares |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2020 |
|
| 2,268,917 |
|
| $ | 23 |
|
| $ | (3 | ) |
| $ | 20,740 |
|
| $ | 14,973 |
|
| $ | (18 | ) |
| $ | (2,116 | ) |
| $ | 33,599 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
|
| 65 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury stock purchased |
|
| (31,264 | ) |
|
| — |
|
|
| (376 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (376 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option exercise |
|
| 1,600 |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,645 |
|
|
| — |
|
|
| — |
|
|
| 1,645 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 |
|
| 2,239,253 |
|
| $ | 23 |
|
| $ | (379 | ) |
| $ | 20,893 |
|
| $ | 16,618 |
|
| $ | 158 |
|
| $ | (2,056 | ) |
| $ | 35,257 |
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Unearned ESOP Shares |
|
| Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2019 |
|
| 2,255,125 |
|
| $ | 23 |
|
| $ | — |
|
| $ | 20,487 |
|
| $ | 13,686 |
|
| $ | (548 | ) |
| $ | (2,237 | ) |
| $ | 31,411 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ESOP shares committed to be released |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
|
| 65 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury stock purchased |
|
| (208 | ) |
|
| — |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 91 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 470 |
|
|
| — |
|
|
| — |
|
|
| 470 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 618 |
|
|
| — |
|
|
| 618 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted stock awards |
|
| 14,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2019 |
|
| 2,268,917 |
|
| $ | 23 |
|
| $ | (3 | ) |
| $ | 20,611 |
|
| $ | 14,156 |
|
| $ | 70 |
|
| $ | (2,177 | ) |
| $ | 32,680 |
|
See Notes to the Unaudited Consolidated Financial Statements
56
HV BANCORP, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
Three Months Ended September 30, |
| 2019 |
|
| 2018 |
| ||||||||||
Six Months Ended June 30, |
| 2020 |
|
| 2019 |
| ||||||||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 333 |
|
| $ | 270 |
|
| $ | 1,645 |
|
| $ | 470 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 147 |
|
|
| 75 |
|
|
| 291 |
|
|
| 216 |
|
Amortization of net deferred loan costs |
|
| 102 |
|
|
| 42 |
|
|
| 246 |
|
|
| 147 |
|
Amortization of net securities premiums |
|
| 19 |
|
|
| 29 |
|
|
| 38 |
|
|
| 49 |
|
Amortization of Operating Lease Right-of-Use Assets |
|
| 73 |
|
|
| — |
| ||||||||
Gain on sale of available-for-sale securities |
|
| (211 | ) |
|
| — |
| ||||||||
(Gain) Loss from derivative instruments |
|
| (177 | ) |
|
| 317 |
| ||||||||
Amortization of operating lease right-of-use assets |
|
| 282 |
|
|
| — |
| ||||||||
Gain on sale of available-for-sale securities, net |
|
| (141 | ) |
|
| (8 | ) | ||||||||
Gain from derivative instruments, net |
|
| (1,464 | ) |
|
| (1,164 | ) | ||||||||
Provision for loan losses |
|
| 244 |
|
|
| 59 |
|
|
| 561 |
|
|
| 528 |
|
Deferred income taxes |
|
| 18 |
|
|
| (6 | ) |
|
| 328 |
|
|
| 307 |
|
Accretion of deferred gain on sale-leaseback transaction |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (7 | ) |
Earnings on bank owned life insurance |
|
| (41 | ) |
|
| (40 | ) |
|
| (76 | ) |
|
| (79 | ) |
Stock base compensation expense |
|
| 61 |
|
|
| 64 |
| ||||||||
Stock based compensation expense |
|
| 124 |
|
|
| 119 |
| ||||||||
ESOP compensation expense |
|
| 34 |
|
|
| 34 |
|
|
| 65 |
|
|
| 65 |
|
Loans held for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations, net of prepayments |
|
| (83,078 | ) |
|
| (44,160 | ) |
|
| (211,528 | ) |
|
| (84,062 | ) |
Proceeds from sales |
|
| 79,533 |
|
|
| 42,827 |
|
|
| 210,169 |
|
|
| 67,256 |
|
Gain on sales |
|
| (1,680 | ) |
|
| (901 | ) |
|
| (3,956 | ) |
|
| (1,297 | ) |
Change in fair value of loans held for sale |
|
| (40 | ) |
|
| (61 | ) |
|
| (293 | ) |
|
| (306 | ) |
Changes in assets and liabilities which provided (used) cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
| 137 |
|
|
| (28 | ) |
|
| (284 | ) |
|
| (77 | ) |
Other assets |
|
| (125 | ) |
|
| (72 | ) |
|
| (346 | ) |
|
| (212 | ) |
Other liabilities |
|
| 702 |
|
|
| 177 |
|
|
| 691 |
|
|
| 180 |
|
Net cash used in operating activities |
|
| (3,949 | ) |
|
| (1,378 | ) |
|
| (3,648 | ) |
|
| (17,875 | ) |
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in loans receivable |
|
| (8,141 | ) |
|
| (12,582 | ) | ||||||||
Net increase in loans receivable |
|
| (55,338 | ) |
|
| (9,473 | ) | ||||||||
Activity in available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales |
|
| 12,147 |
|
|
| — |
|
|
| 3,961 |
|
|
| 5,018 |
|
Maturities and repayments |
|
| 1,549 |
|
|
| 1,460 |
|
|
| 4,138 |
|
|
| 5,295 |
|
Purchase of equity securities |
|
| — |
|
|
| (500 | ) | ||||||||
Purchases |
|
| (5,229 | ) |
|
| — |
| ||||||||
Activity in held-to-maturity securities: |
|
|
|
|
|
|
|
| ||||||||
Maturities and repayments |
|
| — |
|
|
| 12 |
| ||||||||
Purchases of restricted investment in bank stock |
|
| (295 | ) |
|
| (1,257 | ) |
|
| (1,290 | ) |
|
| (1,095 | ) |
Redemption of restricted investment in bank stock |
|
| 404 |
|
|
| 1,547 |
|
|
| 1,224 |
|
|
| 170 |
|
Purchases of premises and equipment |
|
| (231 | ) |
|
| (178 | ) |
|
| (432 | ) |
|
| (441 | ) |
Net cash provided by (used in) investing activities |
|
| 5,433 |
|
|
| (11,510 | ) | ||||||||
Net cash used in investing activities |
|
| (52,966 | ) |
|
| (514 | ) | ||||||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
| 9,446 |
|
|
| 15,656 |
|
|
| 16,804 |
|
|
| 1,669 |
|
Net decrease in advances from borrowers for taxes and insurance |
|
| (1,224 | ) |
|
| (969 | ) | ||||||||
Net decrease in securities sold under agreements to repurchase |
|
| (1,685 | ) |
|
| (2,524 | ) | ||||||||
Net decrease in short-term borrowing from Federal Home Loan Bank |
|
| — |
|
|
| (7,000 | ) | ||||||||
Repayment of long-term borrowings from Federal Home Loan Bank |
|
| (1,000 | ) |
|
| (1,000 | ) | ||||||||
Net increase in advances from borrowers for taxes and insurance |
|
| 354 |
|
|
| 639 |
| ||||||||
Net increase in securities sold under agreements to repurchase |
|
| — |
|
|
| 1,326 |
| ||||||||
Proceeds from long-term borrowings from FHLB |
|
| — |
|
|
| 25,000 |
| ||||||||
Repayment of long-term borrowings from FHLB |
|
| — |
|
|
| (7,000 | ) | ||||||||
Proceeds from the Federal Reserve Paycheck Protection Program Lending Facility |
|
| 47,834 |
|
|
| — |
| ||||||||
Proceeds from stock option exercise |
|
| 24 |
|
|
| — |
| ||||||||
Purchase of treasury stock |
|
| (376 | ) |
|
| (3 | ) | ||||||||
Net cash provided by financing activities |
|
| 5,537 |
|
|
| 4,163 |
|
|
| 64,640 |
|
|
| 21,631 |
|
Increase (Decrease )in Cash and Cash Equivalents |
|
| 7,021 |
|
|
| (8,725 | ) | ||||||||
Increase in Cash and Cash Equivalents |
|
| 8,026 |
|
|
| 3,242 |
| ||||||||
Cash and Cash Equivalents, beginning of year |
|
| 20,234 |
|
|
| 14,745 |
|
|
| 20,625 |
|
|
| 16,992 |
|
Cash and Cash Equivalents, end of year |
| $ | 27,255 |
|
| $ | 6,020 |
|
| $ | 28,651 |
|
| $ | 20,234 |
|
Supplementary Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year of interest |
| $ | 1,213 |
|
| $ | 579 |
|
| $ | 1,893 |
|
| $ | 1,502 |
|
Cash paid during the year for income taxes |
| $ | — |
|
| $ | 305 |
|
| $ | 59 |
|
| $ | — |
|
Supplementary Schedule of Noncash Investing Activities |
|
|
|
|
|
|
|
| ||||||||
Transfer of loans to real estate owned |
| $ | — |
|
| $ | 127 |
| ||||||||
Initial recognition of operating lease right-of-use assets |
| $ | 2,106 |
|
| $ | — |
| ||||||||
Initial recognition of operating lease obligations |
| $ | 2,086 |
|
| $ | — |
| ||||||||
Recognition of operating lease right-of-use assets |
| $ | 2,240 |
|
| $ | — |
| ||||||||
Recognition of operating lease obligations |
| $ | 2,228 |
|
| $ | — |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
See Notes to Unaudited Consolidated Financial Statements | See Notes to Unaudited Consolidated Financial Statements |
| See Notes to Unaudited Consolidated Financial Statements |
|
67
HV BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION and RECENT ACCOUNTING PRONOUNCEMENTS
Organization
HV Bancorp, Inc., a Pennsylvania Corporation (the “Company”) is the holding company of Huntingdon Valley Bank (the “Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On January 11, 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Shares of the Company began trading on the Nasdaq Capital Market on January 12, 2017. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Bank”).
The Bank is a stock savings bank organized under the laws of the Commonwealth of Pennsylvania and is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities (“PADOB”PADOBS”). The Bank was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties of Pennsylvania and WilmingtonNew Castle County, Delaware) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.
The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of June 30,December 31, 2019 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K10-KT filed by the Company with the U.S. Securities and Exchange Commission on September 26, 2019March 27, 2020. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity. The results of operations for the three and six months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results that may be expected for the six-month period endingyear-ending December 31, 2019.
On August 21, 2019, the Company’s Board of Directors approved a change to the Company’s fiscal year end to December 31 from a fiscal year ending on June 30. As a result of the change in fiscal year, the Company will file a transition report on Form 10-KT covering the transition period from July 1, 2019 to December 31, 2019.2020.
The Company has evaluated subsequent events through the date of issuance of the financial statements included herein.
Significant Event
The COVID-19 pandemic has adversely affected economic activity globally, nationally and locally. It has caused substantial disruption in international and U.S. economies, markets, and employment. In response to the COVID-19 national emergency, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law by President Trump on March 27, 2020. The CARES Act provides an estimated $2.2 trillion of economy-wide financial stimulus to combat the pandemic and stimulate the economy in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities through loans, grants, tax changes, and other types of relief. Some of the applicable provisions of the Cares Act to the Company include, but are not limited to:
8
For further discussion, see COVID-19 update section of Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Principles of Consolidation
The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany transactions and balances have been eliminated in consolidation.
7
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Financial Condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairments of securities (“OTTI”), interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale and the valuation of deferred tax assets.
Recent Accounting Pronouncements
The Company qualifies under the Jumpstart Our Business Startups Act (the “JOBS Act”) as an emerging growth company. As an emerging growth company, the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements until such pronouncements are made applicable to private companies.
In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL)(“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.
The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.
9
Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.
The ASU 2016-13 is effective for public business entities for fiscal yearsannual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. On October 16, 2019, the FASB decided to move forward with finalizing its proposal to defer the effective date for ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. Since the Company currently meets the SEC definition of a smaller reporting company, the delay will be applicable to the Company. In anticipation of the ASU, the Company has entered into a contract with a third party, compiled data for the modeling and is working on developing an estimate using historically and qualitative data based on the requirements of ASU 2016-13. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.
In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities
10
upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Company’s consolidated financial statements.
Adoption of New Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value
8
measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update isThe Company adopted the accounting standard on January 1, 2020. As ASU 2018-13 primarily affected disclosure requirements, it did not expected to have a significantmaterial impact on the Company’s consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendmentsare effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s consolidated statements of financial position or statements of financial income.
Adoption of New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. ASU 2016-02 was effective for the Company on July 1, 2019. In July 2018, the FASB issued ASU 2018-11, condition.“Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on July 1, 2019, we recognized a right-of-use asset of $2,106,100 and a related lease liability totaling $2,086,000 each. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts. We utilized the modified-retrospective transition approach prescribed by ASU 2018-11. Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal it
9
is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of July 1, 2019. We have included the additional disclosures in note 12.
Note 6, Fair Value Presentation.
2. INVESTMENT SECURITIES
Investment securities available-for-sale was comprised of the following:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
|
|
|
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
|
|
|
| ||||||
(Dollars in thousands) |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||||||
U.S. Governmental securities |
| $ | 456 |
|
| $ | 2 |
|
| $ | (3 | ) |
| $ | 455 |
|
| $ | 406 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 411 |
|
Corporate notes |
|
| 6,000 |
|
|
| 79 |
|
|
| (9 | ) |
|
| 6,070 |
|
|
| 5,900 |
|
|
| 92 |
|
|
| (10 | ) |
|
| 5,982 |
|
Collateralized mortgage obligations - agency residential |
|
| 5,578 |
|
|
| 3 |
|
|
| (115 | ) |
|
| 5,466 |
|
|
| 5,544 |
|
|
| 63 |
|
|
| (48 | ) |
|
| 5,559 |
|
Mortgage-backed securities - agency residential |
|
| 2,225 |
|
|
| 9 |
|
|
| (21 | ) |
|
| 2,213 |
|
|
| 3,555 |
|
|
| 91 |
|
|
| — |
|
|
| 3,646 |
|
Municipal securities |
|
| 4,376 |
|
|
| 2 |
|
|
| — |
|
|
| 4,378 |
|
|
| 1,762 |
|
|
| 6 |
|
|
| — |
|
|
| 1,768 |
|
Bank CDs |
|
| 2,998 |
|
|
| 9 |
|
|
| (1 | ) |
|
| 3,006 |
|
|
| 1,248 |
|
|
| 25 |
|
|
| — |
|
|
| 1,273 |
|
|
| $ | 21,633 |
|
| $ | 104 |
|
| $ | (149 | ) |
| $ | 21,588 |
|
| $ | 18,415 |
|
| $ | 282 |
|
| $ | (58 | ) |
| $ | 18,639 |
|
Investment securities available-for-sale was comprised of the following:
|
| June 30, 2019 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
| Gross |
|
|
|
|
| ||||
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
|
|
|
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
|
|
|
| ||||||
(Dollars in thousands) |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||||||
U.S. Governmental securities |
| $ | 478 |
|
| $ | — |
|
| $ | (1 | ) |
| $ | 477 |
|
| $ | 438 |
|
| $ | — |
|
| $ | (2 | ) |
| $ | 436 |
|
Corporate notes |
|
| 6,960 |
|
|
| 44 |
|
|
| (20 | ) |
|
| 6,984 |
|
|
| 5,500 |
|
|
| 75 |
|
|
| (6 | ) |
|
| 5,569 |
|
Collateralized mortgage obligations - agency residential |
|
| 8,818 |
|
|
| 31 |
|
|
| (123 | ) |
|
| 8,726 |
|
|
| 6,562 |
|
|
| 4 |
|
|
| (102 | ) |
|
| 6,464 |
|
Mortgage-backed securities - agency residential |
|
| 3,468 |
|
|
| 9 |
|
|
| (33 | ) |
|
| 3,444 |
|
|
| 4,070 |
|
|
| 12 |
|
|
| (19 | ) |
|
| 4,063 |
|
Municipal securities |
|
| 11,915 |
|
|
| 207 |
|
|
| (2 | ) |
|
| 12,120 |
|
|
| 2,114 |
|
|
| 3 |
|
|
| — |
|
|
| 2,117 |
|
Bank CDs |
|
| 3,497 |
|
|
| — |
|
|
| (12 | ) |
|
| 3,485 |
|
|
| 2,498 |
|
|
| 9 |
|
|
| — |
|
|
| 2,507 |
|
|
| $ | 35,136 |
|
| $ | 291 |
|
| $ | (191 | ) |
| $ | 35,236 |
|
| $ | 21,182 |
|
| $ | 103 |
|
| $ | (129 | ) |
| $ | 21,156 |
|
11
The scheduled maturities of securities available-for-sale at SeptemberJune 30, 2019 2020were as follows:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||
|
| Available-for-Sale |
|
| Available-for-Sale |
| ||||||||||
|
| Amortized |
|
|
|
|
|
| Amortized |
|
|
|
|
| ||
(Dollars in thousands) |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Due in one year or less |
| $ | 3,761 |
|
| $ | 3,761 |
|
| $ | 2,024 |
|
| $ | 2,033 |
|
Due from one to five years |
|
| 5,613 |
|
|
| 5,631 |
|
|
| 2,986 |
|
|
| 3,030 |
|
Due from after five to ten years |
|
| 4,001 |
|
|
| 4,063 |
|
|
| 3,001 |
|
|
| 3,061 |
|
Due after ten years |
|
| 8,258 |
|
|
| 8,133 |
|
|
| 10,404 |
|
|
| 10,515 |
|
|
| $ | 21,633 |
|
| $ | 21,588 |
|
| $ | 18,415 |
|
| $ | 18,639 |
|
Securities with a fair value of $9.4$6.5 million and $11.3$7.4 million at SeptemberJune 30, 20192020 and June 30,December 31, 2019, respectively, were pledged to secure public deposits and for other purposes as required by law.
10
Proceeds from the sale of available-for-sale securities for the three and six months ended SeptemberJune 30, 2020 was $4.0 million. For the three months and six months ended June 30, 2020, gross realized gains were $141,000 and there were no gross realized losses.
Proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2019 were $12.1$3.0 million and $5.0 million. Gross realized gains on such sales were approximately $211,000$4,000 and gross realized losses were $0 for the three months ended SeptemberJune 30, 2019.
There were no sales of available-for-sale securities for For the threesix months ended SeptemberJune 30, 2018.2019, gross realized gain on such sales were approximately $9,000 and gross realized losses were $1,000.
The following tables summarize the unrealized loss positions of securities available-for-sale as of SeptemberJune 30, 20192020 and June 30,December 31, 2019:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total |
|
| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||||||||
(Dollars in thousands) |
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
| ||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities |
| $ | — |
|
| $ | — |
|
| $ | 230 |
|
| $ | (3 | ) |
| $ | 230 |
|
| $ | (3 | ) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Corporate notes |
|
| — |
|
|
| — |
|
|
| 1,491 |
|
|
| (9 | ) |
|
| 1,491 |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| 1,490 |
|
|
| (10 | ) |
|
| 1,490 |
|
|
| (10 | ) |
Collateralized mortgage obligations |
|
| — |
|
|
| — |
|
|
| 4,995 |
|
|
| (115 | ) |
|
| 4,995 |
|
|
| (115 | ) |
|
| 960 |
|
|
| (37 | ) |
|
| 902 |
|
|
| (11 | ) |
|
| 1,862 |
|
|
| (48 | ) |
Mortgage-backed securities |
|
| — |
|
|
| — |
|
|
| 1,481 |
|
|
| (21 | ) |
|
| 1,481 |
|
|
| (21 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Municipal securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Bank CDs |
|
| — |
|
|
| — |
|
|
| 748 |
|
|
| (1 | ) |
|
| 748 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | — |
|
| $ | — |
|
| $ | 8,945 |
|
| $ | (149 | ) |
| $ | 8,945 |
|
| $ | (149 | ) |
| $ | 960 |
|
| $ | (37 | ) |
| $ | 2,392 |
|
| $ | (21 | ) |
| $ | 3,352 |
|
| $ | (58 | ) |
|
| June 30, 2019 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total |
|
| Less than 12 Months |
|
| 12 Months or Longer |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
| ||||||||||||
(Dollars in thousands) |
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
| ||||||||||||
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities |
| $ | — |
|
| $ | — |
|
| $ | 477 |
|
| $ | (1 | ) |
| $ | 477 |
|
| $ | (1 | ) |
| $ | — |
|
| $ | — |
|
| $ | 436 |
|
| $ | (2 | ) |
| $ | 436 |
|
| $ | (2 | ) |
Corporate notes |
|
| 988 |
|
|
| (12 | ) |
|
| 1,942 |
|
|
| (8 | ) |
|
| 2,930 |
|
|
| (20 | ) |
|
| — |
|
|
| — |
|
|
| 1,494 |
|
|
| (6 | ) |
|
| 1,494 |
|
|
| (6 | ) |
Collateralized mortgage obligations |
|
| — |
|
|
| — |
|
|
| 5,331 |
|
|
| (123 | ) |
|
| 5,331 |
|
|
| (123 | ) |
|
| 1,486 |
|
|
| (10 | ) |
|
| 3,810 |
|
|
| (92 | ) |
|
| 5,296 |
|
|
| (102 | ) |
Mortgage-backed securities |
|
| — |
|
|
| — |
|
|
| 1,592 |
|
|
| (33 | ) |
|
| 1,592 |
|
|
| (33 | ) |
|
| 922 |
|
|
| (7 | ) |
|
| 1,438 |
|
|
| (12 | ) |
|
| 2,360 |
|
|
| (19 | ) |
Municipal securities |
|
| — |
|
|
| — |
|
|
| 850 |
|
|
| (2 | ) |
|
| 850 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Bank CDs |
|
| — |
|
|
| — |
|
|
| 2,985 |
|
|
| (12 | ) |
|
| 2,985 |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| 250 |
|
|
| — |
|
|
| 250 |
|
|
| — |
|
|
| $ | 988 |
|
| $ | (12 | ) |
| $ | 13,177 |
|
| $ | (179 | ) |
| $ | 14,165 |
|
| $ | (191 | ) |
| $ | 2,408 |
|
| $ | (17 | ) |
| $ | 7,428 |
|
| $ | (112 | ) |
| $ | 9,836 |
|
| $ | (129 | ) |
12
At September 30, 2019 and June 30, 2020 and December 31, 2019, the investment portfolio included two U.S. Government securities respectively, with total fair values of $455,000$411,000 and $477,000,$436,000, respectively. Of theseThere were no securities one and two were in an unrealized loss position as of September 30, 2019 and June 30, 2020. As of December 31, 2019, respectively.there were two securities in an unrealized loss position. These securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of SeptemberJune 30, 20192020 and June 30,December 31, 2019, management found no evidence of other-than-temporary (“OTTI”)OTTI on any of the U.S. Governmental securities in an unrealized loss position held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At SeptemberJune 30, 20192020 and June 30,December 31, 2019, the investment portfolio included ten and twelvenine corporate notes, respectively with total fair values of $6.1$6.0 million and $7.0$5.6 million at the end of each of period, respectively. Of these securities, three and six were in an unrealized loss position as of SeptemberJune 30, 20192020 and June 30,December 31, 2019, respectively. At the time of purchase and as of September 30, 2019 and June 30, 2020 and December 31, 2019, thesethe three bonds in an unrealized loss position continue to maintain investment grade ratings. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, management found no evidence of OTTI on any of the corporate notes held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
11
At September 30, 2019 and June 30, 2020 and December 31, 2019, the investment portfolio included twenty-nine and thirty-fourthirty collateralized mortgage obligations (“CMOs”) with total fair values of $5.5$5.6 million and $8.7$6.5 million, respectively. Of these securities, ten and twenty-seven were in an unrealized loss position as of SeptemberJune 30, 20192020 and June 30,December 31, 2019, respectively. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, management found no evidence of OTTI on any of the CMOs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At SeptemberJune 30, 20192020 and June 30,December 31, 2019, the investment portfolio included eleven and fourteenthirteen mortgage backed securities (“MBS”) with a total fair value of $2.2$3.6 million and $3.4$4.1 million, respectively. Of theseThere were no securities six and seven were in an unrealized loss position as of September 30, 2019 and June 30, 2020. As of December 31, 2019, respectively.seven securities were in an unrealized loss position. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, management found no evidence of OTTI on any of the MBS held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At SeptemberJune 30, 20192020 and June 30,December 31, 2019, the investment portfolio included tenfour and twenty-fourfive municipal securities with a total fair value of $4.4$1.8 million and $12.1$2.1 million respectively.for both periods. Of these securities, one and twozero were in an unrealized loss position as of SeptemberJune 30, 20192020 and June 30,December 31, 2019, respectively. The Company’s municipal portfolio issuers are located in Pennsylvania and at the time of purchase, and as of SeptemberJune 30, 20192020 and June 30,December 31, 2019, continue to maintain investment grade ratings. As of SeptemberJune 30, 20192020 and June 30,December 31, 2019, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
At SeptemberJune 30, 20192020 and June 30,December 31, 2019, the investment portfolio included twelvefive and fourteenten Bank Certificate of Deposits (“CDs”) with a total fair value of $3.0$1.3 million and $3.5$2.5 million, respectively. Of theseAs of June 30, 2020, there were no securities three and twelve were in an unrealized loss position asposition. As of September 30,December 31, 2019, and June 30, 2019, respectively.one of these securities was in an unrealized loss position. The Bank CDs are fully insured by the FDIC. As of SeptemberJune 30, 20192020 and June 30,December 31, 2019, management found no evidence of OTTI on any of the Bank CDs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.
3. EQUITY SECURITIES
During September 2018, theThe Company purchasedmaintains an equity security for $500,000.portfolio that consists of $500,000 at June 30, 2020, and December 31, 2019. As of SeptemberJune 30, 2020 and December 31, 2019, the Company determined that the equity investment did not have a readily determinable fair value measure and is carrying the equity investment at cost, less impairment, adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The following table presents the carrying amount of the Company’s equity investment at SeptemberJune 30, 2020, and December 31, 2019:
|
| 2019 |
|
| June 30, 2020 |
| ||||||||||
(dollars in thousands) |
| Year-to-date |
|
| Life-to-date |
|
| Year-to-date |
|
| Life-to-date |
| ||||
Amortized cost |
| $ | 500 |
|
| $ | 500 |
|
| $ | 500 |
|
| $ | 500 |
|
Impairment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Observable price changes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Carrying value |
| $ | 500 |
|
| $ | 500 |
|
| $ | 500 |
|
| $ | 500 |
|
|
| December 31, 2019 |
| |||||
(dollars in thousands) |
| Year-to-date |
|
| Life-to-date |
| ||
Amortized cost |
| $ | 500 |
|
| $ | 500 |
|
Impairment |
|
| — |
|
|
| — |
|
Observable price changes |
|
| — |
|
|
| — |
|
Carrying value |
| $ | 500 |
|
| $ | 500 |
|
12
At SeptemberJune 30, 2020 and December 31, 2019, the Company performed a qualitative assessment considering impairment indictors to evaluate whether the investment was impaired and determined the investment was not impaired.
14
Loans receivable were comprised of the following:
|
| September 30, |
|
| June 30, |
|
| June 30, |
|
| December 31, |
| ||||
(Dollars in thousands) |
| 2019 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 202,613 |
|
| $ | 201,526 |
|
| $ | 168,047 |
|
| $ | 197,547 |
|
Home equity and HELOCs |
|
| 4,497 |
|
|
| 4,158 |
|
|
| 4,085 |
|
|
| 4,383 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 25,865 |
|
|
| 16,460 |
|
|
| 44,802 |
|
|
| 35,188 |
|
Commercial business |
|
| 6,935 |
|
|
| 9,728 |
|
|
| 13,962 |
|
|
| 11,119 |
|
SBA PPP loans |
|
| 73,188 |
|
|
| — |
| ||||||||
Construction |
|
| 2,309 |
|
|
| 1,981 |
|
|
| 2,464 |
|
|
| 784 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 6,190 |
|
|
| 6,506 |
|
|
| 5,660 |
|
|
| 6,097 |
|
Other |
|
| 15 |
|
|
| 3 |
|
|
| 27 |
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 248,424 |
|
|
| 240,362 |
|
|
| 312,235 |
|
|
| 255,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
| ||||||||
Unearned discounts, origination and commitment fees and costs |
|
| 1,491 |
|
|
| 1,606 |
| ||||||||
Unearned discounts, origination and commitment fees and costs, net |
|
| (827 | ) |
|
| 1,343 |
| ||||||||
Allowance for loan losses |
|
| (1,334 | ) |
|
| (1,182 | ) |
|
| (1,845 | ) |
|
| (1,437 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 248,581 |
|
| $ | 240,786 |
|
| $ | 309,563 |
|
| $ | 255,032 |
|
In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean Nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At SeptemberJune 30, 2019,2020, the balance of the private education loans was $6.2$5.7 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At SeptemberJune 30, 2019,2020, there were sixthree loans with a balance of approximately $325,000$61,000 that are past due 90 days or more. The Company allocated increased allowance for loan loss provisions to the medical education loans for the three months ended September 30, 2019 primarily as a result of net charge-offs totaling $92,000.
Overdraft deposits are reclassified as other consumer and are included in the total loans on the statements of financial condition. Overdrafts were $15,000$27,000 and $3,000$8,000 at SeptemberJune 30, 20192020, and June 30,December 31, 2019, respectively.
1315
The following tables summarize the activity in the allowance for loan losses by loan class for the three months ended SeptemberJune 30, 20192020 and 2018.2019.
Allowance for Loan Losses |
| For the three months ended September 30, 2019 |
|
| For the three months ended June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
|
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
| ||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 711 |
|
| $ | — |
|
| $ | — |
|
| $ | 8 |
|
| $ | 719 |
|
| $ | — |
|
| $ | 719 |
|
| $ | 760 |
|
| $ | — |
|
| $ | — |
|
| $ | 8 |
|
| $ | 768 |
|
| $ | — |
|
| $ | 768 |
|
Home equity and HELOCs |
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| 40 |
|
|
| — |
|
|
| 40 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| 39 |
|
|
| — |
|
|
| 39 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 99 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
|
| 269 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| 332 |
|
|
| — |
|
|
| 332 |
|
Commercial business |
|
| 108 |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| 117 |
|
|
| 13 |
|
|
| 104 |
|
|
| 154 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 157 |
|
|
| — |
|
|
| 157 |
|
SBA PPP loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
Construction |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 210 |
|
|
| (93 | ) |
|
| 1 |
|
|
| 203 |
|
|
| 321 |
|
|
| — |
|
|
| 321 |
|
|
| 331 |
|
|
| (154 | ) |
|
| — |
|
|
| 161 |
|
|
| 338 |
|
|
| — |
|
|
| 338 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unallocated |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 184 |
|
|
| 184 |
|
|
| — |
|
|
| 184 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,182 |
|
| $ | (93 | ) |
| $ | 1 |
|
| $ | 244 |
|
| $ | 1,334 |
|
| $ | 13 |
|
| $ | 1,321 |
|
| $ | 1,549 |
|
| $ | (154 | ) |
| $ | — |
|
| $ | 450 |
|
| $ | 1,845 |
|
| $ | — |
|
| $ | 1,845 |
|
Allowance for Loan Losses |
| For the three months ended September 30, 2018 |
|
| For the three months ended June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
|
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
| ||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 651 |
|
| $ | — |
|
| $ | 1 |
|
| $ | 43 |
|
| $ | 695 |
|
| $ | — |
|
| $ | 695 |
|
| $ | 729 |
|
| $ | — |
|
| $ | 3 |
|
| $ | (21 | ) |
| $ | 711 |
|
| $ | — |
|
| $ | 711 |
|
Home equity and HELOCs |
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 41 |
|
|
| — |
|
|
| 41 |
|
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| 46 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 65 |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| 61 |
|
|
| — |
|
|
| 61 |
|
|
| 61 |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| 99 |
|
|
| — |
|
|
| 99 |
|
Commercial business |
|
| 65 |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| 61 |
|
|
| 14 |
|
|
| 47 |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| 108 |
|
|
| 13 |
|
|
| 95 |
|
Construction |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 16 |
|
|
| — |
|
|
| 16 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 35 |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| 57 |
|
|
| — |
|
|
| 57 |
|
|
| 138 |
|
|
| (164 | ) |
|
| — |
|
|
| 236 |
|
|
| 210 |
|
|
| — |
|
|
| 210 |
|
Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 871 |
|
| $ | — |
|
| $ | 1 |
|
| $ | 59 |
|
| $ | 931 |
|
| $ | 14 |
|
| $ | 917 |
|
| $ | 1,055 |
|
| $ | (164 | ) |
| $ | 4 |
|
| $ | 287 |
|
| $ | 1,182 |
|
| $ | 13 |
|
| $ | 1,169 |
|
The following tables summarize the activity in the allowance for loan losses by loan class for the six months ended June 30, 2020 and 2019.
Allowance for Loan Losses |
| For the six months ended June 30, 2020 |
| |||||||||||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 701 |
|
| $ | — |
|
| $ | — |
|
| $ | 67 |
|
| $ | 768 |
|
| $ | — |
|
| $ | 768 |
|
Home equity and HELOCs |
|
| 44 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| 39 |
|
|
| — |
|
|
| 39 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 229 |
|
|
| — |
|
|
| — |
|
|
| 103 |
|
|
| 332 |
|
|
| — |
|
|
| 332 |
|
Commercial business |
|
| 122 |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 157 |
|
|
| — |
|
|
| 157 |
|
SBA PPP loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Construction |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 333 |
|
|
| (154 | ) |
|
| 1 |
|
|
| 158 |
|
|
| 338 |
|
|
| — |
|
|
| 338 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unallocated |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 184 |
|
|
| 184 |
|
|
| — |
|
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,437 |
|
| $ | (154 | ) |
| $ | 1 |
|
| $ | 561 |
|
| $ | 1,845 |
|
| $ | — |
|
| $ | 1,845 |
|
Allowance for Loan Losses |
| For the six months ended June 30, 2019 |
| |||||||||||||||||||||||||
(Dollars in thousands) |
| Beginning Balance |
|
| Charge- offs |
|
| Recoveries |
|
| (Credit) Provisions |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairments |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 722 |
|
| $ | — |
|
| $ | 3 |
|
| $ | (14 | ) |
| $ | 711 |
|
| $ | — |
|
| $ | 711 |
|
Home equity and HELOCs |
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46 |
|
|
| — |
|
|
| 46 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 59 |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| 99 |
|
|
| — |
|
|
| 99 |
|
Commercial business |
|
| 59 |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| 108 |
|
|
| 13 |
|
|
| 95 |
|
Construction |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 56 |
|
|
| (305 | ) |
|
| — |
|
|
| 459 |
|
|
| 210 |
|
|
| — |
|
|
| 210 |
|
Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 956 |
|
| $ | (305 | ) |
| $ | 3 |
|
| $ | 528 |
|
| $ | 1,182 |
|
| $ | 13 |
|
| $ | 1,169 |
|
14
The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared. TheDue to uncertainty of economic conditions from the COVID-19 pandemic, the Company allocated increased the qualitative factors in the calculation of the allowance for loan loss provisionslosses. However, due to the medical education loans
17
uncertainty of the impact, the Company will continue to monitor and additional adjustments to the allowance for the three months ended September 30, 2019 primarily as a result of net charge-offs totaling $92,000 and increase in the reserve for delinquent and non-accrual medical education loans.loan losses may be necessary.
The following tables summarize information in regardswith respect to the recorded investment in loans receivable by loan class as of SeptemberJune 30, 20192020 and June 30,December 31, 2019:
September 30, 2019 |
| |||||||||||||||||||||||
June 30, 2020 | June 30, 2020 |
| ||||||||||||||||||||||
Loans Receivable | Loans Receivable |
| Loans Receivable |
| ||||||||||||||||||||
(Dollars in thousands) |
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairment |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairment |
| ||||||
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 202,613 |
|
| $ | 1,820 |
|
| $ | 200,793 |
|
| $ | 168,047 |
|
| $ | 933 |
|
| $ | 167,114 |
|
Home equity and HELOCs |
|
| 4,497 |
|
|
| 295 |
|
|
| 4,202 |
|
|
| 4,085 |
|
|
| — |
|
|
| 4,085 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 25,865 |
|
|
| 321 |
|
|
| 25,544 |
|
|
| 44,802 |
|
|
| 309 |
|
|
| 44,493 |
|
Commercial business |
|
| 6,935 |
|
|
| 124 |
|
|
| 6,811 |
|
|
| 13,962 |
|
|
| 108 |
|
|
| 13,854 |
|
SBA PPP loans |
|
| 73,188 |
|
|
| — |
|
|
| 73,188 |
| ||||||||||||
Construction |
|
| 2,309 |
|
|
| — |
|
|
| 2,309 |
|
|
| 2,464 |
|
|
| — |
|
|
| 2,464 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 6,190 |
|
|
| — |
|
|
| 6,190 |
|
|
| 5,660 |
|
|
| — |
|
|
| 5,660 |
|
Other |
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 248,424 |
|
| $ | 2,560 |
|
| $ | 245,864 |
|
| $ | 312,235 |
|
| $ | 1,350 |
|
| $ | 310,885 |
|
June 30, 2019 |
| |||||||||||||||||||||||
December 31, 2019 | December 31, 2019 |
| ||||||||||||||||||||||
Loans Receivable | Loans Receivable |
| Loans Receivable |
| ||||||||||||||||||||
(Dollars in thousands) |
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairment |
|
| Ending Balance |
|
| Ending Balance: Individually Evaluated for Impairment |
|
| Ending Balance: Collectively Evaluated for Impairment |
| ||||||
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 201,526 |
|
| $ | 1,725 |
|
| $ | 199,801 |
|
| $ | 197,547 |
|
| $ | 1,566 |
|
| $ | 195,981 |
|
Home equity and HELOCs |
|
| 4,158 |
|
|
| 316 |
|
|
| 3,842 |
|
|
| 4,383 |
|
|
| 308 |
|
|
| 4,075 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 16,460 |
|
|
| 325 |
|
|
| 16,135 |
|
|
| 35,188 |
|
|
| 317 |
|
|
| 34,871 |
|
Commercial business |
|
| 9,728 |
|
|
| 131 |
|
|
| 9,597 |
|
|
| 11,119 |
|
|
| 120 |
|
|
| 10,999 |
|
Construction |
|
| 1,981 |
|
|
| — |
|
|
| 1,981 |
|
|
| 784 |
|
|
| — |
|
|
| 784 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 6,506 |
|
|
| — |
|
|
| 6,506 |
|
|
| 6,097 |
|
|
| — |
|
|
| 6,097 |
|
Other |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
| $ | 240,362 |
|
| $ | 2,497 |
|
| $ | 237,865 |
|
| $ | 255,126 |
|
| $ | 2,311 |
|
| $ | 252,815 |
|
1518
The following table summarizes information about impaired loans by loan portfolio class as of September 30, 2019 and June 30, 2019:2020 and December 31, 2019:
|
| September 30, 2019 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
|
| Recorded Investment |
|
| Unpaid Principal Balance |
|
| Related Allowance |
| ||||||||||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 1,820 |
|
| $ | 1,559 |
|
| $ | — |
|
| $ | 1,725 |
|
| $ | 1,935 |
|
| $ | — |
|
| $ | 933 |
|
| $ | 1,039 |
|
| $ | — |
|
| $ | 1,566 |
|
| $ | 1,703 |
|
| $ | — |
|
Home equity and HELOCs |
|
| 295 |
|
|
| 314 |
|
|
| — |
|
|
| 316 |
|
|
| 331 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 308 |
|
|
| 308 |
|
|
| — |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 321 |
|
|
| 321 |
|
|
| — |
|
|
| 325 |
|
|
| 325 |
|
|
| — |
|
|
| 309 |
|
|
| 309 |
|
|
| — |
|
|
| 317 |
|
|
| 317 |
|
|
| — |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Medical education |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Commercial business |
|
| 108 |
|
|
| 108 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
SBA PPP loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
|
| 2,436 |
|
|
| 2,194 |
|
|
| — |
|
|
| 2,366 |
|
|
| 2,591 |
|
|
| — |
|
|
| 1,350 |
|
|
| 1,456 |
|
|
| — |
|
|
| 2,191 |
|
|
| 2,328 |
|
|
| — |
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
| 124 |
|
|
| 127 |
|
|
| 13 |
|
|
| 131 |
|
|
| 132 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| 121 |
|
|
| 12 |
|
|
|
| 124 |
|
|
| 127 |
|
|
| 13 |
|
|
| 131 |
|
|
| 132 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| 121 |
|
|
| 12 |
|
|
| $ | 2,560 |
|
| $ | 2,321 |
|
| $ | 13 |
|
| $ | 2,497 |
|
| $ | 2,723 |
|
| $ | 13 |
|
| $ | 1,350 |
|
| $ | 1,456 |
|
| $ | — |
|
| $ | 2,311 |
|
| $ | 2,449 |
|
| $ | 12 |
|
The following table presents additional information regarding the impaired loans for the three months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018:2019:
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
(Dollars in thousands) |
| Average Record Investment |
|
| Interest Income Recognized |
|
| Average Record Investment |
|
| Interest Income Recognized |
|
| Average Record Investment |
|
| Interest Income Recognized |
|
| Average Record Investment |
|
| Interest Income Recognized |
| ||||||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 1,544 |
|
| $ | — |
|
| $ | 1,427 |
|
| $ | — |
|
| $ | 1,236 |
|
| $ | — |
|
| $ | 1,568 |
|
| $ | — |
|
Home equity and HELOCs |
|
| 170 |
|
|
| — |
|
|
| 122 |
|
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| 192 |
|
|
| — |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 363 |
|
|
| 12 |
|
|
| 418 |
|
|
| 11 |
|
|
| 311 |
|
|
| 5 |
|
|
| 355 |
|
|
| 2 |
|
Commercial business |
|
| 111 |
|
|
| 2 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 2,077 |
|
|
| 12 |
|
|
| 1,967 |
|
|
| 11 |
|
|
| 1,798 |
|
|
| 7 |
|
|
| 2,115 |
|
|
| 2 |
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
| 136 |
|
|
| 2 |
|
|
| 158 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 134 |
|
|
| 2 |
|
|
|
| 136 |
|
|
| 2 |
|
|
| 158 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 134 |
|
|
| 2 |
|
|
| $ | 2,213 |
|
| $ | 14 |
|
| $ | 2,125 |
|
| $ | 13 |
|
| $ | 1,798 |
|
| $ | 7 |
|
| $ | 2,249 |
|
| $ | 4 |
|
16
If these loans were performing under the original contractual rate, interest income on such loans would
have increased approximately $30,000$14,000 and $21,000$36,000 for the three months ended SeptemberJune 30, 2020, and 2019, andrespectively.
2018,
The following table presents additional information regarding the impaired loans for the six months ended June 30, 2020 and June 30, 2019:
|
| Six Months Ended June 30, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
(Dollars in thousands) |
| Average Record Investment |
|
| Interest Income Recognized |
|
| Average Record Investment |
|
| Interest Income Recognized |
| ||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 1,346 |
|
| $ | — |
|
| $ | 1,568 |
|
| $ | — |
|
Home equity and HELOCs |
|
| 196 |
|
|
| — |
|
|
| 192 |
|
|
| — |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 313 |
|
|
| 11 |
|
|
| 355 |
|
|
| 9 |
|
Commercial business |
|
| 114 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
|
| 1,969 |
|
|
| 14 |
|
|
| 2,115 |
|
|
| 9 |
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
| — |
|
|
| — |
|
|
| 134 |
|
|
| 4 |
|
|
|
| — |
|
|
| — |
|
|
| 134 |
|
|
| 4 |
|
|
| $ | 1,969 |
|
| $ | 14 |
|
| $ | 2,249 |
|
| $ | 13 |
|
If these loans were performing under the original contractual rate, interest income on such loans would
have increased approximately $38,000 and $58,000 for the six months ended June 30, 2020, and 2019, respectively.
The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2019 and June 30, 2019:
2020, and December 31, 2019:
|
| September 30, |
|
| June 30, |
|
| June30, |
|
| December 31, |
| ||||
(Dollars in thousands) |
| 2019 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 1,875 |
|
| $ | 1,852 |
|
| $ | 1,047 |
|
| $ | 1,686 |
|
Home equity and HELOCs |
|
| 295 |
|
|
| 316 |
|
|
| — |
|
|
| 308 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial business |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
SBA PPP loans |
|
| — |
|
|
| — |
| ||||||||
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 1,383 |
|
|
| 1,108 |
|
|
| 1,728 |
|
|
| 1,710 |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,553 |
|
| $ | 3,276 |
|
| $ | 2,775 |
|
| $ | 3,704 |
|
Credit quality risk ratings include regulatory classifications of Special Mention, Substandard, Doubtful and Loss. Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified
20
are rated pass.Included in the non-performing medical education loans are non-accrual loans that have been brought current through a status change to deferred status. The deferred status generally means the student is in medical residency. Generally, the loan may be restored to accrual status when the obligation is in accordance with the contractual terms for a reasonable period of time, generally six months.
The following tables summarize the aggregate Pass and criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of September 30, 2019 and June 30, 2020, and December 31, 2019:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(Dollars in thousands) |
| Pass |
|
| Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
|
| Pass |
|
| Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
| ||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 200,738 |
|
| $ | — |
|
| $ | 1,875 |
|
| $ | — |
|
| $ | 202,613 |
|
| $ | 167,000 |
|
| $ | — |
|
| $ | 1,047 |
|
| $ | — |
|
| $ | 168,047 |
|
Home equity and HELOCs |
|
| 4,202 |
|
|
| — |
|
|
| 295 |
|
|
| — |
|
|
| 4,497 |
|
|
| 4,085 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,085 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 25,338 |
|
|
| 206 |
|
|
| 321 |
|
|
| — |
|
|
| 25,865 |
|
|
| 44,294 |
|
|
| 199 |
|
|
| 309 |
|
|
| — |
|
|
| 44,802 |
|
Commercial business |
|
| 6,727 |
|
|
| — |
|
|
| 208 |
|
|
| — |
|
|
| 6,935 |
|
|
| 13,789 |
|
|
| — |
|
|
| 173 |
|
|
| — |
|
|
| 13,962 |
|
SBA PPP Loans |
|
| 73,188 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73,188 |
| ||||||||||||||||||||
Construction |
|
| 2,309 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,309 |
|
|
| 2,464 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,464 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 4,807 |
|
|
| — |
|
|
| 1,383 |
|
|
| — |
|
|
| 6,190 |
|
|
| 3,932 |
|
|
| — |
|
|
| 1,728 |
|
|
| — |
|
|
| 5,660 |
|
Other |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| $ | 244,136 |
|
| $ | 206 |
|
| $ | 4,082 |
|
| $ | — |
|
| $ | 248,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 308,779 |
|
| $ | 199 |
|
| $ | 3,257 |
|
| $ | — |
|
| $ | 312,235 |
|
|
| June 30, 2019 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(Dollars in thousands) |
| Pass |
|
| Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
|
| Pass |
|
| Mention |
|
| Substandard |
|
| Doubtful |
|
| Total |
| ||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 199,674 |
|
| $ | — |
|
| $ | 1,852 |
|
| $ | — |
|
| $ | 201,526 |
|
| $ | 195,861 |
|
| $ | — |
|
| $ | 1,686 |
|
| $ | — |
|
| $ | 197,547 |
|
Home equity and HELOCs |
|
| 3,842 |
|
|
| — |
|
|
| 316 |
|
|
| — |
|
|
| 4,158 |
|
|
| 4,075 |
|
|
| — |
|
|
| 308 |
|
|
| — |
|
|
| 4,383 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 15,927 |
|
|
| 208 |
|
|
| 325 |
|
|
| — |
|
|
| 16,460 |
|
|
| 34,667 |
|
|
| 204 |
|
|
| 317 |
|
|
| — |
|
|
| 35,188 |
|
Commercial business |
|
| 9,503 |
|
|
| — |
|
|
| 225 |
|
|
| — |
|
|
| 9,728 |
|
|
| 10,924 |
|
|
| — |
|
|
| 195 |
|
|
| — |
|
|
| 11,119 |
|
Construction |
|
| 1,981 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,981 |
|
|
| 784 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 784 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 5,398 |
|
|
| — |
|
|
| 1,108 |
|
|
| — |
|
|
| 6,506 |
|
|
| 4,387 |
|
|
| — |
|
|
| 1,710 |
|
|
| — |
|
|
| 6,097 |
|
Other |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| $ | 236,328 |
|
| $ | 208 |
|
| $ | 3,826 |
|
| $ | — |
|
| $ | 240,362 |
|
| $ | 250,706 |
|
| $ | 204 |
|
| $ | 4,216 |
|
| $ | — |
|
| $ | 255,126 |
|
21
The following tables present the segments of the loan portfolio summarized by aging categories as of September 30, 2019 and June 30, 2020, and December 31, 2019:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loans Receivable |
|
| Loans Receivable >90 Days and Accruing |
|
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loans Receivable |
|
| Loans Receivable >90 Days and Accruing |
| ||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 767 |
|
| $ | — |
|
| $ | 983 |
|
| $ | 1,750 |
|
| $ | 200,863 |
|
| $ | 202,613 |
|
| $ | — |
|
| $ | 676 |
|
| $ | 158 |
|
| $ | 274 |
|
| $ | 1,108 |
|
| $ | 166,939 |
|
| $ | 168,047 |
|
| $ | — |
|
Home equity and HELOCs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,497 |
|
|
| 4,497 |
|
|
| — |
|
|
| 109 |
|
|
| 1 |
|
|
| — |
|
|
| 110 |
|
|
| 3,975 |
|
|
| 4,085 |
|
|
| — |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25,865 |
|
|
| 25,865 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 44,802 |
|
|
| 44,802 |
|
|
| — |
|
Commercial business |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,935 |
|
|
| 6,935 |
|
|
| — |
|
|
| 109 |
|
|
| — |
|
|
| — |
|
|
| 109 |
|
|
| 13,853 |
|
|
| 13,962 |
|
|
| — |
|
SBA PPP loans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73,188 |
|
|
| 73,188 |
|
|
| — |
| ||||||||||||||||||||||||||||
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,309 |
|
|
| 2,309 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,464 |
|
|
| 2,464 |
|
|
| — |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 368 |
|
|
| 114 |
|
|
| 325 |
|
|
| 807 |
|
|
| 5,383 |
|
|
| 6,190 |
|
|
| — |
|
|
| 194 |
|
|
| 618 |
|
|
| 61 |
|
|
| 873 |
|
|
| 4,787 |
|
|
| 5,660 |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| 27 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,135 |
|
| $ | 114 |
|
| $ | 1,308 |
|
| $ | 2,557 |
|
| $ | 245,867 |
|
| $ | 248,424 |
|
| $ | — |
|
| $ | 1,088 |
|
| $ | 777 |
|
| $ | 335 |
|
| $ | 2,200 |
|
| $ | 310,035 |
|
| $ | 312,235 |
|
| $ | — |
|
|
| June 30, 2019 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loans Receivable |
|
| Loans Receivable >90 Days and Accruing |
|
| 30-59 Days Past Due |
|
| 60-89 Days Past Due |
|
| Greater than 90 Days |
|
| Total Past Due |
|
| Current |
|
| Total Loans Receivable |
|
| Loans Receivable >90 Days and Accruing |
| ||||||||||||||
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
| $ | 321 |
|
| $ | 179 |
|
| $ | 1,407 |
|
| $ | 1,907 |
|
| $ | 199,619 |
|
| $ | 201,526 |
|
| $ | — |
|
| $ | 365 |
|
| $ | 94 |
|
| $ | 359 |
|
| $ | 818 |
|
| $ | 196,729 |
|
| $ | 197,547 |
|
| $ | — |
|
Home equity and HELOCs |
|
| — |
|
|
| — |
|
|
| 316 |
|
|
| 316 |
|
|
| 3,842 |
|
|
| 4,158 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,383 |
|
|
| 4,383 |
|
|
| — |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,460 |
|
|
| 16,460 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35,188 |
|
|
| 35,188 |
|
|
| — |
|
Commercial business |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,728 |
|
|
| 9,728 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,119 |
|
|
| 11,119 |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,981 |
|
|
| 1,981 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 784 |
|
|
| 784 |
|
|
| — |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 534 |
|
|
| 220 |
|
|
| 841 |
|
|
| 1,595 |
|
|
| 4,911 |
|
|
| 6,506 |
|
|
| — |
|
|
| 103 |
|
|
| 53 |
|
|
| 709 |
|
|
| 865 |
|
|
| 5,232 |
|
|
| 6,097 |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| 8 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 855 |
|
| $ | 399 |
|
| $ | 2,564 |
|
| $ | 3,818 |
|
| $ | 236,544 |
|
| $ | 240,362 |
|
| $ | — |
|
| $ | 468 |
|
| $ | 147 |
|
| $ | 1,068 |
|
| $ | 1,683 |
|
| $ | 253,443 |
|
| $ | 255,126 |
|
| $ | — |
|
The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan that is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers' operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company's allowance for loan losses. TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the modified contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
22
The Company may identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.
19
The Company began offering short-term loan modifications to provide assistance to borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by federal and state banking agencies, provides that short-term modifications made on a good faith basis in response to COVID-19 who were current at the time the modification program is implemented do not need to be accounted for as TDRs. As of SeptemberJune 30, 20192020, we had processed 73 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $23.0 million in connection with the COVID-19 relief provided by the CARES Act.
As of June 30, 2020, and June 30,December 31, 2019, the Company had two loans identified as TDRs totaling $266,000$243,000 and $275,000,$259,000, respectively. At SeptemberJune 30, 20192020, and June 30,December 31, 2019, the two TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during the three and six months ended SeptemberJune 30, 2020 and 2019. No additional loan commitments were outstanding to these borrowers at September 30, 2019 and June 30, 2020, and December 31, 2019. At both SeptemberJune 30, 2019 and June 30,2020, there was no specific reserves related to the TDRs. At December 31, 2019, there was a specific reserve of $13,000 and $13,000$12,000 related to one TDR.
The following table details the Company’s TDRs that are on accrual status and non-accrual status at September 30, 2019:
|
| As of September 30, 2019 |
| |||||||||||||
|
| Number |
|
| Accrual |
|
| Non-Accrual |
|
|
|
|
| |||
(Dollars in thousands) |
| Of Loans |
|
| Status |
|
| Status |
|
| Total TDRs |
| ||||
Commercial real estate |
|
| 1 |
|
| $ | 142 |
|
| $ | — |
|
| $ | 142 |
|
Commercial business |
|
| 1 |
|
|
| 124 |
|
|
| — |
|
|
| 124 |
|
Total |
|
| 2 |
|
| $ | 266 |
|
| $ | — |
|
| $ | 266 |
|
The following table details the Company’s TDRs that are on accrual status and non-accrual status at June 30, 2020:
|
| As of June 30, 2020 |
| |||||||||||||
|
| Number |
|
| Accrual |
|
| Non-Accrual |
|
|
|
|
| |||
(Dollars in thousands) |
| Of Loans |
|
| Status |
|
| Status |
|
| Total TDRs |
| ||||
Commercial real estate |
|
| 1 |
|
| $ | 135 |
|
| $ | — |
|
| $ | 135 |
|
Commercial business |
|
| 1 |
|
|
| 108 |
|
|
| — |
|
|
| 108 |
|
Total |
|
| 2 |
|
| $ | 243 |
|
| $ | — |
|
| $ | 243 |
|
The following table details the Company’s TDRs that are on accrual status and non-accrual status at December 31, 2019:
|
| As of June 30, 2019 |
|
| As of December 31, 2019 |
| ||||||||||||||||||||||||||
|
| Number |
|
| Accrual |
|
| Non-Accrual |
|
|
|
|
|
| Number |
|
| Accrual |
|
| Non-Accrual |
|
|
|
|
| ||||||
(Dollars in thousands) |
| Of Loans |
|
| Status |
|
| Status |
|
| Total TDRs |
|
| Of Loans |
|
| Status |
|
| Status |
|
| Total TDRs |
| ||||||||
Commercial real estate |
|
| 1 |
|
| $ | 144 |
|
| $ | — |
|
| $ | 144 |
|
|
| 1 |
|
| $ | 139 |
|
| $ | — |
|
| $ | 139 |
|
Commercial business |
|
| 1 |
|
|
| 131 |
|
|
| — |
|
|
| 131 |
|
|
| 1 |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
Total |
|
| 2 |
|
| $ | 275 |
|
| $ | — |
|
| $ | 275 |
|
|
| 2 |
|
| $ | 259 |
|
| $ | — |
|
| $ | 259 |
|
The carrying amount of residential mortgage loans in the process of foreclosure was $614,000$387,000 and $631,000$403,000 at SeptemberJune 30, 20192020 and June 30,December 31, 2019, respectively.
205. MORTGAGE SERVICING RIGHTS
During the quarter ending June 30, 2020, the Company sold a portfolio of residential mortgage loans to a third party, while retaining the rights to service the loans. As of June 30, 2020, the value of the mortgage servicing rights associated with the loan sales totaled $508,000 . These loans were sold to the third party with mortgage servicing rights retained on a non-recourse basis. These retained servicing rights were recorded as a servicing asset and were initially recorded at fair value and changes to the balance of
23
mortgage servicing rights are recorded in non-interest income in the Company’s consolidated statements of income.
The Company’s mortgage servicing activities include collecting principal, interest, and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; and accounting for and remitting principal and interest payments to the investor. Servicing income, which includes late and ancillary fees, was $7,000 for the three and six months ended June 30, 2020. Servicing income is recorded in non-interest income in the Company’s consolidated statements of income.
For the three and six months ended June 30, 2020, the change in the carrying value of the Company’s mortgage servicing rights accounted for under the amortization method was as follows:
(dollars in thousands) |
| Three Months Ended June 30, 2020 |
|
| Six Months Ended June 30, 2020 |
| ||
Balance at Beginning of Period |
| $ | — |
|
| $ | — |
|
Servicing Rights that Resulted From Asset Transfers |
|
| 514 |
|
|
| 514 |
|
Amortization |
|
| (6 | ) |
|
| (6 | ) |
Valuation Allowance Provision |
|
| — |
|
|
| — |
|
Balance at End of Period |
| $ | 508 |
|
| $ | 508 |
|
Valuation Allowance: | ||||||||
Balance at Beginning of Period | $ | — | $ | — | ||||
Valuation Allowance Provision | — | — | ||||||
Balance at End of Period | $ | — | $ | — |
Fair Value of Mortgage Servicing Rights Accounted for under the Amortization Method |
|
|
|
|
|
|
|
|
Beginning of Period |
| $ | — |
|
| $ | — |
|
End of Period |
| $ | 543 |
|
| $ | 543 |
|
The key data and assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of June 30, 2020 were as follows:
June 30, 2020 | |||||
Long run Constant Prepayment Rate | 10.24 | % | |||
Weighted-Average Life (in years) | 26.3 | ||||
Weighted-Average Note Rate | 3.296 | % | |||
Weighted-Average Discount Rate | 9.25 | % |
24
5.6. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES
The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of SeptemberJune 30, 20192020, and June 30,December 31, 2019. The following tables summarize the amounts recorded in the Company’s consolidated statements of financial condition for derivatives not designated as hedging instruments as of SeptemberJune 30, 20192020, and June 30,December 31, 2019 (in thousands):
September 30, 2019 |
|
|
|
|
|
|
|
|
|
| ||||||||||
June 30, 2020 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet |
|
|
|
|
| Notional |
|
| Balance Sheet |
|
|
|
|
| Notional |
| ||
|
| Presentation |
| Fair Value |
|
| Amount |
|
| Presentation |
| Fair Value |
|
| Amount |
| ||||
Interest rate lock commitments |
| Mortgage banking derivatives |
| $ | 1,209 |
|
| $ | 39,728 |
|
| Mortgage banking derivatives |
| $ | 2,681 |
|
| $ | 103,751 |
|
Forward loan sales commitments |
| Mortgage banking derivatives |
|
| 599 |
|
|
| 16,636 |
|
| Mortgage banking derivatives |
|
| 35 |
|
|
| 934 |
|
To Be Announced securities ("TBAs") |
| Mortgage banking derivatives |
|
| 15 |
|
|
| 11,500 |
|
| Mortgage banking derivatives |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet |
|
|
|
|
| Notional |
|
| Balance Sheet |
|
|
|
|
| Notional |
| ||
|
| Presentation |
| Fair Value |
|
| Amount |
|
| Presentation |
| Fair Value |
|
| Amount |
| ||||
Interest rate lock commitments |
| Other liabilities |
| $ | 17 |
|
| $ | 4,303 |
|
| Other liabilities |
| $ | 91 |
|
| $ | 14,594 |
|
Forward loan sales commitments |
| Other liabilities |
|
| 82 |
|
|
| 11,164 |
|
| Other liabilities |
|
| 27 |
|
|
| 5,231 |
|
TBA securities |
| Other liabilities |
|
| 70 |
|
|
| 25,250 |
|
| Other liabilities |
|
| 56 |
|
|
| 14,500 |
|
June 30, 2019 |
|
|
|
|
|
|
|
|
|
| ||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
| ||||||||||
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet |
|
|
|
|
| Notional |
|
| Balance Sheet |
|
|
|
|
| Notional |
| ||
|
| Presentation |
| Fair Value |
|
| Amount |
|
| Presentation |
| Fair Value |
|
| Amount |
| ||||
Interest rate lock commitments |
| Mortgage banking derivatives |
| $ | 1,100 |
|
| $ | 36,969 |
|
| Mortgage banking derivatives |
| $ | 810 |
|
| $ | 25,059 |
|
Forward loan sales commitments |
| Mortgage banking derivatives |
|
| 579 |
|
|
| 13,994 |
|
| Mortgage banking derivatives |
|
| 389 |
|
|
| 11,036 |
|
TBA securities |
| Mortgage banking derivatives |
|
| — |
|
|
| — |
|
| Mortgage banking derivatives |
|
| 5 |
|
|
| 3,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance Sheet |
|
|
|
|
| Notional |
|
| Balance Sheet |
|
|
|
|
| Notional |
| ||
|
| Presentation |
| Fair Value |
|
| Amount |
|
| Presentation |
| Fair Value |
|
| Amount |
| ||||
Interest rate lock commitments |
| Other liabilities |
| $ | 54 |
|
| $ | 8,120 |
|
| Other liabilities |
| $ | 25 |
|
| $ | 3,820 |
|
Forward loan sales commitments |
| Other liabilities |
|
| 24 |
|
|
| 4,800 |
|
| Other liabilities |
|
| 45 |
|
|
| 10,595 |
|
TBA securities |
| Other liabilities |
|
| 124 |
|
|
| 34,250 |
|
| Other liabilities |
|
| 56 |
|
|
| 24,500 |
|
The following table summarizes the amounts recorded in the Company’s consolidated statements of income for derivative instruments not designated as hedging instruments for the three months ended SeptemberJune 30, 20192020 and 20182019 (in thousands):
|
|
|
| Gain/(Loss) |
|
|
|
| Gain/(Loss) |
| ||||||||||
|
| Consolidated Statements of Income |
| Three Months Ended |
|
| Consolidated Statements of Income |
| Three Months Ended |
| ||||||||||
|
| Presentation |
| September 30, 2019 |
|
| September 30, 2018 |
|
| Presentation |
| June 30, 2020 |
|
| June 30, 2019 |
| ||||
Interest rate lock commitments |
| Gain (loss) from derivative instruments |
| $ | 146 |
|
| $ | (344 | ) |
| Gain from derivative instruments |
| $ | 683 |
|
| $ | 393 |
|
Forward loan sales commitments |
| Loss from derivative instruments |
|
| (38 | ) |
|
| (58 | ) |
| (Loss) gain from derivative instruments |
|
| (202 | ) |
|
| 404 |
|
TBA securities |
| Gain from derivative instruments |
|
| 69 |
|
|
| 85 |
|
| Gain (loss) from derivative instruments |
|
| 599 |
|
|
| (28 | ) |
|
| Total gain (loss) from derivative instruments |
| $ | 177 |
|
| $ | (317 | ) |
| Total gain from derivative instruments |
| $ | 1,080 |
|
| $ | 769 |
|
|
|
|
| Gain/(Loss) |
| |||||
|
| Consolidated Statements of Income |
| Six Months Ended |
| |||||
|
| Presentation |
| June 30, 2020 |
|
| June 30, 2019 |
| ||
Interest rate lock commitments |
| Gain from derivative instruments |
| $ | 1,805 |
|
| $ | 846 |
|
Forward loan sales commitments |
| (Loss) gain from derivative instruments |
|
| (336 | ) |
|
| 390 |
|
TBA securities |
| Loss from derivative instruments |
|
| (5 | ) |
|
| (72 | ) |
|
| Total gain from derivative instruments |
| $ | 1,464 |
|
| $ | 1,164 |
|
21
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.
26
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
22
The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of September 30, 2019 and June 30, 2020, and December 31, 2019:
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||
(Dollars in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities |
| $ | — |
|
| $ | 455 |
|
| $ | — |
|
| $ | 455 |
|
| $ | — |
|
| $ | 411 |
|
| $ | — |
|
| $ | 411 |
|
Corporate notes |
|
| — |
|
|
| 3,008 |
|
|
| 3,062 |
|
|
| 6,070 |
|
|
| — |
|
|
| 2,021 |
|
|
| 3,961 |
|
|
| 5,982 |
|
Collateralized mortgage obligations - agency residential |
|
| — |
|
|
| 5,466 |
|
|
| — |
|
|
| 5,466 |
|
|
| — |
|
|
| 5,559 |
|
|
| — |
|
|
| 5,559 |
|
Mortgage-backed securities - agency residential |
|
| — |
|
|
| 2,213 |
|
|
| — |
|
|
| 2,213 |
|
|
| — |
|
|
| 3,646 |
|
|
| — |
|
|
| 3,646 |
|
Municipal securities |
|
| — |
|
|
| 4,378 |
|
|
| — |
|
|
| 4,378 |
|
|
| — |
|
|
| 1,768 |
|
|
| — |
|
|
| 1,768 |
|
Bank CDs |
|
| — |
|
|
| 3,006 |
|
|
| — |
|
|
| 3,006 |
|
|
| — |
|
|
| 1,273 |
|
|
| — |
|
|
| 1,273 |
|
Loans held for sale |
|
| — |
|
|
| 39,013 |
|
|
| — |
|
|
| 39,013 |
|
|
| — |
|
|
| 43,485 |
|
|
| — |
|
|
| 43,485 |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 2,681 |
|
|
| 2,681 |
| ||||||||||||||||
Forward loan sales commitments |
|
| — |
|
|
| 599 |
|
|
| — |
|
|
| 599 |
|
|
| — |
|
|
| 35 |
|
|
| — |
|
|
| 35 |
|
TBA securities |
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 1,209 |
|
|
| 1,209 |
| ||||||||||||||||
|
| $ | — |
|
| $ | 58,153 |
|
| $ | 4,271 |
|
| $ | 62,424 |
|
| $ | — |
|
| $ | 58,198 |
|
| $ | 6,642 |
|
| $ | 64,840 |
|
|
| June 30, 2019 |
|
| December 31, 2019 |
| ||||||||||||||||||||||||||
(Dollars in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Investment securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Governmental securities |
| $ | — |
|
| $ | 477 |
|
| $ | — |
|
| $ | 477 |
|
| $ | — |
|
| $ | 436 |
|
| $ | — |
|
| $ | 436 |
|
Corporate notes |
|
| — |
|
|
| 3,954 |
|
|
| 3,030 |
|
|
| 6,984 |
|
|
| — |
|
|
| 2,510 |
|
|
| 3,059 |
|
|
| 5,569 |
|
Collateralized mortgage obligations - agency residential |
|
| — |
|
|
| 8,726 |
|
|
| — |
|
|
| 8,726 |
|
|
| — |
|
|
| 6,464 |
|
|
| — |
|
|
| 6,464 |
|
Mortgage-backed securities - agency residential |
|
| — |
|
|
| 3,444 |
|
|
| — |
|
|
| 3,444 |
|
|
| — |
|
|
| 4,063 |
|
|
| — |
|
|
| 4,063 |
|
Municipal securities |
|
| — |
|
|
| 12,120 |
|
|
| — |
|
|
| 12,120 |
|
|
| — |
|
|
| 2,117 |
|
|
| — |
|
|
| 2,117 |
|
Bank CDs |
|
| — |
|
|
| 3,485 |
|
|
| — |
|
|
| 3,485 |
|
|
| — |
|
|
| 2,507 |
|
|
| — |
|
|
| 2,507 |
|
Loans held for sale |
|
| — |
|
|
| 33,748 |
|
|
| — |
|
|
| 33,748 |
|
|
| — |
|
|
| 37,876 |
|
|
| — |
|
|
| 37,876 |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 810 |
|
|
| 810 |
| ||||||||||||||||
Forward loan sales commitments |
|
| — |
|
|
| 579 |
|
|
| — |
|
|
| 579 |
|
|
| — |
|
|
| 389 |
|
|
| — |
|
|
| 389 |
|
TBA securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| 1,100 |
| ||||||||||||||||
|
| $ | — |
|
| $ | 66,533 |
|
| $ | 4,130 |
|
| $ | 70,663 |
|
| $ | — |
|
| $ | 56,367 |
|
| $ | 3,869 |
|
| $ | 60,236 |
|
The following tables provide the fair value for liabilities required to be measured and reported at fair value on a recurring basis as of SeptemberJune 30, 20192020, and June 30,December 31, 2019.
|
| September 30, 2019 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||
(Dollars in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Interest rate lock commitments |
| $ | — |
|
| $ | — |
|
| $ | 91 |
|
| $ | 91 |
| ||||||||||||||||
Forward loan sales commitments |
| $ | — |
|
| $ | 82 |
|
| $ | — |
|
| $ | 82 |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
|
| 27 |
|
TBA securities |
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| 56 |
|
|
| — |
|
|
| 56 |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 17 |
| ||||||||||||||||
|
| $ | — |
|
| $ | 83 |
|
| $ | 91 |
|
| $ | 174 |
|
Liabilities measured
|
| December 31, 2019 |
| |||||||||||||
(Dollars in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Interest rate lock commitments |
| $ | — |
|
| $ | — |
|
| $ | 25 |
|
| $ | 25 |
|
Forward loan sales commitments |
|
| — |
|
|
| 45 |
|
|
| — |
|
|
| 45 |
|
TBA securities |
|
| — |
|
|
| 56 |
|
|
| — |
|
|
| 56 |
|
|
| $ | — |
|
| $ | 101 |
|
| $ | 25 |
|
| $ | 126 |
|
There were no assets measures at a fair value on a recurring basis at June 30, 2019 are summarized below.2020 and December 31, 2019.
|
| June 30, 2019 |
| |||||||||||||
(Dollars in thousands) |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Forward loan sales commitments |
| $ | — |
|
| $ | 24 |
|
| $ | — |
|
| $ | 24 |
|
TBA securities |
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| 124 |
|
Interest rate lock commitments |
|
| — |
|
|
| — |
|
|
| 54 |
|
|
| 54 |
|
2328
The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended SeptemberJune 30, 20192020 and 2018:2019:
|
|
|
| |||||||||
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: July 1, 2019 |
| $ | 3,030 |
|
| $ | 1,100 |
|
| $ | (54 | ) |
Total gains (unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 32 |
|
|
| — |
|
|
| — |
|
Total gains included in earnings and held at reporting date |
|
| — |
|
|
| 109 |
|
|
| 37 |
|
Transfers in and/or out of Level 3 |
|
| — |
|
|
| — |
|
|
| — |
|
Ending Balance: September 30, 2019 |
| $ | 3,062 |
|
| $ | 1,209 |
|
| $ | (17 | ) |
|
|
|
| |||||||||
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: April 1, 2020 |
| $ | 3,033 |
|
| $ | 1,939 |
|
| $ | (32 | ) |
Total unrealized losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 28 |
|
|
| — |
|
|
| — |
|
Total gains or (losses) included in earnings and held at reporting date |
|
| — |
|
|
| 742 |
|
|
| (59 | ) |
Purchases, sales and settlements |
|
| 900 |
|
|
|
|
|
|
|
|
|
Transfers in and/or out of Level 3 |
|
| — |
|
|
| — |
|
|
| — |
|
Ending Balance: June 30, 2020 |
| $ | 3,961 |
|
| $ | 2,681 |
|
| $ | (91 | ) |
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of June 30, 2020 |
|
| — |
|
|
| 742 |
|
|
| (59 | ) |
Change in unrealized gains for the period included other comprehensive income for assets held as of June 30, 2020 |
| $ | 28 |
|
| $ | — |
|
| $ | — |
|
|
|
|
| |||||||||
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: July 1, 2018 |
| $ | 494 |
|
| $ | 642 |
|
| $ | (56 | ) |
Total gains (unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 1 |
|
|
| — |
|
|
| — |
|
Total (losses) or gains included in earnings and held at reporting date |
|
| — |
|
|
| (366 | ) |
|
| 22 |
|
Transfers in and/or out of Level 3 |
|
| — |
|
|
| — |
|
|
| — |
|
Ending Balance: September 30, 2018 |
| $ | 495 |
|
| $ | 276 |
|
| $ | (34 | ) |
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: January 1, 2020 |
| $ | 3,059 |
|
| $ | 810 |
|
| $ | (25 | ) |
Total unrealized losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 2 |
|
|
| — |
|
|
| — |
|
Total gains or (losses) included in earnings and held at reporting date |
|
| — |
|
|
| 1,871 |
|
|
| (66 | ) |
Purchases, sales and settlements |
|
| 900 |
|
|
|
|
|
|
|
|
|
Transfers in and/or out of Level 3 |
|
| — |
|
|
| — |
|
|
| — |
|
Ending Balance: June 30, 2020 |
| $ | 3,961 |
|
| $ | 2,681 |
|
| $ | (91 | ) |
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of June 30, 2020 |
|
| — |
|
|
| 1,871 |
|
|
| (66 | ) |
Change in unrealized gains for the period included other comprehensive income for assets held as of June 30, 2020 |
| $ | 2 |
|
| $ | — |
|
| $ | — |
|
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: April 1, 2019 |
| $ | 492 |
|
| $ | 680 |
|
| $ | (27 | ) |
Total unrealized losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 38 |
|
|
| — |
|
|
| — |
|
Total gains or (losses) included in earnings and held at reporting date |
|
| — |
|
|
| 420 |
|
|
| (27 | ) |
Transfers in and/or out of Level 3 |
|
| 2,500 |
|
|
| — |
|
|
| — |
|
Ending Balance: June 30, 2019 |
| $ | 3,030 |
|
| $ | 1,100 |
|
| $ | (54 | ) |
(Dollars in thousands) |
| Corporate notes |
|
| IRLC- Asset |
|
| IRLC- Liability |
| |||
Beginning Balance: January 1, 2019 |
| $ | 494 |
|
| $ | 218 |
|
| $ | (18 | ) |
Total unrealized losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
| 36 |
|
|
| — |
|
|
| — |
|
Total gains or (losses) included in earnings and held at reporting date |
|
| — |
|
|
| 882 |
|
|
| (36 | ) |
Transfers in and/or out of Level 3 |
|
| 2,500 |
|
|
| — |
|
|
| — |
|
Ending Balance: June 30, 2019 |
| $ | 3,030 |
|
| $ | 1,100 |
|
| $ | (54 | ) |
At June 30, 2020, the Company has classified $4.0 million of Corporate notes as Level 3. The fair value of $1.1 million of Corporate notes includes an adjustable rate corporate security and sub-debt bond. The Company’s methodology for valuing these Corporate notes is to obtain market quotes through a third-party pricing model. The weighted average of the market quotes applied range from $97.55 to $106.60. In addition, classified as Level 3 are two sub-debt bonds with a fair value of $2.9 million. The Company’s methodology to value the two sub-debt bonds is to obtain market values of similar sub-debt bonds issuances over the past twelve months from a broker/investment firm. The weighted average of the market quotes applied is $102. Since the Corporate notes are not widely traded, the Company considered the inputs as unobservable
At June 30, 2020, the Company has classified $2.6 million of net derivative assets and liabilities related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates applied ranged from 67% to 100%.
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at June 30, 2020:
|
| Quantitative Information about Level 3 Fair Value Measurements at June 30, 2020 |
| |||||||||||||||||||
(Dollars in thousands) |
| Fair Value |
|
| Valuation Technique |
| Significant Unobservable Input |
| Range |
|
| Weighted Average |
| |||||||||
Measured at Fair Value on a Recurring Basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Corporate notes |
| $ | 1,061 |
|
| Pricing model |
| Offered quotes |
| $97.55-$106.60 |
|
| $ | 102.45 |
| |||||||
|
| $ | 2,900 |
|
| Market comparable securities |
| Offered quotes |
|
| $101.63 |
|
| $ | 101.63 |
| ||||||
Net derivative asset and liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
IRLC |
| $ | 2,590 |
|
| Discounted cash flows |
| Pull-through rates |
| 67%-100% |
|
| 82% |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no assets measured at fair value on a nonrecurring basis at SeptemberJune 30, 20192020 and June 30,December 31, 2019.
2430
The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition as of SeptemberJune 30, 20192020 and June 30,December 31, 2019:
|
|
|
|
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prices in |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Active |
|
| Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Active |
|
| Significant |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
| Markets for |
|
| Other |
|
| Significant |
|
|
|
|
|
|
|
|
|
| Markets for |
|
| Other |
|
| Significant |
| ||||||||
|
|
|
|
|
|
|
|
|
| Identical |
|
| Observable |
|
| Unobservable |
|
|
|
|
|
|
|
|
|
| Identical |
|
| Observable |
|
| Unobservable |
| ||||||||
September 30, 2019 |
| Carrying |
|
| Estimated |
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||||||||||||||||||||||||||
June 30, 2020 |
| Carrying |
|
| Estimated |
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||||||||||||||||||||||||||
(Dollars in thousands) |
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 27,255 |
|
| $ | 27,255 |
|
| $ | 27,255 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,651 |
|
| $ | 28,651 |
|
| $ | 28,651 |
|
| $ | — |
|
| $ | — |
| ||
Equity securities |
|
| 500 |
|
|
| 500 |
|
|
| — |
|
|
| — |
|
|
| 500 |
|
|
| 500 |
|
|
| 500 |
|
|
| — |
|
|
| — |
|
|
| 500 |
| ||
Loans receivable, net (1) |
|
| 248,581 |
|
|
| 249,840 |
|
|
| — |
|
|
| — |
|
|
| 249,840 |
|
|
| 309,563 |
|
|
| 319,530 |
|
|
| — |
|
|
| — |
|
|
| 319,530 |
| ||
Bank-owned life insurance |
|
| 6,216 |
|
|
| 6,216 |
|
|
| 6,216 |
|
|
| — |
|
|
| — |
|
|
| 6,331 |
|
|
| 6,331 |
|
|
| 6,331 |
|
|
| — |
|
|
| — |
| ||
Restricted investment in bank stock |
|
| 1,553 |
|
|
| 1,553 |
|
|
| 1,553 |
|
|
| — |
|
|
| — |
|
|
| 1,618 |
|
|
| 1,618 |
|
|
| 1,618 |
|
|
| — |
|
|
| — |
| ||
Accrued interest receivable |
|
| 974 |
|
|
| 974 |
|
|
| 974 |
|
|
| — |
|
|
| — |
|
|
| 1,251 |
|
|
| 1,251 |
|
|
| 1,251 |
|
|
| — |
|
|
| — |
| ||
Mortgage servicing rights |
|
| 508 |
|
|
| 543 |
|
|
| — |
|
|
| — |
|
|
| 543 |
| ||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Deposits |
| $ | 284,576 |
|
| $ | 284,722 |
|
| $ | 204,718 |
|
| $ | 80,004 |
|
| $ | — |
|
| $ | 300,571 |
|
| $ | 302,512 |
|
| $ | 247,858 |
|
| $ | 54,654 |
|
| $ | — |
| ||
Advances from the FHLB |
|
| 27,000 |
|
|
| 27,147 |
|
|
| — |
|
|
| 27,147 |
|
|
| — |
|
|
| 27,000 |
|
|
| 27,684 |
|
|
| — |
|
|
| 27,684 |
|
|
| — |
| ||
Securities sold under agreements to repurchase |
|
| 2,104 |
|
|
| 2,104 |
|
|
| 2,104 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Federal Reserve PPPLF advances |
|
| 47,834 |
|
|
| 47,834 |
|
|
| — |
|
|
| 47,834 |
|
|
| — |
| ||||||||||||||||||||||
Advances from borrowers for taxes and insurance |
|
| 1,376 |
|
|
| 1,376 |
|
|
| 1,376 |
|
|
|
|
|
|
|
|
|
|
| 2,492 |
|
|
| 2,492 |
|
|
| 2,492 |
|
|
| — |
|
|
| — |
| ||
Accrued interest payable |
|
| 42 |
|
|
| 42 |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| 103 |
|
|
| 103 |
|
|
| 103 |
|
|
| — |
|
|
| — |
| ||
Off-balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commitment to extend credit |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(1) In accordance with the prospective adoption of ASU No. 2016-01, the fair value of the loans as of September 30, 2019 and June 30, 2019 were measured using an exit price notion. |
| |||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Prices in |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Active |
|
| Significant |
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Markets for |
|
| Other |
|
| Significant |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Identical |
|
| Observable |
|
| Unobservable |
| |||||||||||||||||||||||||
June 30, 2019 |
| Carrying |
|
| Estimated |
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||||||||||||||||||||||||||
(Dollars in thousands) |
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Cash and cash equivalents |
| $ | 20,234 |
|
| $ | 20,234 |
|
| $ | 20,234 |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||||||
Equity securities |
|
| 500 |
|
|
| 500 |
|
|
| — |
|
|
| — |
|
|
| 500 |
| ||||||||||||||||||||||
Loans receivable, net (1) |
|
| 240,786 |
|
|
| 241,012 |
|
|
| — |
|
|
| — |
|
|
| 241,012 |
| ||||||||||||||||||||||
Bank-owned life insurance |
|
| 6,175 |
|
|
| 6,175 |
|
|
| 6,175 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Restricted investment in bank stock |
|
| 1,662 |
|
|
| 1,662 |
|
|
| 1,662 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Accrued interest receivable |
|
| 1,111 |
|
|
| 1,111 |
|
|
| 1,111 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Deposits |
| $ | 275,130 |
|
| $ | 275,297 |
|
| $ | 193,793 |
|
| $ | 81,504 |
|
| $ | — |
| ||||||||||||||||||||||
Advances from the FHLB |
|
| 28,000 |
|
|
| 28,169 |
|
|
| — |
|
|
| 28,169 |
|
|
| — |
| ||||||||||||||||||||||
Securities sold under agreements to repurchase |
|
| 3,789 |
|
|
| 3,789 |
|
|
| 3,789 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Advances from borrowers for taxes and insurance |
|
| 2,600 |
|
|
| 2,600 |
|
|
| 2,600 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Accrued interest payable |
|
| 219 |
|
|
| 219 |
|
|
| 219 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Off-balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commitment to extend credit |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
| Quoted |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Prices in |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Active |
|
| Significant |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Markets for |
|
| Other |
|
| Significant |
| |||
|
|
|
|
|
|
|
|
|
| Identical |
|
| Observable |
|
| Unobservable |
| |||
December 31, 2019 |
| Carrying |
|
| Estimated |
|
| Assets |
|
| Inputs |
|
| Inputs |
| |||||
(Dollars in thousands) |
| Amount |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 20,625 |
|
| $ | 20,625 |
|
| $ | 20,625 |
|
| $ | — |
|
| $ | — |
|
Equity securities |
|
| 500 |
|
|
| 500 |
|
|
| — |
|
|
| — |
|
|
| 500 |
|
Loans receivable, net (1) |
|
| 255,032 |
|
|
| 254,884 |
|
|
| — |
|
|
| — |
|
|
| 254,884 |
|
Bank-owned life insurance |
|
| 6,255 |
|
|
| 6,255 |
|
|
| 6,255 |
|
|
| — |
|
|
| — |
|
Restricted investment in bank stock |
|
| 1,552 |
|
|
| 1,552 |
|
|
| 1,552 |
|
|
| — |
|
|
| — |
|
Accrued interest receivable |
|
| 967 |
|
|
| 967 |
|
|
| 967 |
|
|
| — |
|
|
| — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| $ | 283,767 |
|
| $ | 284,055 |
|
| $ | 215,471 |
|
| $ | 68,584 |
|
| $ | — |
|
Advances from the FHLB |
|
| 27,000 |
|
|
| 27,333 |
|
|
| — |
|
|
| 27,333 |
|
|
| — |
|
Advances from borrowers for taxes and insurance |
|
| 2,138 |
|
|
| 2,138 |
|
|
| 2,138 |
|
|
| — |
|
|
| — |
|
Accrued interest payable |
|
| 305 |
|
|
| 305 |
|
|
| 305 |
|
|
| — |
|
|
| — |
|
Off-balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment to extend credit |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. There were no changes in methodologies or transfers between levels at September 30, 2019. During June 2019, the Company transferred corporate note securities, amortized cost of $2.5 million, to the available-for-sale portfolio from the held-to-maturity portfolio. There was no change of the Level 3 valuation when the corporate securities were transferred.
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2019:
Cash and Cash Equivalents
These short-term assets are valued at their face value, which approximate fair value.
Investments (Available- for- Sale and Held- to- Maturity)
Where quoted prices are available in an active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain Mortgage Backed Securities (MBS), Collateralized Mortgage Obligations (CMO), Corporate notes, and Municipal and U.S government securities. In cases where there is limited activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Investment securities classified within Level 3 include certain equity securities that do not have readily available market prices, certain corporate notes, certain Bank CDS and other less liquid investment securities. If observable market-based inputs are not available, we use unobservable inputs to determine appropriate valuation adjustments by reviewing valuation reports provided by a third-party (Level 3).
Loans Held for Sale at Fair Value
All mortgage loans held for sale are carried at fair value which is determined on a recurring basis by utilizing quoted prices from dealers in such loans.
The Company's mortgage loans held for sale are generally classified within Level 2 of the valuation hierarchy.
The following table reflects the difference between the carrying amount of mortgage loans held for sale, measured at fair value and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity as of June 30, 2019 (in thousands):
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Carrying Amount |
|
| Aggregated Unpaid Principal Balance |
|
| Excess Carrying Amount Over Aggregate Unpaid Principal Balance |
| |||
June 30, 2019 |
| $ | 33,748 |
|
| $ | 33,045 |
|
| $ | 703 |
|
The Company did not have any mortgage loans held for sale recorded at fair value that were 90 or more days past due and on non-accrual at September 30, 2019 or June 30, 2019.
2631
Interest Rate Lock Commitments (“IRLC”)
The fair value of the Company’s IRLC instruments are based upon the underlying mortgage loan adjusted for the probability of such commitments being exercised and estimated costs to complete and originate the loan. The Company’s IRLCs are classified within Level 3 of the valuation hierarchy as a result of unobservable market data inputs.
Forward Loan Sale Commitments
Fair values for forward loan sales commitments are based on forward prices with dealers in such securities. Due to the observable inputs used by the Company, the Company’s forward loan sales commitments are classified within Level 2 of the valuation hierarchy.
To Be Announced Securities (“TBAs”)
TBAs are valued based on forward dealer marks from the Company’s approved counterparties. The Company utilizes a third party market pricing service which compiles current prices for instruments from market sources, and those prices represent the current executable price. Due to the observable inputs used by the Company, the Company’s TBAs are classified within Level 2 of the valuation hierarchy.
Loan Receivable, Net
Fair values are estimated for portfolios of loans with similar financial characteristics. For loans that reprice frequently, the carrying value approximates fair value. The fair value of other type of loans is estimated by discounting expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit ratings and for similar remaining maturities.
Impaired Loans
The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral. The fair value of collateral is based on appraisals performed by qualified licensed appraisers hired by the Company. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed. Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value. If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included as a Level III measurement. At September 30, 2019 and June 30, 2019, the fair value of the collateral exceeded the carrying amount of the loan; therefore, there are no impaired loans currently being carried at its fair value.
Bank-Owned Life Insurance
The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.
Restricted Investment in Bank Stock
The stock is carried at cost; which approximates fair value and considers the limited marketability of such securities.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amount of accrued interest receivable and payable approximates their respective fair values.
27
The carrying amount of demand deposits, savings accounts and money market deposits approximate their fair value. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities. The fair value of certificates of deposit is estimated discounting the contractual cash flows. The discount rate is estimated using the rates currently offered for deposits with comparable remaining maturities.
Advances from the FHLB
The fair value of advances is estimated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for borrowings with comparable terms, credit, and remaining maturities.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are carried at the amounts at which the securities will be subsequently repurchased as specified in the agreements and the carrying amount is a reasonable estimate of the fair value. The Company values the collateral on a daily basis and obtains additional collateral, if necessary, to protect the Company in the event of default by the counterparties.
Advances from Borrowers for Taxes and Insurance
The carrying amount of advances from borrowers for taxes and insurance approximates fair values.
Commitments to Extend Credit
The majority of the Company's commitments to extend credit carry current market interest rates if converted to loans. Because commitments to extend credit are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties and is not considered material for disclosure.
7.8. CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSSINCOME (LOSS)
The following tables present the changes in the balances of each component of accumulated other comprehensive income (loss) (“AOCI”) for the three and six months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019. All amounts are presented net of tax.
Net unrealized holding gains on available-for-sales securities (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended |
|
| For the three months ended |
|
| For the six months ended |
| |||||||||||||||
(Dollars in thousands) |
| September 30, 2019 |
|
| September 30, 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||
Balance at beginning period |
| $ | 70 |
|
| $ | (648 | ) |
| $ | 71 |
|
| $ | (302 | ) |
| $ | (18 | ) |
| $ | (548 | ) |
Unrealized holding gain (losses) on available-for-sale securities before reclassification |
|
| 61 |
|
|
| (86 | ) | ||||||||||||||||
Unrealized holding gain on available-for-sale securities before reclassification |
|
| 186 |
|
|
| 375 |
|
|
| 275 |
|
|
| 624 |
| ||||||||
Amount reclassified for investment securities gains included in net income |
|
| (162 | ) |
|
| — |
|
|
| (99 | ) |
|
| (3 | ) |
|
| (99 | ) |
|
| (6 | ) |
Net current-period other comprehensive loss |
|
| (101 | ) |
|
| (86 | ) | ||||||||||||||||
Net current-period other comprehensive income |
|
| 87 |
|
|
| 372 |
|
|
| 176 |
|
|
| 618 |
| ||||||||
Balance at ending period |
| $ | (31 | ) |
| $ | (734 | ) |
| $ | 158 |
|
| $ | 70 |
|
| $ | 158 |
|
| $ | 70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) | All amounts are net of tax. Related tax expense or benefit is calculated using an income tax rate of approximately |
The following table present reclassifications out of AOCI by component for the three and six months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018.
2019.
|
| For the three months ended September 30, 2019 |
|
| For the three months ended September 30, 2018 |
|
|
| For the three months ended June 30, 2020 |
|
| For the three months ended June 30, 2019 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Amount reclassified from accumulated other comprehensive income (2) |
|
| Amount reclassified from accumulated other comprehensive income (2) |
| Affected line item in the consolidated statements of income |
| Amount reclassified from accumulated other comprehensive income (loss) (2) |
|
| Amount reclassified from accumulated other comprehensive income (loss) (2) |
| Affected line item in the Consolidated Statements of Income | ||||
Net unrealized gain on available-for securities (1) |
| $ | 211 |
|
| $ | — |
| Gain on sale of available-for-sale securities, net |
| $ | 141 |
|
| $ | 4 |
| Gain on sale of available-for-sale securities, net |
Tax Effect |
|
| (42) |
|
|
| (1) |
| Income tax expense | |||||||||
|
|
| (49) |
|
|
| — |
| Income tax expense |
| $ | 99 |
|
| $ | 3 |
|
|
|
| $ | 162 |
|
| $ | — |
|
|
|
| For the six months ended June 30, 2020 |
|
| For the six months ended June 30, 2019 |
|
| ||
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
| Amount reclassified from accumulated other comprehensive income (2) |
|
| Amount reclassified from accumulated other comprehensive income (2) |
| Affected line item in the Consolidated Statements of Income | ||
Net unrealized gain on available-for securities (1) |
| $ | 141 |
|
| $ | 8 |
| Gain on sale of available-for-sale securities, net |
Tax Effect |
|
| (42) |
|
|
| (2) |
| Income tax expense |
|
| $ | 99 |
|
| $ | 6 |
|
|
| (1) | For additional details related to unrealized gains on investment securities and related amounts reclassified from accumulated other comprehensive |
| (2) | Amounts in parentheses indicate debits. |
8.9. EARNINGS PER SHARE
Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. The diluted EPS calculation reflects the EPS if all outstanding instruments convertible to common stock were exercised. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. At SeptemberJune 30, 20192020,, there were 218,000216,400 stock options outstanding of which 30,08059,600 of the stock options were vested and exercisable at SeptemberJune 30, 2019.2020. At SeptemberJune 30, 2019,2020, there 87,000 restricted stock shares outstanding of which 11,68024,140 restricted stock shares were vested and exercisable at SeptemberJune 30, 20192020. The 218,000216,400 stock options outstanding and 87,00062,860 restricted stock shares outstanding were not included in the computation of diluted net income per share for the three and six months ended SeptemberJune 30, 20192020 as their effect would have been anti-dilutive. At SeptemberJune 30, 2018,2019, there were 198,000218,000 stock options outstanding and 77,00087,000 restricted stock shares outstanding which none30,080 and 11,680 of the stock options and restricted stock shares were vested and exercisable at SeptemberJune 30, 2018.2019. The 198,000218,000 stock options outstanding and 75,320 restricted stock awards outstanding were not included in the computation of diluted net income per share for the three and six months ended SeptemberJune 30, 2018,2019, as their effect would have been anti-dilutive.
29
The calculation of basic and diluted EPS for the three and six months ended SeptemberJune 30, 20192020 and 20182019 is as follows:
|
| For the Three Months Ended September 30 |
|
| For the Three Months Ended June 30 |
|
| For the Six Months Ended June 30 |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Net income |
| $ | 333,000 |
|
| $ | 270,000 |
|
| $ | 1,496,000 |
|
| $ | 408,000 |
|
| $ | 1,645,000 |
|
| $ | 470,000 |
|
Weighted average number of shares issued |
|
| 2,269,125 |
|
|
| 2,259,125 |
|
|
| 2,270,725 |
|
|
| 2,260,993 |
|
|
| 2,270,452 |
|
|
| 2,259,136 |
|
Less weighted average number of treasury shares |
|
| (208 | ) |
|
| — |
|
|
| (26,449 | ) |
|
| (39 | ) |
|
| (14,468 | ) |
|
| (20 | ) |
Less weighted average number of unearned ESOP shares |
|
| (151,326 | ) |
|
| (164,096 | ) |
|
| (144,772 | ) |
|
| (153,500 | ) |
|
| (145,863 | ) |
|
| (154,585 | ) |
Less weighted average number of unvested restricted stock awards |
|
| (73,288 | ) |
|
| (75,207 | ) |
|
| (63,951 | ) |
|
| (68,858 | ) |
|
| (65,501 | ) |
|
| (68,529 | ) |
Basic weighted average shares outstanding |
|
| 2,044,303 |
|
|
| 2,019,822 |
|
|
| 2,035,553 |
|
|
| 2,038,596 |
|
|
| 2,044,620 |
|
|
| 2,036,002 |
|
Add dilutive effect of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Add dilutive effect of restricted stock awards |
|
| — |
|
|
| 347 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Diluted weighted average shares outstanding |
|
| 2,044,303 |
|
|
| 2,020,169 |
|
|
| 2,035,553 |
|
|
| 2,038,596 |
|
|
| 2,044,620 |
|
|
| 2,036,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.16 |
|
| $ | 0.13 |
|
| $ | 0.73 |
|
| $ | 0.20 |
|
| $ | 0.80 |
|
| $ | 0.23 |
|
Diluted |
| $ | 0.16 |
|
| $ | 0.13 |
|
| $ | 0.73 |
|
| $ | 0.20 |
|
| $ | 0.80 |
|
| $ | 0.23 |
|
9.10. EMPLOYEE BENFITS
|
Equity Incentive Plan
The Company’s shareholders approved the HV Bancorp, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) at a Special Meeting of shareholders on June 13, 2018. An aggregate of 305,497 shares of authorized but unissued common stock of the Company was reserved for future grants of
33
incentive and non-qualified stock options, restricted stock awards and restricted stock units under the 2018 Equity Incentive Plan. Of the 305,497 authorized shares, the maximum number of shares of the Company’s common stock that may be issued under the 2018 Equity Incentive Plan pursuant to the exercise of stock options is 218,212 shares, and the maximum number of shares of the Company’s common stock that may be issued as restricted stock awards or restricted stock units is 87,285 shares.
The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2018 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of SeptemberJune 30, 2019,2020, there were 497 shares available for future awards under this plan, which includes 212 shares available for incentive and non-qualified stock options and 285 shares available for restricted stock awards. The restricted shares and stock options vest over a seven year period.
Stock option expense was $15,000 and $18,000$30,000 for the three months and six months ended SeptemberJune 30, 2020 and $14,000 and $28,000 for the three months and six months ended June 30, 2019, and September 30, 2018, respectively. At SeptemberJune 30, 2019,2020, total unrecognized compensation cost related to stock options was $353,000.$308,000.
30
A summary of the Company’s stock option activity and related information for the threesix months ended SeptemberJune 30, 2020 and June 30, 2019 and September 30, 2018 was as follows:
|
| 2019 |
|
| 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Options |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life (in years) |
|
| Average Intrinsic Value |
|
| Options |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life (in years) |
|
| Average Intrinsic Value |
|
| Options |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life (in years) |
|
| Average Intrinsic Value |
|
| Options |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Life (in years) |
|
| Average Intrinsic Value |
| |||||||||||||||||
Outstanding, July 1 |
|
| 218,000 |
|
| $ | 14.92 |
|
|
| 9.1 |
|
| $ | 61,040 |
|
|
| 198,000 |
|
| $ | 14.80 |
|
|
| 10.0 |
|
| $ | 3,960 |
| |||||||||||||||||||||||||||||||||
Outstanding, Jan 1 |
|
| 218,000 |
|
| $ | 14.92 |
|
|
| 8.6 |
|
| $ | 452,400 |
|
|
| 188,000 |
|
| $ | 14.80 |
|
|
| 9.4 |
|
| $ | 33,840 |
| |||||||||||||||||||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30,000 |
|
|
| 15.71 |
|
|
| 9.9 |
|
|
| — |
| |
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,600 | ) |
|
| 14.80 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Outstanding, September 30 |
|
| 218,000 |
|
| $ | 14.92 |
|
|
| 8.8 |
|
| $ | — |
|
|
| 198,000 |
|
| $ | 14.80 |
|
|
| 9.7 |
|
| $ | 3,960 |
| |||||||||||||||||||||||||||||||||
Exercisable, September 30 |
|
| 30,080 |
|
| $ | 14.80 |
|
|
| 8.7 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
| |||||||||||||||||||||||||||||||||
Outstanding, June 30 |
|
| 216,400 |
|
| $ | 14.93 |
|
|
| 8.1 |
|
| $ | — |
|
|
| 218,000 |
|
| $ | 14.92 |
|
|
| 9.1 |
|
| $ | 61,040 |
| |||||||||||||||||||||||||||||||||
Exercisable, June 30 |
|
| 59,600 |
|
| $ | 14.87 |
|
|
| 8.1 |
|
| $ | — |
|
|
| 30,080 |
|
| $ | 14.80 |
|
|
| 9.0 |
|
| $ | 8,422 |
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Six Months Ended June 30, | |||
2019 | |||
Dividend yield | 3.14%-3.29% | ||
Expected life | 10 years | ||
Expected volatility | 19.68%-24.07% | ||
Risk-free interest rate | 1.96%-2.56% | ||
Weighted average grant date fair value | $2.39-$2.98 |
The excepted volatility is based on blended rate of historical volatility and SNL US Index of Banks between $250 million and $500 million in assets as the Company’s shares of common stock did not begin trading on the Nasdaq Capital Market until January 12, 2017. The expected life is an estimate based on management review of the various factors. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.
Restricted stock expense for the three months ended SeptemberJune 30, 2020 and June 30, 2019 was $47,000 and September 30, 2018 was $46,000, respectively. Restricted stock expense for the six months ended June 30, 2020 and June 30,
34
2019 was $94,000 and $91,000, respectively. At SeptemberJune 30, 2019,2020, the expected future compensation expense relating to non-vested restricted stock outstanding was $1.1 million.$938,000.
A summary of the Company’s restricted stock activity and related information for the threesix months ended SeptemberJune 30, 20192020 and 2018June 30, 2019 was as follows:
|
| 2019 |
|
| 2018 |
|
| June 30, 2020 |
|
| June 30, 2019 |
| ||||||||||||||||||||
|
| Number of Shares |
|
| Weighted- Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted- Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted- Average Grant Date Fair Value |
|
| Number of Shares |
|
| Weighted- Average Grant Date Fair Value |
| ||||||||
Non-vested, July 1 |
|
| 75,320 |
|
| $ | 14.97 |
|
|
| 77,000 |
|
| $ | 14.80 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Non-vested, Jan 1 |
|
| 75,320 |
|
| $ | 14.97 |
|
|
| 73,000 |
|
| $ | 14.80 |
| ||||||||||||||||
Vested |
|
| (12,460 | ) |
|
| 14.97 |
|
|
| (11,680 | ) |
|
| 14.80 |
| ||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,000 |
|
|
| 15.72 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Non-vested at September 30 |
|
| 75,320 |
|
| $ | 14.97 |
|
|
| 77,000 |
|
| $ | 14.80 |
| ||||||||||||||||
Non-vested at June 30 |
|
| 62,860 |
|
| $ | 14.97 |
|
|
| 75,320 |
|
| $ | 14.97 |
|
10.11. RELATED PARTY TRANSACTIONS
In November 2017, the Company engaged a third party to provide services for certain customers with large deposit balances, by offering both a competitive rate of return and FDIC insurance. Related party balances in this program totaled $19.1$8.1 million at SeptemberJune 30, 20192020, for which the Company received no fees for customer services totaling approximately $7,000 and $37,000 infor the three months ended SeptemberJune 30, 2020, and approximately $2,000 for the six months ended June 30, 2020. For the three and six months ended June 30, 2019, we received approximately $2,000 and September 30, 2018, respectively.$7,000 in fees for customer service for related party balances.
In January 2018, the Company entered into a business consulting agreement with one of our directors to provide deposit sales training, grow deposit market share and identify deposit opportunities. This agreement will terminateterminated on December 31, 2019. The Company has paid $15,000 and $30,000 in consulting fees to the director for three and six months ended SeptemberJune 30, 2019 and September 30, 2018, respectively.2019.
11.12. REVENUE RECOGNITION
On July 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods
31
beginning after July 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as income from bank owned life insurance, sales of investment securities, mortgage banking activities, and certain items within other income are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such deposit related fees, interchange fees, and fees income received in exchange for customer’s deposits sourced with a deposit placement network. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606.
The following table presents noninterest income for the three months ended September 30, 2019 and 2018:
|
| Three Months Ended September 30, |
| |||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
| ||
Non-Interest Income |
|
|
|
|
|
|
|
|
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
Fee income |
| $ | 13 |
|
| $ | 39 |
|
Insufficient fund fees |
|
| 15 |
|
|
| 16 |
|
Other service charges |
|
| 21 |
|
|
| 15 |
|
ATM interchange fee income |
|
| 2 |
|
|
| 2 |
|
Total Non-Interest Income (in-scope of Topic 606) |
| $ | 51 |
|
| $ | 72 |
|
|
|
|
|
|
|
|
|
|
Out-of-scope of Topic 606: |
|
|
|
|
|
|
|
|
Increase in cash surrender value of bank-owned life insurance |
| $ | 41 |
|
| $ | 40 |
|
Gain on sale of loans, net |
|
| 1,680 |
|
|
| 901 |
|
Gain on sale of available-for-sale securities |
|
| 211 |
|
|
| — |
|
Gain (loss) from derivative instruments |
|
| 177 |
|
|
| (317 | ) |
Change in fair value for loans held-for-sale |
|
| 40 |
|
|
| 61 |
|
Other |
|
| 5 |
|
|
| 1 |
|
Total Non-Interest Income (out-scope of Topic 606) |
|
| 2,154 |
|
|
| 686 |
|
Total Non-Interest Income (in-scope of Topic 606) |
|
| 51 |
|
|
| 72 |
|
Total Noninterest Income |
| $ | 2,205 |
|
| $ | 758 |
|
The following is a discussion of key revenues of fees for customer services that are within the scope of the new revenue guidance:
32
The following table presents noninterest income for the three and six months ended June 30, 2020 and June 30, 2019:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(Dollars in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee income |
| $ | — |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | 7 |
|
Insufficient fund fees |
|
| 7 |
|
|
| 15 |
|
|
| 23 |
|
|
| 26 |
|
Other service charges |
|
| 22 |
|
|
| 20 |
|
|
| 40 |
|
|
| 31 |
|
ATM interchange fee income |
|
| 2 |
|
|
| 2 |
|
|
| 4 |
|
|
| 4 |
|
Other income |
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
|
| 2 |
|
Total Non-Interest Income (in-scope of Topic 606) |
| $ | 32 |
|
| $ | 41 |
|
| $ | 71 |
|
| $ | 70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-of-scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of bank-owned life insurance |
| $ | 38 |
|
| $ | 40 |
|
| $ | 76 |
|
| $ | 79 |
|
Gain on sale of loans, net |
|
| 2,327 |
|
|
| 407 |
|
|
| 3,956 |
|
|
| 1,297 | �� |
Gain on sale of available-for-sale securities |
|
| 141 |
|
|
| 4 |
|
|
| 141 |
|
|
| 8 |
|
Gain from derivative instruments |
|
| 1,080 |
|
|
| 769 |
|
|
| 1,464 |
|
|
| 1,164 |
|
Change in fair value for loans held-for-sale |
|
| 287 |
|
|
| 682 |
|
|
| 293 |
|
|
| 306 |
|
Other |
|
| 40 |
|
|
| 1 |
|
|
| 88 |
|
|
| 6 |
|
Total Non-Interest Income (out-scope of Topic 606) |
|
| 3,913 |
|
|
| 1,903 |
|
|
| 6,018 |
|
|
| 2,860 |
|
Total Non-Interest Income (in-scope of Topic 606) |
|
| 32 |
|
|
| 41 |
|
|
| 71 |
|
|
| 70 |
|
Total Noninterest Income |
| $ | 3,945 |
|
| $ | 1,944 |
|
| $ | 6,089 |
|
| $ | 2,930 |
|
12.13. Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On July 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Upon adoption of ASC Topic 842, Leases, on July 1, 2019, the Company recorded an asset of $2.1 million and a corresponding liability in the amount of $2.1 million, included in other assets and other liabilities on the consolidated statement of financial condition. The Company recorded an additional asset of $3.7 million and a corresponding liability in the amount of $3.7 million during the three months ended September 30, 2019 for two new lease agreements. In addition, as part of the adoption of Topic 842 on July 1, 2019, the Company booked an adjustment of $277,000 to retained earnings to write-off the balance of the deferred gain on sale-leaseback of buildings. The Company elected to adopt the transition relief under ASC Topic 842 using the modified retrospective transition method. All lease agreements are accounted for as operating leases. The Company has no unamortized initial direct costs related to the establishment of these lease agreements as of July 1, 2019.
Lessee Accounting
Substantially allThe majority of the Company’s leases in which the Company is the lessee are comprised of operating leases for real estate property for branches and office spaces with terms extending through 2036. All of our leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated statements of financial condition. With the adoption of Topic 842,2039. The operating lease agreements are required to be recognized on the consolidated statements of financial condition as a right-of-use (“ROU”) asset and a corresponding lease liability. The Company elected not to include short-term leases with initial terms of twelve months or less on the consolidated statements of financial condition.
The following table represents the consolidated statements of financial condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less) onliabilities in the consolidated statements of financial condition.
condition:
|
|
| September 30, 2019 |
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| |||
Lease Right-of-Use Assets |
| Classification |
|
|
|
| Classification |
|
|
|
|
|
|
|
Operating lease right-of-use assets |
| Other assets | $ | 5,783 |
|
| Operating lease right-of-use assets | $ | 7,937 |
|
| $ | 5,979 |
|
Total Lease Right-of-Use Assets |
|
| $ | 5,783 |
|
|
| $ | 7,937 |
|
| $ | 5,979 |
|
|
|
| September 30, 2019 |
| |
Lease Liabilities |
| Classification |
|
|
|
Operating lease liabilities |
| Other liabilities | $ | 5,757 |
|
Total Lease Liabilities |
|
| $ | 5,757 |
|
36
|
| June 30, 2020 |
|
| December 31, 2019 |
| |||
Lease Liabilities |
| Classification |
|
|
|
|
|
|
|
Operating lease liabilities |
| Operating lease liabilities | $ | 8,117 |
|
| $ | 6,023 |
|
Total Lease Liabilities |
|
| $ | 8,117 |
|
| $ | 6,023 |
|
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements oftenfrequently include one or more options to renew at the Company’s discretion. If at the beginning of the lease, inception, the Company considersis reasonably certain that the exercising of a renewal option towill be reasonably certain,exercised, the Company will include the extended term in the calculation of the ROU asset and lease liability. RegardingFor the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. TheIf the rate is not readily determinable in the lease, the Company utilizedused its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term as the rate implicit in the lease was not readily determinable. For operating leases existing prior to July 1, 2019, the rate for the remaining lease term as of July 1, 2019 was used.term.
33
| |||||
| |||||
|
| ||||
| |||||
|
|
|
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
| 12.8 |
|
|
| 12.7 |
|
Weighted-average discount rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
| 2.23 | % |
|
| 2.34 | % |
The components of the lease expense are as follows:
(dollars in thousands) | For the three months ended September 30, 2019 |
| (dollars in thousands) | For the three months ended June 30, 2020 |
| For the six months ended June 30, 2020 |
| |||
Operating lease cost | $ | 73 |
| $ | 150 |
| $ | 282 |
| |
Short-term lease cost |
| 63 |
|
| 3 |
|
| 21 |
| |
Total | $ | 136 |
| $ | 153 |
| $ | 303 |
|
Future minimum payments for operating leases with initial or remaining terms of one year or more as of SeptemberJune 30, 2020 and December 31, 2019 were as follows:
(dollars in thousands) | Operating Leases |
| |
Twelve Months Ended: |
|
|
|
9/30/2020 | $ | 317 |
|
9/30/2021 |
| 564 |
|
9/30/2022 |
| 529 |
|
9/30/2023 |
| 524 |
|
9/30/2024 |
| 529 |
|
2025 and thereafter |
| 4,298 |
|
Total Future Minimum Lease Payments |
| 6,761 |
|
Amounts Representing Interest |
| (1,004 | ) |
Present Value of Net Future Minimum Lease Payments | $ | 5,757 |
|
(dollars in thousands) | June 30, 2020 |
| December 31, 2019 |
| ||
Twelve Months Ended: |
|
|
|
|
|
|
Within one year | $ | 714 |
| $ | 440 |
|
After one but within two years |
| 789 |
|
| 632 |
|
After two but within three years |
| 777 |
|
| 583 |
|
After three but within four years |
| 790 |
|
| 594 |
|
After four but within five years |
| 761 |
|
| 596 |
|
After five years |
| 5,562 |
|
| 4,164 |
|
Total Future Minimum Lease Payments |
| 9,393 |
|
| 7,009 |
|
Amounts Representing Interest |
| (1,276 | ) |
| (986 | ) |
Present Value of Net Future Minimum Lease Payments | $ | 8,117 |
| $ | 6,023 |
|
3437
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Certain factors that could cause actual results to differ materially from expected results include, the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of coronavirus COVID-19 on our operations, current customers and the economy in general, changes in the interest rate environment, changesincreases in general economic conditions,nonperforming loans, legislative and regulatory changes that adversely affect the business of the Company, and changes in the securities markets. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.
Overview
The Bank provides financial services to individuals and businesses from our main office in Doylestown, Pennsylvania, and from our three additional full-service banking offices located in Plumsteadville, Warrington and Huntingdon Valley, Pennsylvania. We also operate a limited service branch in Philadelphia, Pennsylvania. We have a loan production office located in Philadelphia, Pennsylvania, a sales office in Doylestown, Pennsylvania and Wilmington, Delaware and a loan origination office in Montgomeryville, Pennsylvania. Our business banking office is located in Philadelphia, Pennsylvania. Our primary market area includes Montgomery, Bucks and Philadelphia Counties in Pennsylvania and WilmingtonNew Castle Counties in Delaware. Our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans (including multi-family loans), home equity loans and lines of credit and, to a lesser extent, consumer and construction loans. We retain our loans in portfolio depending on market conditions, but we primarily sell our fixed-rate one- to four-family residential mortgage loans in the secondary market. We also invest in various investment securities. Our revenue is derived principally from interest on loans and investments and loan sales. Our primary sources of funds are deposits, Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”), Federal Home Loan Bank, (“FHLB”) advances and principal and interest payments on loans and securities.
Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market, fees for customer services, gain or loss from derivative instruments and change in fair value of loans held for sale. Non-interest expense primarily consists of expenses related to salaries and employee benefits, occupancy, data processing related operations, professional fees, and other expenses.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
35
38
From the beginning of the COVID-19 crisis, our focus has been and remains on navigating the complexities, impact and ongoing challenges of the COVID-19 pandemic. The safety and well-being of our employees and customers has been our focus while continuing to provide our customers with full access to our banking services. The Company took the following preemptive measures as the COVID-19 pandemic evolved:
Business Continuity Plan
During March 2020, management launched its previously developed Business Continuity Plan in response to the COVID-19 pandemic. Initially, the Company implemented drive-up service only, increased the use of virtual and distance communications with customers and employees, and mandated expansive work at home procedures for employees.
By end of June 2020, our employees began returning to their offices on a rotating basis and the branch lobby services have been reopened to accommodate customers’ needs. This gradual process was met with close adherence to health and safety-related requirements.
To date, the Company has not had any employee layoffs or furloughs and presently does not anticipate future furloughs or layoffs related to the COVID-19 pandemic.
Paycheck Protection Program
In April 2020, our team in business banking and retail began accepting and processing applications for loans under the Paycheck Protection Program (“PPP”) implemented by the Small Business Association (“SBA”) with support from the Department of Treasury under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As of June 30, 2020, the Company had received over 450 applications from new and existing customers with an outstanding balance of $73.2 million and received approximately $2.3 million in processing fee income. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated if the loan is forgive. For the three months ended, the Company recognized approximately $138,000 in interest income. The PPP loans have a two-year term and earn interest at 1%. The Company funded these short-term loans primarily from available liquidity through participation in the Federal Reserve’s PPLF. The SBA fully guarantees the principle and interest, unless the lender violated an obligation under the agreement. The Company did not include the PPP loans in the allowance for loan loss calculation as loan losses if any are anticipated to be immaterial.
Liquidity Sources
The Company has reviewed all sources of liquidity in anticipation of any potential funding needs due to the COVID-19 pandemic and prioritized based on available capacity, terms, and cost of funds. As of June 30, 2020, the Company had the following sources of liquidity available:
|
| At June 30, |
| |
|
| 2020 |
| |
Sources of Liquidity: |
| (Dollars in thousands) |
| |
Cash and cash equivalents |
| $ | 28,651 |
|
Market value of unencumbered securities |
|
| 12,134 |
|
PPPLF availability |
|
| 25,362 |
|
Collateral value of unencumbered pledged loans (FHLB borrowing availability) |
|
| 125,417 |
|
Total sources of liquidity |
| $ | 191,564 |
|
In addition as of June 30, 2020, the Company also had access to $3.0 million unused borrowing capacity from the Atlantic Community Bankers Bank and a $1.3 million line of credit with Federal Reserve Bank of
39
Philadelphia. The Company also has access to brokered certificate of deposits as an additional funding source.
Capital Strength
At June 30, 2020, the Bank’s exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.
• | Total risk-based capital (to risk-weighted assets) was 13.8%, tier 1 capital (to risk-weighted assets) was 14.7%, tier capital (to average assets) was 8.2%, and tier 1 common equity (to risk-weighted assets) was 13.7%. |
Deferral Requests
The Company has worked with the customers impacted by COVID-19 to provide short-term assistance up to six months in accordance with regulatory guidelines. Commercial borrowers requesting assistance have been offered either a 90-day principal and interest deferral or a 90-day interest only with a potential deferral of up to two additional months. These deferrals do not constitute TDRS under the Cares Act as they met the requirements under section 4013. Residential borrowers needing assistance have been offered a 90-day principal and interest deferral with a potential additional 90-day deferral. As of June 30, 2020, the Company had processed 73 deferral requests, representing $29.0 million in total outstanding loans. Management expects deferral requests could continue throughout the 2020.
The following table provides a breakdown of loans deferred under the payment deferral program by category as of June 30, 2020:
|
| At June 30, |
| |
|
| 2020 |
| |
|
| (Dollars in thousands) |
| |
Residential one-to-four family |
| $ | 21,328 |
|
Commercial real estate |
|
| 4,511 |
|
Commercial business |
|
| 3,168 |
|
Total loans outstanding |
| $ | 29,007 |
|
Loan Portfolio Analysis
Certain industries are anticipated to suffer greater economic impact as a result of the COVID-19 pandemic. The following table provides the outstanding exposure in regard to the Company’s commercial loan portfolio by type as of June 30, 2020.
| At June 30, 2020 |
| ||||||||||
|
| (Dollars in thousands) |
| |||||||||
Type of Loan |
| Number of loans |
|
| Balance |
|
| % Gross Loans |
| |||
Residential non-owner occupied |
|
| 60 |
|
| $ | 32,498 |
|
|
| 10.5 | % |
Nonresidential buildings |
|
| 18 |
|
|
| 12,637 |
|
|
| 4.1 | % |
Other real estate properties |
|
| 7 |
|
|
| 3,212 |
|
|
| 1.0 | % |
Residential building construction |
|
| 8 |
|
|
| 2,849 |
|
|
| 0.9 | % |
Restaurants and Food Service |
|
| 18 |
|
|
| 2,083 |
|
|
| 0.7 | % |
Religious Organizations |
|
| 5 |
|
|
| 1,197 |
|
|
| 0.4 | % |
Total outstanding exposure |
|
| 116 |
|
| $ | 54,476 |
|
|
| 17.6 | % |
40
The extent of the impact of the COVID-19 pandemic to the Company’s loan portfolio is uncertain and cannot be predicted as it will depend on certain developments including the duration of the pandemic as well as the local and national economies as a whole.
Critical Accounting Policies
The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations, which may significantly affect our reported results and financial condition for the current period or in future periods.
Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of SeptemberJune 30, 20192020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K,10-KT, for the yearsix-month transition period ended June 30,December 31, 2019.
The Jumpstart Our Business Startups Act (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, there is not a significant difference in the presentation of our consolidated financial statements as compared to other public companies as a result of this transition guidance. The complete list of Critical Accounting Policies are described in the Annual Report on Form 10-K,10-KT, for the yearsix-month transition period ended June 30,December 31, 2019.
Comparison of Statements of Financial Condition at SeptemberJune 30, 20192020 and at June 30,December 31, 2019
Total Assets
Total assets increased $12.4$70.1 million, or 3.6%,19.8% to $356.6 million at September 30, 2019 from $344.2$424.7 million at June 30, 2019. 2020, from $354.6 million at December 31, 2019. The increasegrowth in total assets was primarily the result ofdue to increases of $7.8$54.6 million in loans receivable, $7.1$8.0 million in cash and cash equivalents, and $5.3$5.6 million in loans held for sale and $1.9 million in the operating lease right-of-use asset and $1.5 million in the mortgage banking derivatives offset by a decrease of $13.6$2.6 million in available-for- saleavailable-for-sale investment securities. Included in total assets at September 30, 2019, is an operating lease right-of-use assets of $5.8 million as part of the adoption of ASU Topic 842, Leases. The Company adopted ASU Topic 842, Leases on July 1, 2019 which required the recording of the right-to-use asset and associated lease liability (see footnote 12, Leases for more discussion).
Cash and cash equivalents
Cash and cash equivalents increased $7.1$8.0 million, or 35.1%, to $27.3 million at September 30, 2019 from $20.2$28.6 million at June 30, 2020, from $20.6 million at December 31, 2019, with the expectation that excess liquidity will be used to fund growth of the loan portfolio.
Investment Securities
Investment securities decreased $13.6$2.6 million or 38.6%12.3%, to $21.6 million at September 30, 2019 and $35.2$18.6 million at June 30, 2020, from $21.2 million at December 31, 2019. The decrease was primarily due to $8.1 million in proceeds from sales and maturities and principal repayments offset by purchases of $13.7$5.2 million during the threesix months ended SeptemberJune 30, 20192020, and $101,000a $250,000 increase in net unrealized lossgain on available-for-sale.
41
Net loans increased $7.8$54.6 million or 3.2%, to $248.6 million at September 30, 2019 from $240.8$309.6 million at June 30, 2019. One- to four-family residential real estate loans increased $1.1 million to $202.62020, from $255.0 million at September 30, 2019 from $201.5December 31, 2019. In April 2020, the Company begin participating in the PPP program and processed over 450 applications with an outstanding balance of $73.2 million atas of June 30, 2019.2020. Commercial real estate loans increased by $9.4$9.6 million to $25.9 million at September 30, 2019 from $16.5$44.8 million at June 30, 2020, from $35.2 million at December 31, 2019, primarily as a result of originations from the Business Bankingbusiness banking division, whichwhose continued focus is focused on the growth of the commercial lending and commercial business loan portfolios. Commercial business loans decreasedincreased by $2.8$2.9 million to $6.9 million at September 30, 2019 from $9.7$14.0 million at June 30, 2019 because of a loan payoff.2020, from $11.1 million at December 31, 2019. The Constructionconstruction loans increased $328,000$1.7 million to $2.3 million at September 30, 2019 from $2.0$2.5 million at June 30, 2020, from $784,000 at December 31, 2019. HomeOffsetting these increases was a $29.5 million decrease in one- to four-family residential real estate loans from $197.5 million at December 31, 2019, to $168.0 million at June 30, 2020, and a $298,000 decrease in home equity and HELOC loans increased by $339,000 from $4.2$4.4 million at December 31, 2019, to $4.1 million at June 30, 2019 to $4.5 million at September 30, 2019.
2020.
In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approvedAMA-approved medical schools in Caribbean nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At SeptemberJune 30, 20192020, the balance of the private education loans was $6.2$5.7 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At SeptemberJune 30, 20192020, there were sixthree loans with a balance of approximately $325,000$61,000 that are past due 90 days or more. The Company allocated increased allowance for loan loss provisions to the medical education loans for the three months ended September 30, 2019 primarily as a result of net charge-offs totaling $92,000.
Loans Held For Sale
Loans held for sale increased $5.3$5.6 million or 15.7% to $39.0 million at September 30, 2019 from $33.7$43.5 million at June 30, 2020, from $37.9 million at December 31, 2019, as a result of originations of $83.1 millionan increase in the pipeline of one- to four-familyfour family residential real estate loans during the three months ended September 30, 2019 and principle sales of $77.9 million of loans in the secondary market during this same period..
Deposits
Deposits increased $9.5$16.8 million, or 3.5%5.9%, to $284.6 million at September 30, 2019 from $275.1$300.6 million at June 30, 2020, from $283.8 million at December 31, 2019. OurThe increase was primarily because $32.4 increase in our core deposits (consisting of demand deposits, money market, passbook and statement and checking accounts) increased $10.9 million, or 5.6%, to $204.7 million at September 30, 2019 from $193.8$247.9 million at June 30, 2020, from $215.5 million at December 31, 2019. CertificatesOffsetting this increase was a $15.6 million, or 22.8% decrease in certificates of deposit decreased $1.4 million, or 1.7%, to $79.9 million at September 30, 2019 from $81.3$52.7 million at June 30, 2020, from $68.3 million at December 31, 2019. IncludedThe decrease of $15.6 million in certificate in deposits was primarily the result of a $12.5 million decrease in certificate of deposits was $34.0issued through a broker which have a higher cost of funds and a $3.1 million decrease in retail certificates of deposit issued through brokers at September 30, 2019, which was used in part to fund the loan growth of the portfolio and to repay advances from the Federal Home Loan Bank.deposits.
Advances from the Federal Home Loan BankReserve’s Paycheck Protection Program Liquidity Facility
Advances from
During the second quarter of 2020, the Company utilized the Federal Home Loan Bank decreased by $1.0 million, or 3.6%, from $28.0 million atReserve’s PPPLF to fund a portion of PPP loans. As of June 30, 2019 to $27.0 million at September 30, 2019 as a result of repayments of $1.02020, the Company had $47.8 million in long-term borrowing.
37
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase decreased approximately $1.7 million, or 44.7%, to $2.1 million at September 30, 2019 from $3.8 million at June 30, 2019 as a result of a decrease in the underlying deposit balances, which are primarily held by title companies.PPPLF advances outstanding.
Total Shareholders’ Equity
Total shareholders’ equity increased $604,000$1.7 million, or 5.1% to $33.3 million at September 30, 2019 compared to $32.7$35.3 million at June 30, 2020 compared to $33.6 million at December 31, 2019, primarily as a result of net income of $333,000$1.6 million for the threesix months ended SeptemberJune 30, 2019,2020, share based compensation expense of $61,000 offset by$124,000, other comprehensive lossincome of $101,000$176,000 due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio. In addition, ESOP shares committed to be released totaling $65,000 and a stock option exercise of $34,000$24,000 contributed to the increase of total shareholders’ equity. Includedequity. Offsetting these increases was $376,000 in retained earnings at September 30, 2019, is an adjustment of $277,000 for the recognition of the deferred gain on sale-leaseback of buildingstreasury stock repurchases primarily as part of the adoption of ASU 2016-02, Leases (Topic 842).stock repurchase plan approved in April 2019.
42
Comparison of Statements of Income for the Three Months Ended SeptemberJune 30, 20192020 and 2018June 30, 2019
General
Net income increased $63,000$1.1 million to $333,000, or 23.3%,$1.5 million for the three months ended SeptemberJune 30, 20192020 from $270,000$408,000 for the three months ended SeptemberJune 30, 2018.2019. The increase in net income for the three months ended SeptemberJune 30, 20192020, was primarily due to an increaseincreases of $1.4$2.0 million in non-interest income and $38,000$549,000 in net interest income offset by a $1.2increases of $835,000 million increase in non-interest expense, $464,000 in income tax expense and $185,000$163,000 increase in provision for loan losses.
Interest Income
Total interest income increased $460,000,$469,000, or 17.4%16.4%, to $3.1$3.3 million for the three months ended SeptemberJune 30, 20192020, from $2.7$2.9 million for the three months ended SeptemberJune 30, 2018.2019. The increase was primarily the result of an increase in interest and fees on loans of $490,000 and an increase on interest on interest-earning deposits with banks of $22,000$650,000 offset by a decrease in interest on investment securities of $61,000.$123,000 and a decrease in interest on interest-earning deposits with banks of $54,000. Total average interest-earning assets increased $37.7$66.1 million to $329.2$373.3 million for the three months ended SeptemberJune 30, 20192020, from $291.5$307.2 million for the same period in 2018.2019. The increase was primarily as a result of an increase in the average balance of loans of $42.9$71.7 million and $4.7$12.0 million in average balance of interest-earning deposits with banks partially offset by a $10.1 decrease of $18.4 million in the average balance of investment securities. The average yield on our interest-earning assets increased 14decreased 15 basis points to 3.78%3.57% for the three months ended SeptemberJune 30, 20192020, as compared to 3.64%3.72% for the three months ended SeptemberJune 30, 2018 primarily as a result of a higher average yield on loans.2019.
Interest and fees on loans increased $490,000$650,000 to $2.8$3.2 million for the three months ended SeptemberJune 30, 20192020 from $2.3$2.5 million for the same period in 2018.2019. This increase was primarily due to an increase in average loans outstanding of $42.9$71.7 million, which increased to $277.4a total of $326.9 million for the three months ended SeptemberJune 30, 20192020, from $234.5$255.2 million for the three months ended SeptemberJune 30, 20182019. The increase in average loans was primarily as a result of an increasegrowth in the average balances of PPP loans, loans held for sale, commercial real estate and other commercial business offset by a decrease in the average balance of loans held for sale andin one-to four-family residential real estate loans. The average yield on loans increaseddecreased 7 basis point to 4.02%3.88% for the three months ended SeptemberJune 30, 2019 from 3.92%2020, versus 3.95% for the three months ended SeptemberJune 30, 2018.2019.
Interest income on interest-earning deposits increaseddecreased by $22,000$54,000 to $95,000$15,000 for the three months ended SeptemberJune 30, 2019,2020, from $73,000$69,000 for the three months ended SeptemberJune 30, 2018.2019. The increasedecrease was primarily due to a reduction in average yield on interest-earning deposits with banks of 219 basis points, to 0.26% for the three months ended June 30, 2020, from 2.45% for the three months ended June 30, 2019 as a result of a decline in interest rates following the COVID-19 pandemic. The targeted federal funds rate was cut to 0% on March 16th and the 10-year Treasury bond falling below 1.00% on March 3, 2020. Offsetting this decrease, was an increase in the average balance of interest-earning deposits increased $4.7of $12.0 million to $16.3$23.3 million for the three months ended SeptemberJune 30, 20192020, from $11.6$11.3 million for the three months ended SeptemberJune 30, 2018. The average yield on interest-earning deposits with banks decreased 18 basis points, to 2.34% for the three months ended September 30, 2019 from 2.52% for the three months ended September 30, 2018.2019.
38
Interest on investment securities decreased by $61,000$123,000 to $200,000$127,000 for the three months ended SeptemberJune 30, 20192020, from $261,000$250,000 for the three months ended SeptemberJune 30, 2018,2019, respectively. Interest on investment securities decreased as a result of a $76,000 decrease in income on taxable and non-taxable interest and dividend investments as well as a $47,000 decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased by $50,000 to $53,000$39,000 for the three months ended SeptemberJune 30, 2019,2020, from $103,000$86,000 for the three months ended SeptemberJune 30, 2018.2019. The average yield on total securities decreased to 2.35%2.41% for the three months ended SeptemberJune 30, 20192020, from 2.36%2.53% for the same period in 2018.2019. The average balance of investment securities decreased by $10.1$18.4 million to $34.1$21.1 million for the three months ended SeptemberJune 30, 2019,2020, from $44.2$39.5 million for the three months ended SeptemberJune 30, 2018.2019.
43
Total interest expense increased $422,000decreased $80,000 to $1.0 million$758,000 for the three months ended SeptemberJune 30, 20192020, from $614,000$838,000 for the three months ended SeptemberJune 30, 2018,2019, primarily due to a $363,000 increase$146,000 decrease in interest expense on deposits offset by an increase of $48,000 in interest expenses on advances from the FHLB and a $59,000an $19,000 increase in interest expense on advances from the Federal Home Loan Bank. PPPLF.
Interest expense on deposits increased $363,000decreased $146,000 to $877,000$575,000 for the three months ended SeptemberJune 30, 20192020, from $514,000$721,000 for the three months ended SeptemberJune 30, 20182019, primarily as a result of an increasea decrease of 4730 basis points in the average cost of deposits from SeptemberJune 30, 2018 as well as2019, to 91 basis point from 121 basis points. Offsetting this decrease was an increase of $28.3 million in the average balance of interest bearing deposits from September 30, 2018. The increase in the average balance of interest bearing deposits of $28.3$13.6 million from $224.3$238.8 million as of SeptemberJune 30, 20182019, to $252.6$252.4 million as of SeptemberJune 30, 20192020, and was primarily as a result of $24.1 million increase in the average balance of our certificates of deposit and a $4.2$26.4 million increase in the average balance of our core deposit accounts. Theaccounts offset by a decrease of $12.8 million in the average costbalance of deposits was 139 basis points for the three months ended September 30, 2019 compared to 92 basis points for the three months ended September 30, 2018.our certificates of deposit. The average rate paid on money market deposits increased 21 basis points to 0.79%was flat at 0.72% for the three months ended SeptemberJune 30, 20192020, from 0.58%0.71% for the three months ended SeptemberJune 30, 2018.2019. The increasedecrease in the balance of our certificates of deposits of $24.1$12.8 million from $57.0$72.4 million for the three months ended SeptemberJune 30, 20182019 to $81.1$59.6 million for the three months ended SeptemberJune 30, 20192020. This was primarily the result of a $15.7 million reduction in the Company issuing certificates of deposit through brokers. The average balance of certificates of deposit issued through brokers increased $23.0 million from $15.5$30.6 million for the three months ended SeptemberJune 30, 20182019 to $38.5$14.9 million for the three months ended SeptemberJune 30, 2019. In addition, retail growth increased2020, offset by an increase of $2.9 million in the average balance ofin retail certificate of deposits by $1.1 million for the three months ended September 30, 2019.deposits. The average cost of certificates of deposit increased by 49 basis points to 2.28%was 1.85% for the three months ended SeptemberJune 30, 20192020 as compared to 1.79%2.13% for the three months ended SeptemberJune 30, 2018. The increase in the average cost of certificates of deposit for the three months ended September 30, 2019 was the result of increases in short term market interest rates as compared to the three months ended September 30, 2018.2019.
Interest expense on advances from the Federal Home Loan BankFHLB increased $59,000$48,000 to $158,000$164,000 for the three months ended SeptemberJune 30, 20192020 from $99,000$116,000 for the three months ended SeptemberJune 30, 20182019, primarily as a result of an increase in the average balance of the Federal Home Loan BankFHLB advances. The average balance of the Federal Home Loan BankFHLB advances increased $7.8$13.3 million to $27.6$34.7 million for the three months ended SeptemberJune 30, 20192020, from $19.8$21.4 million for the three months ended SeptemberJune 30, 20182019, primarily due to funding of the loan portfolio. In addition,Offsetting the increase in the average balance was a decrease of 28 basis points in the average rate on Federal Home Loan BankFHLB advances increased 29 basis points from 2.00%2.17% for the three months ended SeptemberJune 30, 20182019, to 2.29%1.89% for the three months ended SeptemberJune 30, 2019.2020.
Interest expense on advances from the PPPLF was $19,000 as the Company utilized this borrowing facility to fund the PPP loans during the three months ended June 30, 2020.
Net Interest Income
Net interest income remained relatively flat atincreased $549,000 to $2.6 million for the three months ended June 30, 2020, from $2.0 million for the three months ended SeptemberJune 30, 2019 and 2018.2019. Our net interest-earning assets increased $1.0$26.5 million to $46.3$70.6 million for the three months ended SeptemberJune 30, 20192020, from $45.3$44.1 million for the three months ended SeptemberJune 30, 2018.2019. Our interest rate spread decreasedincreased by 3312 basis points to 2.31%2.57% for the three months ended SeptemberJune 30, 20192020, from 2.64%2.45% for the three months ended SeptemberJune 30, 2018.2019. Our net interest margin
39
decreased increased by 2712 basis points from 2.79%2.63% for the three months ended SeptemberJune 30, 20182019, to 2.52%2.75% for the three months ended SeptemberJune 30, 2019.2020.
44
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.
|
| For the Three Months Ended September 30, |
|
| For the Three Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
| ||||||||||||
|
| (Dollars in thousands) |
|
| (Dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
| $ | 277,350 |
|
| $ | 2,789 |
|
|
| 4.02 | % |
| $ | 234,531 |
|
| $ | 2,299 |
|
|
| 3.92 | % |
| $ | 326,936 |
|
| $ | 3,170 |
|
|
| 3.88 | % |
| $ | 255,176 |
|
| $ | 2,520 |
|
|
| 3.95 | % |
Interest-earning deposits with banks |
|
| 16,248 |
|
|
| 95 |
|
|
| 2.34 | % |
|
| 11,583 |
|
|
| 73 |
|
|
| 2.52 | % |
|
| 23,301 |
|
|
| 15 |
|
|
| 0.26 | % |
|
| 11,288 |
|
|
| 69 |
|
|
| 2.45 | % |
Investment securities |
|
| 34,053 |
|
|
| 200 |
|
|
| 2.35 | % |
|
| 44,225 |
|
|
| 261 |
|
|
| 2.36 | % |
|
| 21,101 |
|
|
| 127 |
|
|
| 2.41 | % |
|
| 39,547 |
|
|
| 250 |
|
|
| 2.53 | % |
Restricted investment in bank stock |
|
| 1,502 |
|
|
| 27 |
|
|
| 7.19 | % |
|
| 1,182 |
|
|
| 18 |
|
|
| 6.09 | % |
|
| 1,935 |
|
|
| 16 |
|
|
| 3.31 | % |
|
| 1,234 |
|
|
| 20 |
|
|
| 6.48 | % |
Total interest-earning assets |
|
| 329,153 |
|
|
| 3,111 |
|
|
| 3.78 | % |
|
| 291,521 |
|
|
| 2,651 |
|
|
| 3.64 | % |
|
| 373,273 |
|
|
| 3,328 |
|
|
| 3.57 | % |
|
| 307,245 |
|
|
| 2,859 |
|
|
| 3.72 | % |
Non-interest-earning assets |
|
| 11,669 |
|
|
|
|
|
|
|
|
|
|
| 10,113 |
|
|
|
|
|
|
|
|
|
|
| 17,538 |
|
|
|
|
|
|
|
|
|
|
| 10,461 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 340,822 |
|
|
|
|
|
|
|
|
|
| $ | 301,634 |
|
|
|
|
|
|
|
|
|
| $ | 390,811 |
|
|
|
|
|
|
|
|
|
| $ | 317,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| $ | 101,038 |
|
|
| 286 |
|
|
| 1.13 | % |
| $ | 98,752 |
|
|
| 175 |
|
|
| 0.71 | % |
| $ | 98,307 |
|
|
| 142 |
|
|
| 0.58 | % |
| $ | 98,400 |
|
|
| 228 |
|
|
| 0.93 | % |
Money market deposit accounts |
|
| 30,271 |
|
|
| 60 |
|
|
| 0.79 | % |
|
| 30,276 |
|
|
| 44 |
|
|
| 0.58 | % |
|
| 42,847 |
|
|
| 77 |
|
|
| 0.72 | % |
|
| 28,855 |
|
|
| 51 |
|
|
| 0.71 | % |
Passbook and statement savings accounts |
|
| 26,735 |
|
|
| 13 |
|
|
| 0.19 | % |
|
| 29,285 |
|
|
| 17 |
|
|
| 0.23 | % |
|
| 25,998 |
|
|
| 10 |
|
|
| 0.15 | % |
|
| 27,675 |
|
|
| 16 |
|
|
| 0.23 | % |
Checking accounts-Municipal |
|
| 13,434 |
|
|
| 55 |
|
|
| 1.64 | % |
|
| 9,017 |
|
|
| 23 |
|
|
| 1.02 | % |
|
| 25,673 |
|
|
| 70 |
|
|
| 1.09 | % |
|
| 11,472 |
|
|
| 41 |
|
|
| 1.43 | % |
Certificates of deposit |
|
| 81,144 |
|
|
| 463 |
|
|
| 2.28 | % |
|
| 56,990 |
|
|
| 255 |
|
|
| 1.79 | % |
|
| 59,619 |
|
|
| 276 |
|
|
| 1.85 | % |
|
| 72,407 |
|
|
| 385 |
|
|
| 2.13 | % |
Total deposits |
|
| 252,622 |
|
|
| 877 |
|
|
| 1.39 | % |
|
| 224,320 |
|
|
| 514 |
|
|
| 0.92 | % |
|
| 252,444 |
|
|
| 575 |
|
|
| 0.91 | % |
|
| 238,809 |
|
|
| 721 |
|
|
| 1.21 | % |
Federal Home Loan Bank advances |
|
| 27,574 |
|
|
| 158 |
|
|
| 2.29 | % |
|
| 19,756 |
|
|
| 99 |
|
|
| 2.00 | % |
|
| 34,675 |
|
|
| 164 |
|
|
| 1.89 | % |
|
| 21,374 |
|
|
| 116 |
|
|
| 2.17 | % |
Federal Reserve PPPLF advances |
|
| 15,543 |
|
|
| 19 |
|
|
| 0.49 | % |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Securities sold under agreements to repurchase |
|
| 2,651 |
|
|
| 1 |
|
|
| 0.15 | % |
|
| 2,146 |
|
|
| 1 |
|
|
| 0.19 | % |
|
| — |
|
|
| — |
|
|
| 0.00 | % |
|
| 3,002 |
|
|
| 1 |
|
|
| 0.13 | % |
Total interest-bearing liabilities |
|
| 282,847 |
|
|
| 1,036 |
|
|
| 1.47 | % |
|
| 246,222 |
|
|
| 614 |
|
|
| 1.00 | % |
|
| 302,662 |
|
|
| 758 |
|
|
| 1.00 | % |
|
| 263,185 |
|
|
| 838 |
|
|
| 1.27 | % |
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
| 22,018 |
|
|
|
|
|
|
|
|
|
|
| 22,102 |
|
|
|
|
|
|
|
|
|
|
| 45,070 |
|
|
|
|
|
|
|
|
|
|
| 20,094 |
|
|
|
|
|
|
|
|
|
Other |
|
| 3,657 |
|
|
|
|
|
|
|
|
|
|
| 2,467 |
|
|
|
|
|
|
|
|
|
|
| 8,848 |
|
|
|
|
|
|
|
|
|
|
| 2,451 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 308,522 |
|
|
|
|
|
|
|
|
|
|
| 270,791 |
|
|
|
|
|
|
|
|
|
|
| 356,580 |
|
|
|
|
|
|
|
|
|
|
| 285,730 |
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
| 32,300 |
|
|
|
|
|
|
|
|
|
|
| 30,843 |
|
|
|
|
|
|
|
|
|
|
| 34,231 |
|
|
|
|
|
|
|
|
|
|
| 31,976 |
|
|
|
|
|
|
|
|
|
Total liabilities and Shareholders' equity |
| $ | 340,822 |
|
|
|
|
|
|
|
|
|
| $ | 301,634 |
|
|
|
|
|
|
|
|
|
| $ | 390,811 |
|
|
|
|
|
|
|
|
|
| $ | 317,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
| $ | 2,075 |
|
|
|
|
|
|
|
|
|
| $ | 2,037 |
|
|
|
|
|
|
|
|
|
| $ | 2,570 |
|
|
|
|
|
|
|
|
|
| $ | 2,021 |
|
|
|
|
|
Interest rate spread (2) |
|
|
|
|
|
|
|
|
|
| 2.31 | % |
|
|
|
|
|
|
|
|
|
| 2.64 | % |
|
|
|
|
|
|
|
|
|
| 2.57 | % |
|
|
|
|
|
|
|
|
|
| 2.45 | % |
Net interest-earning assets (3) |
| $ | 46,306 |
|
|
|
|
|
|
|
|
|
| $ | 45,299 |
|
|
|
|
|
|
|
|
|
| $ | 70,611 |
|
|
|
|
|
|
|
|
|
| $ | 44,060 |
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
| 2.52 | % |
|
|
|
|
|
|
|
|
|
| 2.79 | % |
|
|
|
|
|
|
|
|
|
| 2.75 | % |
|
|
|
|
|
|
|
|
|
| 2.63 | % |
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| 116.37 | % |
|
|
|
|
|
|
|
|
|
| 118.40 | % |
|
|
|
|
|
|
|
|
|
| 123.33 | % |
|
|
|
|
|
|
|
|
|
| 116.74 | % |
(1) | Includes loans held for sale. |
(2) | Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities. |
(3) | Net |
(4) | Net interest margin represents net interest income divided by total average interest-earning assets. |
(5) | Annualized. |
Rate/ Volume Analysis
The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. 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.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
|
| For the Three Months Ended September 30, 2019 vs 2018 |
|
| For the Three Months Ended June 30, 2020 vs 2019 |
| ||||||||||||||||||
|
| Increase (Decrease) Due to |
|
| Total Increase |
|
| Increase (Decrease) Due to |
|
| Total Increase |
| ||||||||||||
|
| Volume |
|
| Rate |
|
| (Decrease) |
|
| Volume |
|
| Rate |
|
| (Decrease) |
| ||||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 314 |
|
| $ | 176 |
|
| $ | 490 |
|
| $ | 807 |
|
| $ | (157 | ) |
| $ | 650 |
|
Interest-earning deposits with banks |
|
| 37 |
|
|
| (15 | ) |
|
| 22 |
|
|
| 101 |
|
|
| (155 | ) |
|
| (54 | ) |
Investment securities |
|
| (57 | ) |
|
| (4 | ) |
|
| (61 | ) |
|
| (87 | ) |
|
| (36 | ) |
|
| (123 | ) |
Restricted investment in bank stock |
|
| 2 |
|
|
| 7 |
|
|
| 9 |
|
|
| 17 |
|
|
| (21 | ) |
|
| (4 | ) |
Total interest-earning assets |
|
| 296 |
|
|
| 164 |
|
|
| 460 |
|
|
| 838 |
|
|
| (369 | ) |
|
| 469 |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| — |
|
|
| 111 |
|
|
| 111 |
|
|
| — |
|
|
| (86 | ) |
|
| (86 | ) |
Money market deposit accounts |
|
| — |
|
|
| 16 |
|
|
| 16 |
|
|
| 23 |
|
|
| 3 |
|
|
| 26 |
|
Passbook and statement savings accounts |
|
| (3 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| — |
|
|
| (6 | ) |
|
| (6 | ) |
Checking accounts |
|
| 5 |
|
|
| 27 |
|
|
| 32 |
|
|
| 61 |
|
|
| (32 | ) |
|
| 29 |
|
Certificates of deposit |
|
| 58 |
|
|
| 150 |
|
|
| 208 |
|
|
| (27 | ) |
|
| (82 | ) |
|
| (109 | ) |
Total deposits |
|
| 60 |
|
|
| 303 |
|
|
| 363 |
|
|
| 57 |
|
|
| (203 | ) |
|
| (146 | ) |
Federal Home Loan Bank advances |
|
| 24 |
|
|
| 35 |
|
|
| 59 |
|
|
| 92 |
|
|
| (44 | ) |
|
| 48 |
|
Federal Reserve PPPLF |
|
| — |
|
|
| 19 |
|
|
| 19 |
| ||||||||||||
Securities sold under agreements to repurchase |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Total interest-bearing liabilities |
|
| 84 |
|
|
| 338 |
|
|
| 422 |
|
|
| 149 |
|
|
| (229 | ) |
|
| (80 | ) |
Change in net interest income |
| $ | 212 |
|
| $ | (174 | ) |
| $ | 38 |
|
| $ | 689 |
|
| $ | (140 | ) |
| $ | 549 |
|
Provision for Loan Losses
We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates, as more information becomes available or economic conditions change.Due to uncertainty of economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the calculation of the allowance for loan losses. However, due to the uncertainty of the impact, the Company will continue to monitor and additional adjustment to the allowance for loan losses may be necessary.
This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as circumstances change as more information becomes available. The allowance for loan losses is
46
assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance.allowance for loan losses.
Provision for loan losses increased by $185,000$163,000 to $244,000$450,000 for the three months ended SeptemberJune 30, 20192020, from $59,000$287,000 for the three months ended SeptemberJune 30, 20182019, primarily as result of net charge-offs of $92,000$154,000 related to the medical education loans during the three months ended SeptemberJune 30, 2019.
41
2020. Non-performing loans increased $277,000,decreased $929,000, or 8.5%25.1% from $3.3$3.7 million at June 30,December 31, 2019 to $3.6$2.8 million as of SeptemberJune 30, 2019,2020, as a result of an increasea decrease of $639,000 in non-performing medical educationone-to four-family residential real estate loans totaling $275,000and $308,000 in home equity and HELOCs loans compared to June 30,December 31, 2019. During the three months ended SeptemberJune 30, 2019,2020, there were $154,000 net charge-offs of $92,000 recorded. During the three months ended SeptemberJune 30, 2018,2019, there were no$160,000 in net charge-offs recorded and recoveriesrecorded. Due to the continued uncertainty of $1,000 were received.changes in economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the allowance for loan losses across the loan portfolio.
Non-Interest Income
Non-interest income increased $1.4$2.0 million to $2.2$3.9 million for the three months ended SeptemberJune 30, 20192020, from $758,000$1.9 million for the three months ended SeptemberJune 30, 2018.2019. The increase in non-interest income compared to the same period in 20182019 was primarily due to a $779,000$1.9 million increase in the gain on salessale of loans, $494,000net, $311,000 increase inon gain fromon derivative instruments and $211,000 increaseoffset by a $395,000 decrease in change in fair value of loans held for sale. The gain on sale of available-for-sale securities, net. The gain on sales of loans, net increased $779,000$1.9 million to $1.7$2.3 million for the three months ended SeptemberJune 30, 20192020, compared to $901,000$407,000 for the three months ended SeptemberJune 30, 20182019 primarily as a result of higher loansloan sales of $36.7which increased $92.0 million as compared to the same period in 2018. In addition, there was a $494,000 increase in gain from derivative instruments to $177,000$38.8 million for the three months ended SeptemberJune 30, 2019, from a loss of ($317,000)to $130.8 million for the three months ended SeptemberJune 30, 2018 due2020. The increase of $311,000 in gain on derivative instruments to $1.1 million for the three months ended June 30, 2020, from $769,000 from for the three months ended June 30, 2019 was a result of increased volume of locked loans associated with hedging. Offsetting these increases, was a $395,000 decrease in the change in fair value of loans held for sale from $682,000 for the three months ended June 30, 2019, to $287,000 for the three months ended June 30, 2020. Gain on sale of available-for-sale securities increased $137,000 to $141,000 for the three months ended June 30, 2020, from $4,000 gain on sale of available-for-sale securities for the three months ended June 30, 2019.
Non-Interest Expense
Non-interest expense increased $1.2 million$835,000 or 50%26.6% to $3.6$4.0 million for the three months ended SeptemberJune 30, 20192020, from $2.4$3.1 million for the three months ended SeptemberJune 30, 2018.2019. The increase for the three months ended SeptemberJune 30, 20192020, compared to the three months of SeptemberJune 30, 20182019, was primarily as a result of an increase of $932,000$455,000 in salaries and employee benefits, $211,000$249,000 in other expenses and $66,000 in occupancy expenses and $104,000$59,000 in professional fees and other expenses.data processing related operations costs.
Salaries and employee benefits expense increased by $932,000$455,000 to $2.2$2.4 million for the three months ended SeptemberJune 30, 20192020, from $1.3$1.9 million for the three months ended SeptemberJune 30, 2018.2019. Salaries increased as full time equivalent (FTE) employees increased to ninety-fiveone-hundred as of SeptemberJune 30, 20192020, from seventy-oneninety-two as of SeptemberJune 30, 20182019 primarily as a result of the expansion of the Company’s lending and Business Bankingbusiness banking operations. The professional fees and other expenses increased $104,000,$249,000, or 16.7%54.4%, to $727,000$707,000 for the three months ended SeptemberJune 30, 20192020, from $623,000$458,000 for the three months ended SeptemberJune 30, 2018.2019, due to increased expenses related to organizational expenses as we continue to grow and expand into new markets. Occupancy Expensesexpenses increased approximately $211,000$66,000 to $465,000$450,000 for the three months ended SeptemberJune 30, 20192020 from $254,000$384,000 for the three months ended SeptemberJune 30, 20182019, primarily as a result of an increase in rental expense due to the move of our headquarters to Doylestown, PA, as well as leases of additional offices space compared to the same period in 2018.2019. In addition, depreciation expense increased $46,000approximately $38,000 primarily due to furniture and equipment placed in service during the three monththree-months ended SeptemberJune 30, 2019 and leasehold improvements increased $26,0002020, compared to the same period in 2018.
Income Tax Expense
Income tax expense2019. Data processing related operations costs increased $13,000$59,000, or 31.6% to $101,000$246,000 for the three months ended SeptemberJune 30, 2019 compared to $88,0002020 from $187,000 for the three months ended SeptemberJune 30, 2018.2019.
47
Income tax expense was $590,000 for the three months ended June 30, 2020 compared to $126,000 in expense for the three months ended June 30, 2019. Federal income taxes included in total taxes for the three months ended SeptemberJune 30, 2020 and 2019 was $406,000 and 2018 were $69,000 and $66,000,$94,000, respectively, with effective federal tax rates of 15.9%19.4% and 18.4%, respectively.
Pennsylvania state17.6%. The increase in the effective tax expense increased $10,000 to $32,000rate for the three months ended SeptemberJune 30, 20192020, compared to $22,000the same period a year ago reflected an increase in income before taxes.
For the three months ended June 30, 2020 and 2019, Pennsylvania state tax was $165,000 and $32,000, respectively with effective rate of 7.9% and 6.0%, respectively. The increase in the effective tax rate for the three months ended SeptemberJune 30, 20182020, compared to the same period a year ago reflected an increase in income before taxes. In addition, for the three months ended June 30, 2020, New Jersey state tax was $19,000.
Comparison of Statements of Income for the Six Months Ended June 30, 2020 and June 30, 2019
General
Net income increased $1.2 million to $1.6 million for the six months ended June 30, 2020, from $470,000 for the six months ended June 30, 2019. The increase in net income for the six months ended June 30, 2020, was primarily due to an increases of $3.2 million in non-interest income and $649,000 in net interest income offset by increases of $2.1 million in non-interest expense and $536,000 in income tax expense.
Interest Income
Total interest income increased $767,000, or 13.7%, to $6.4 million for the six months ended June 30, 2020, from $5.6 million for the three months ended June 30, 2019. The increase was primarily the result of an increase in interest and fees on loans of $1.1 million offset by a decrease in interest on investment securities of $261,000 and a decrease in interest on interest-earning deposits with banks of $79,000. Total average interest-earning assets increased $52.0 million to $356.5 million for the six months ended June 30, 2020, from $304.5 million for the same period in 2019. The increase was primarily as a result of an increase in the average balance of loans of $62.4 million and $9.8 million in average balance of interest-earning deposits with banks partially offset by a $21.0 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 11 basis points to 3.56% for the three months ended June 30, 2020, as compared to 3.67% for the three months ended June 30, 2019.
Interest and fees on loans increased $1.1 million to $5.9 million for the six months ended June 30, 2020, from $4.8 million for the same period in 2019. This increase was primarily due to an increase in average loans outstanding of $62.4 million, which increased to $309.5 million for the three months ended June 30, 2020, from $247.1 million for the three months ended June 30, 2019 primarily as a result of an increase in the average balance of PPP loans, loans held for sale, commercial real estate and other commercial business offset by a decrease in the average balance in one-to four-family residential real estate loans. The average yield on loans decreased 9 basis point to 3.84% for the six months ended June 30, 2020, versus 3.93% for the three months ended June 30, 2019.
Interest income on interest-earning deposits decreased by $79,000 to $105,000 for the six months ended June 30, 2020, from $184,000 for the six months ended June 30, 2019. The decrease was primarily due to a decrease average yield on interest-earning deposits with banks decreased 171 basis points, to 0.88% for the six months ended June 30, 2020, from 2.59% for the six months ended June 30, 2019, due to decline in interest rates following the COVID-19 pandemic. The targeted federal funds rate was cut to 0% on March 16th and the 10-year Treasury bond falling below 1.00% on March 3, 2020. Offsetting this decrease, was an increase in the average balance of interest-earning deposits of $9.8 million to $24.0 million for the six months ended June 30, 2020, from $14.2 million for the six months ended June 30, 2019.
48
Interest on investment securities decreased by $261,000 to $260,000 for the six months ended June 30, 2020, from $521,000 for the six months ended June 30, 2019, respectively. Interest on investment securities decreased as a result of a $165,000 decrease in income on taxable and non-taxable interest and dividend investments as well as a $96,000 decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased to $92,000 for the six months ended June 30, 2020, from $188,000 for the six months ended June 30, 2019. The average yield on total securities decreased to 2.44% for the six months ended June 30, 2020, from 2.47% for the same period in 2019. The average balance of investment securities decreased by $21.0 million to $21.3 million for the six months ended June 30, 2020, from $42.3 million for the six months ended June 30, 2019 as cash flows from investments were redeployed into higher yielding loan balances.
Interest Expense
Total interest expense increased $118,000 to $1.7 million for the six months ended June 30, 2020, from $1.6 million for the six months ended June 30, 2019, primarily due to a $159,000 increase in interest expense on advances from the FHLB and a $19,000 increase in interest expense on advances from the PPPLF offset by $58,000 decrease in interest expense on deposits.
Interest expense on advances from the FHLB increased $159,000 to $320,000 for the six months ended June 30, 2020, from $161,000 for the six months ended June 30, 2019 primarily as a result of an increase in the average balance of the FHLB advances. The average balance of the FHLB advances increased $16.5 million to $31.4 million for the six months ended June 30, 2020, from $14.9 million for the six months ended June 30, 2019, primarily due to increase in funding requirements for the loan portfolio. Offsetting the increase in the average balance was a decrease in the average rate of 12 basis points from 2.16% for the six months ended June 30, 2019, to 2.04% for the six months ended June 30, 2020.
Interest expense on deposits decreased $58,000 to $1.4 million for the six months ended June 30, 2020, from $1.4 million for the six months ended June 30, 2019, primarily as the average cost of deposits decreased to 107 basis points for the six months ended June 30, 2020 from 115 basis points for the six months ended June 30, 2019. Offsetting this decrease, was an increase of $9.0 million in the average balance of interest bearing deposits from June 30, 2019. The increase in the average balance of interest bearing deposits of $9.0 million from $244.4 million as of June 30, 2019, to $253.4 million as of June 30, 2020, was primarily as a result of a $18.8 million increase in the average balance of our core deposit accounts offset by a decrease of $9.8 million in the average balance of our certificates of deposit. The average rate paid on money market deposits increased 8 basis points to 0.77% for the six months ended June 30, 2020, from 0.69% for the six months ended June 30, 2019. The decrease in the balance of our certificates of deposits of $9.8 million from $72.8 million for the six months ended June 30, 2019, to $63.0 million for the six months ended June 30, 2020, was primarily the result of a $11.6 million decrease in the average balance of certificates of deposit issued through brokers from $29.5 million for the six months ended June 30, 2019 to $17.9 million for the six months ended June 30, 2020, offset by an increase of $1.8 million in the average balance in retail certificate of deposits. The average cost of certificates of deposit was 1.94% for the six months ended June 30, 2020, as compared to 2.05% for the six months ended June 30, 2019.
Net Interest Income
Net interest income increased $649,000 to $4.7 million for the six months ended June 30, 2020, from $4.0 million for the six months ended June 30, 2019. Our net interest-earning assets increased $19.9 million to $62.8 million for the six months ended June 30, 2020, from $42.9 million for the six months ended June 30, 2019. Our interest rate spread decreased by 6 basis points to 2.41% for the six months ended June 30, 2020 from 2.47%, for the six months ended June 30, 2019. Our net interest margin was 2.62% for the six months ended June 30, 2020, compared to 2.64% for the six months ended June 30, 2019.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.
|
| For the Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
|
| Average Balance |
|
| Interest Income/ Expense |
|
| Yield/ Cost (5) |
| ||||||
|
| (Dollars in thousands) |
| |||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
| $ | 309,463 |
|
| $ | 5,946 |
|
|
| 3.84 | % |
| $ | 247,086 |
|
| $ | 4,850 |
|
|
| 3.93 | % |
Interest-earning deposits with banks |
|
| 23,964 |
|
|
| 105 |
|
|
| 0.88 | % |
|
| 14,225 |
|
|
| 184 |
|
|
| 2.59 | % |
Investment securities |
|
| 21,328 |
|
|
| 260 |
|
|
| 2.44 | % |
|
| 42,260 |
|
|
| 521 |
|
|
| 2.47 | % |
Restricted investment in bank stock |
|
| 1,773 |
|
|
| 43 |
|
|
| 4.85 | % |
|
| 950 |
|
|
| 32 |
|
|
| 6.74 | % |
Total interest-earning assets |
|
| 356,528 |
|
|
| 6,354 |
|
|
| 3.56 | % |
|
| 304,521 |
|
|
| 5,587 |
|
|
| 3.67 | % |
Non-interest-earning assets |
|
| 17,175 |
|
|
|
|
|
|
|
|
|
|
| 10,493 |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 373,703 |
|
|
|
|
|
|
|
|
|
| $ | 315,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
| $ | 99,704 |
|
|
| 396 |
|
|
| 0.79 | % |
| $ | 99,745 |
|
|
| 437 |
|
|
| 0.88 | % |
Money market deposit accounts |
|
| 39,414 |
|
|
| 152 |
|
|
| 0.77 | % |
|
| 31,219 |
|
|
| 108 |
|
|
| 0.69 | % |
Passbook and statement savings accounts |
|
| 25,771 |
|
|
| 22 |
|
|
| 0.17 | % |
|
| 28,582 |
|
|
| 31 |
|
|
| 0.22 | % |
Checking accounts-Municipal |
|
| 25,499 |
|
|
| 172 |
|
|
| 1.35 | % |
|
| 11,958 |
|
|
| 86 |
|
|
| 1.44 | % |
Certificates of deposit |
|
| 62,998 |
|
|
| 610 |
|
|
| 1.94 | % |
|
| 72,847 |
|
|
| 748 |
|
|
| 2.05 | % |
Total deposits |
|
| 253,386 |
|
|
| 1,352 |
|
|
| 1.07 | % |
|
| 244,351 |
|
|
| 1,410 |
|
|
| 1.15 | % |
Federal Home Loan Bank advances |
|
| 31,417 |
|
|
| 320 |
|
|
| 2.04 | % |
|
| 14,882 |
|
|
| 161 |
|
|
| 2.16 | % |
Federal Reserve PPPLF advances |
|
| 8,945 |
|
|
| 19 |
|
|
| 0.42 | % |
|
| — |
|
|
| — |
|
|
| — |
|
Securities sold under agreements to repurchase |
|
| — |
|
|
| — |
|
|
| 0.00 | % |
|
| 2,388 |
|
|
| 2 |
|
|
| 0.17 | % |
Total interest-bearing liabilities |
|
| 293,748 |
|
|
| 1,691 |
|
|
| 1.15 | % |
|
| 261,621 |
|
|
| 1,573 |
|
|
| 1.20 | % |
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking |
|
| 37,218 |
|
|
|
|
|
|
|
|
|
|
| 19,073 |
|
|
|
|
|
|
|
|
|
Other |
|
| 8,894 |
|
|
|
|
|
|
|
|
|
|
| 2,712 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 339,860 |
|
|
|
|
|
|
|
|
|
|
| 283,406 |
|
|
|
|
|
|
|
|
|
Shareholders' Equity |
|
| 33,843 |
|
|
|
|
|
|
|
|
|
|
| 31,608 |
|
|
|
|
|
|
|
|
|
Total liabilities and Shareholders' equity |
| $ | 373,703 |
|
|
|
|
|
|
|
|
|
| $ | 315,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
| $ | 4,663 |
|
|
|
|
|
|
|
|
|
| $ | 4,014 |
|
|
|
|
|
Interest rate spread (2) |
|
|
|
|
|
|
|
|
|
| 2.41 | % |
|
|
|
|
|
|
|
|
|
| 2.47 | % |
Net interest-earning assets (3) |
| $ | 62,780 |
|
|
|
|
|
|
|
|
|
| $ | 42,900 |
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
| 2.62 | % |
|
|
|
|
|
|
|
|
|
| 2.64 | % |
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| 121.37 | % |
|
|
|
|
|
|
|
|
|
| 116.40 | % |
(1) | Includes loans held for sale. |
(2) | Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities. |
(3) | Net interest-earning assets represent total average interest–earning assets less total interest–bearing liabilities. |
(4) | Net interest margin represents net interest income divided by total average interest-earning assets. |
(5) | Annualized. |
Rate/ Volume Analysis
The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. 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.
For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
|
| For the Six Months Ended June 30, 2020 vs 2019 |
| |||||||||
|
| Increase (Decrease) Due to |
|
| Total Increase |
| ||||||
|
| Volume |
|
| Rate |
|
| (Decrease) |
| |||
|
| (In thousands) |
| |||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
| $ | 1,290 |
|
| $ | (194 | ) |
| $ | 1,096 |
|
Interest-earning deposits with banks |
|
| 139 |
|
|
| (218 | ) |
|
| (79 | ) |
Investment securities |
|
| (250 | ) |
|
| (11 | ) |
|
| (261 | ) |
Restricted investment in bank stock |
|
| 29 |
|
|
| (18 | ) |
|
| 11 |
|
Total interest-earning assets |
|
| 1,208 |
|
|
| (441 | ) |
|
| 767 |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| — |
|
|
| (41 | ) |
|
| (41 | ) |
Money market deposit accounts |
|
| 23 |
|
|
| 21 |
|
|
| 44 |
|
Passbook and statement savings accounts |
|
| (2 | ) |
|
| (7 | ) |
|
| (9 | ) |
Checking accounts-Municipal |
|
| 97 |
|
|
| (11 | ) |
|
| 86 |
|
Certificates of deposit |
|
| (75 | ) |
|
| (63 | ) |
|
| (138 | ) |
Total deposits |
|
| 43 |
|
|
| (101 | ) |
|
| (58 | ) |
Federal Home Loan Bank advances |
|
| 178 |
|
|
| (19 | ) |
|
| 159 |
|
Federal Reserve PPPLF |
|
| — |
|
|
| 19 |
|
|
| 19 |
|
Securities sold under agreements to repurchase |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
Total interest-bearing liabilities |
|
| 220 |
|
|
| (102 | ) |
|
| 118 |
|
Change in net interest income |
| $ | 988 |
|
| $ | (339 | ) |
| $ | 649 |
|
Provision for Loan Losses
Provision for loan losses increased by $33,000 to $561,000 for the six months ended June 30, 2020, from $528,000 for the six months ended June 30, 2019. Non-performing loans decreased $929,000, or 25.1% from $3.7 million at December 31, 2019, to $2.8 million as of June 30, 2020, as a result of a decreases of $639,000 in one-to four-family residential real estate loans and $308,000 in home equity and HELOCs loans compared to December 31, 2019. During the six months ended June 30, 2020, there were charge-offs recorded of $154,000 and $1,000 received in recoveries. During the six months ended June 30, 2019, there were $302,000 in net charge-offs recorded. Due to uncertainty of the changes in economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the allowance for loan losses across the loan portfolio.
Non-Interest Income
Non-interest income increased $3.2 million to $6.1 million for the six months ended June 30, 2020, from $2.9 million for the six months ended June 30, 2019. The increase in non-interest income compared to
51
the same period in 2019 was primarily due to a $2.7 million increase in the gain on sale of loans, net and a $300,000 increase in gain in fair value of loans held for sale. The gain on sale of loans, net increased $2.7 million to $4.0 million for the six months ended June 30, 2020, compared to $1.3 million for the six months ended June 30, 2019, primarily as a result of higher loan sales which increased $142.9 million from $67.3 million for the six months ended June 30, 2019, to $210.2 million for the six months ended June 30, 2020. The increase in fair value of loans held for sale of $300,000 for six months end June 30, 2020 compared to same period in 2019 was primarily due to an increase in the loans held for sale balance, from $37.9 million at June 30, 2019, to $43.5 million at June 30, 2020. In addition, gain on sale of available-for-sale securities, net increased $133,000 to $141,000 for six months ended June 30, 2020, from $8,000 for six months ended June 30, 2019.
Non-Interest Expense
Non-interest expense increased $2.1 million or 35.3% to $7.9 million for the six months ended June 30, 2020, from $5.8 million for the six months ended June 30, 2019. The increase was primarily as a result of an increase of $1.3 million in salaries and employee benefits, $451,000 in other expenses and $177,000 in occupancy expenses.
Salaries and employee benefits expense increased by $1.3 million to $4.8 million for the six months ended June 30, 2020, from $3.5 million for the six months ended June 30, 2019. Salaries increased as FTE employees increased to one-hundred FTEs as of June 30, 2020, from ninety-two June 30, 2019. The increase was primarily a result of the expansion of the Company’s lending and business banking operations. The other expenses increased $451,000 or 52.3%, to $1.3 million for the six months ended June 30, 2020, from $862,000 million for the six months ended June 30, 2019, due to increased expenses related to other consulting fees and organizational expenses as we continue to grow and expand into new markets. Occupancy expenses increased approximately $177,000 to $883,000 for the six months ended June 30, 2020, from $706,000 for the six months ended June 30, 2019, primarily because of an increase in rental expense due to the move of our headquarters to Doylestown, PA, as well as leases of additional offices space compared to the same period in 2019. In addition, depreciation expense increased approximately $75,000 primarily due to furniture and equipment placed in service during the six month ended June 30, 2020, compared to the same period in 2019.
Income Tax Expense
Income tax expense was $638,000 for the six months ended June 30, 2020, compared to $102,000 in expense for the six months ended June 30, 2019. Federal income taxes included in total taxes for the six months ended June 30, 2020 and 2019 was $444,000 and $91,000, respectively, with effective federal tax rates of 19.4% and 15.9%. The increase in the effective tax rate for the six months ended June 30, 2020, compared to the same period a year ago reflected an increase in income before taxes.
For the six months ended June 30, 2020 and 2019, Pennsylvania state tax was $176,000 and $11,000, respectively with effective rate of 7.4%7.7% and 6.1%1.9%, respectively.
The increase in the effective tax rate for the six months ended June 30, 2020, compared to the same period a year ago reflected an increase in income before taxes. In addition, for the six months ended June 30, 2020, New Jersey state tax was $19,000.
4252
|
|
|
Non-Performing Assets We define non-performing loans as loans that are either non-accruing or accruing whose payments are 90 days or more past due and non-accruing troubled debt restructurings. Non-performing assets, including non-performing loans and other real estate owned, totaled $3.6$2.8 million, or 1.0%0.9% of total assets, at SeptemberJune 30, 2019.2020. There were no non-accruing troubled debt restructurings at SeptemberJune 30, 20192020 and June 30,December 31, 2019. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated. There were no accruing loans past due 90 days or more at SeptemberJune 30, 20192020 and one loan accruing past due 90 days or more at June 30,December 31, 2019.
|
| At September 30, |
|
| At June 30, |
|
| At June 30, |
|
| At December 31, |
| ||||
|
| 2019 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (Dollars in thousands) |
|
| (Dollars in thousands) |
| ||||||||||
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
| $ | 1,875 |
|
| $ | 1,852 |
|
| $ | 1,047 |
|
| $ | 1,686 |
|
Home equity & HELOCs |
|
| 295 |
|
|
| 316 |
|
|
| — |
|
|
| 308 |
|
Commercial real estate |
|
| — |
|
|
| — |
| ||||||||
Commercial business |
|
| — |
|
|
| — |
| ||||||||
Construction |
|
| — |
|
|
| — |
| ||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 1,383 |
|
|
| 1,108 |
|
|
| 1,728 |
|
|
| 1,710 |
|
Total non-accrual loans |
|
| 3,553 |
|
|
| 3,276 |
|
|
| 2,775 |
|
|
| 3,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans accruing past 90 days: |
|
|
|
|
|
|
|
| ||||||||
Consumer and other: |
|
|
|
|
|
|
|
| ||||||||
Medical education |
|
| — |
|
|
| — |
| ||||||||
Loans accruing past 90 days |
|
| — |
|
|
| — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
| 3,553 |
|
|
| 3,276 |
|
|
| 2,775 |
|
|
| 3,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other non-performing assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total non-performing assets |
| $ | 3,553 |
|
| $ | 3,276 |
|
| $ | 2,775 |
|
| $ | 3,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans receivable |
|
| 1.43 | % |
|
| 1.36 | % |
|
| 0.89 | % |
|
| 1.45 | % |
Total non-performing loans to total assets |
|
| 1.00 | % |
|
| 0.95 | % |
|
| 0.65 | % |
|
| 1.04 | % |
Total non-performing assets to total assets |
|
| 1.00 | % |
|
| 0.95 | % |
|
| 0.65 | % |
|
| 1.04 | % |
4353
The following table sets forth activity in our allowance for loan losses for the periods indicated.
|
| For the Three Months Ended September 30, |
|
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
|
| (Dollars in thousands) |
|
|
| (Dollars in thousands) |
|
| (Dollars in thousands) |
| |||||||||||||||
Balance at beginning of year |
| $ | 1,182 |
|
| $ | 871 |
|
|
| $ | 1,549 |
|
| $ | 1,055 |
|
| $ | 1,437 |
|
| $ | 956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Home equity & HELOCs |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial business |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer: |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Medical education |
|
| (93 | ) |
|
| — |
|
|
|
| (154 | ) |
|
| (164 | ) |
|
| (154 | ) |
|
| (305 | ) |
Other |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total charge-offs |
|
| (93 | ) |
|
| — |
|
|
|
| (154 | ) |
|
| (164 | ) |
|
| (154 | ) |
|
| (305 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family |
|
| — |
|
|
| 1 |
|
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Home equity & HELOCs |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial real estate |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Commercial business |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Construction |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical education |
|
| 1 |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Other |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
Total recoveries |
|
| 1 |
|
|
| 1 |
|
|
|
| — |
|
|
| 4 |
|
|
| 1 |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries |
|
| (92 | ) |
|
| 1 |
|
|
|
| (154 | ) |
|
| (160 | ) |
|
| (153 | ) |
|
| (302 | ) |
Provision for loan losses |
|
| 244 |
|
|
| 59 |
|
|
|
| 450 |
|
|
| 287 |
|
|
| 561 |
|
|
| 528 |
|
Balance at end of period |
| $ | 1,334 |
|
| $ | 931 |
|
|
| $ | 1,845 |
|
| $ | 1,182 |
|
| $ | 1,845 |
|
| $ | 1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans outstanding |
| (0.04%) |
|
|
| 0.00 | % |
|
|
| 0.05 | % |
|
| 0.07 | % |
|
| 0.06 | % |
|
| 0.13 | % | |
Allowance for loan losses to non-performing loans at end of period |
|
| 37.55 | % |
|
| 55.22 | % |
|
|
| 66.49 | % |
|
| 36.08 | % |
|
| 66.49 | % |
|
| 36.08 | % |
Allowance for loan losses to total loans at end of period |
|
| 0.54 | % |
|
| 0.41 | % |
|
|
| 0.59 | % |
|
| 0.49 | % |
|
| 0.59 | % |
|
| 0.49 | % |
4454
Liquidity and Capital Resources
Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans and securities, and matured loans and securities. In addition, we may use brokered certificates of deposit as a funding source of our asset base. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, the Company had $34.0$10.0 million, or 9.5%2.4% of total assets, and $41.0$22.5 million, or 11.9%6.3% of total assets, of brokered certificates of deposit, respectively. We also have the ability to borrow from the Federal Home Loan Bank of Pittsburgh. Huntingdon ValleyFHLB and from the PPPLF. The Bank had Federal Home Loanadvances from PPPLF of $47.8 million with unused borrowing capacity of $25.4 million as of June 30, 2020. The Bank of Pittsburghalso had FHLB advances of $27.0 million outstanding and $18.0$24.2 million in letters of credit with unused borrowing capacity of $130.6$125.4 million as of SeptemberJune 30, 2019.2020. Additionally, at SeptemberJune 30, 2019,2020, we had the ability to borrow $3.0 million from the Atlantic Community Bankers Bank and we maintained a line of credit equal to 95% of the fair value of collateral held by the Federal Reserve Bank of Philadelphia, which was $1.6$1.3 million at SeptemberJune 30, 2019.2020. We have not borrowed against the credit lines with the Atlantic Community Bankers Bank and the Federal Reserve Bank of Philadelphia during the threesix months ended SeptemberJune 30, 2019 and 2018.2020.
The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enoughsufficient sources of liquidity to satisfy our short and long-term liquidity needs as of SeptemberJune 30, 2019.2020.
We monitor and 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.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At SeptemberJune 30, 2019,2020, cash and cash equivalents totaled $27.3$28.6 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $21.6$18.6 million at SeptemberJune 30, 2019. 2020. Please refer to the section titled COVID-19 Update for additional information.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash used in operating activities was $3.9$3.6 million and $1.4$17.9 million for the threesix months ended SeptemberJune 30, 20192020, and SeptemberJune 30, 2018,2019, respectively. Net cash provided by (used in)used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $5.4$53.0 million and ($11.5) million$514,000 for the threesix months ended SeptemberJune 30, 20192020, and SeptemberJune 30, 2018,2019, respectively. During the threesix months ended SeptemberJune 30, 2019,2020, there were $12.1was $4.0 million sold in available-for-sale securities sold compared to no$5.0 million available-for-sale securities sold for the threesix months ended SeptemberJune 30, 2018.2019. Net cash provided by financing activities was $5.5$64.6 million and $4.2$21.6 million for the threesix months ended SeptemberJune 30, 20192020, and 2018,2019, respectively. Net cash provided by financing activities for the threesix months ended SeptemberJune 30, 20192020, consisted primarily of increases in deposits of $9.4$16.8 million and repaymentproceeds of long-term borrowings of $1.0$47.8 million in proceeds from the Federal Home Loan Bank.PPPLF. Net cash provided by financing activities for the threesix months ended SeptemberJune 30, 20182019 primarily consisted of $15.7$18.0 million increase in net long-term borrowing from the FHLB advances, $1.7 million net increase in deposits and decreases of short-term borrowings of $7.0$1.3 million and repayment of long-term borrowings of $1.0 million from the Federal Home Loan Bank.net increase in securities sold under agreements to repurchase.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of SeptemberJune 30, 2019,2020, totaled $62.4$39.4 million of total deposits which included brokered certificates of deposit of $29.0$10.0 million. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan BankFHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we
55
currently pay. We believe, however, based on past experience that a significant
45
portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Capital Management. Huntingdon ValleyThe Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At SeptemberJune 30, 2019, Huntingdon Valley2020, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.
Regulatory Capital
Information presented for SeptemberJune 30, 20192020, and June 30,December 31 2019, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.
Federal bank regulators require the Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. At SeptemberJune 30, 2019,2020, the Bank met all the capital adequacy requirements to which it was subject. At SeptemberJune 30, 2019,2020, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. To be “well capitalized,” the Bank must maintain minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Management believes that no conditions or events have occurred since SeptemberJune 30, 20192020 that would materially adversely change the Bank’s capital classifications.
The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
| To Be Well Capitalized | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under the Prompt |
|
|
|
|
|
|
|
|
|
|
|
|
| Under the Prompt | ||||
|
|
|
|
|
|
|
|
|
| Capital Adequacy |
| Corrective Action |
|
|
|
|
|
|
|
|
| Capital Adequacy |
| Corrective Action | ||||||||
|
| Actual |
|
| Purposes |
| Provision |
| Actual |
|
| Purposes |
| Provision | ||||||||||||||||||
(Dollars in thousands) |
| Amount |
|
| Ratio |
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
|
| Ratio |
|
| Amount |
| Ratio |
| Amount |
| Ratio | ||||
As of September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
As of June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total risk-based capital (to risk-weighted assets) |
| $ | 30,820 |
|
|
| 15.9 | % |
| $>15,470 |
| > 8.0% |
| $>19,338 |
| >10.0% |
| $ | 33,407 |
|
|
| 14.7 | % |
| $>18,204 |
| > 8.0% |
| $>22,755 |
| >10.0% |
Tier 1 capital (to risk-weighted assets) |
|
| 29,486 |
|
|
| 15.3 |
|
| >11,603 |
| > 6.0% |
| >15,470 |
| > 8.0% |
|
| 31,562 |
|
|
| 13.9 |
|
| >13,653 |
| > 6.0% |
| >18,204 |
| > 8.0% |
Tier 1 capital (to average assets) |
|
| 29,486 |
|
|
| 8.6 |
|
| >13,692 |
| > 4.0% |
| >17,114 |
| > 5.0% |
|
| 31,562 |
|
|
| 8.2 |
|
| >15,327 |
| > 4.0% |
| >19,158 |
| > 5.0% |
Tier 1 common equity (to risk -weighted assets) |
|
| 29,486 |
|
|
| 15.3 |
|
| >8,702 |
| > 4.5% |
| >12,570 |
| > 6.5% |
|
| 31,562 |
|
|
| 13.9 |
|
| >10,240 |
| > 4.5% |
| >14,791 |
| > 6.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total risk-based capital (to risk-weighted assets) |
| $ | 30,000 |
|
|
| 15.9 | % |
| $>15,060 |
| > 8.0% |
| $>18,825 |
| >10.0% |
| $ | 31,203 |
|
|
| 14.7 | % |
| $>16,981 |
| > 8.0% |
| $>21,227 |
| >10.0% |
Tier 1 capital (to risk-weighted assets) |
|
| 28,818 |
|
|
| 15.3 |
|
| >11,295 |
| > 6.0% |
| >15,060 |
| > 8.0% |
|
| 29,766 |
|
|
| 14.0 |
|
| >12,736 |
| > 6.0% |
| >16,981 |
| > 8.0% |
Tier 1 capital (to average assets) |
|
| 28,818 |
|
|
| 9.3 |
|
| >12,455 |
| > 4.0% |
| >15,569 |
| > 5.0% |
|
| 29,766 |
|
|
| 8.5 |
|
| >13,981 |
| > 4.0% |
| >17,476 |
| > 5.0% |
Tier 1 common equity (to risk -weighted assets) |
|
| 28,818 |
|
|
| 15.3 |
|
| >8,471 |
| > 4.5% |
| >12,236 |
| > 6.5% |
|
| 29,766 |
|
|
| 14.0 |
|
| >9,552 |
| > 4.5% |
| >13,797 |
| > 6.5% |
As a licensed mortgagee, the Bank is subject to the rules and regulations of the Department of Housing and Urban Development (“HUD”), Federal Housing Authority (“FHA”) and state regulatory authorities with respect to originating, processing and selling loans. Those rules and regulations, among other things, require the maintenance of minimum net worth levels (which vary based on the portfolio of FHA loans
56
originated by the Bank). Failure to meet the net worth requirements could adversely impact the ability of
46
the Bank to originate loans and access secondary markets. As of SeptemberJune 30, 20192020, and June 30,December 31, 2019, the Bank maintained the minimum required net worth levels.
The Bank must hold a capital conservation buffer, subject to a phase-in from January 1, 2016, through December 31, 2019, above its minimum risk-based capital requirements. As of SeptemberJune 30, 2019,2020, the Bank is required to maintain a capital conservation buffer of 2.50%. At SeptemberJune 30, 2019,2020, the Bank met the capital conservation buffer requirements. Failure to maintain the full amount of the buffer will result in restrictions on the Bank’s ability to make capital distributions and to pay discretionary bonuses to executive officers. The phase-in requires the Bank to increase its capital conservation buffer from 0.625% as of June 30, 2016 to 2.50% as of June 30, 2019 and thereafter.
AsAs a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%. A financial institution can elect to be subject to this new definition. On September 17, 2019, the board of the Federal Deposit Insurance Corporation passed a final rule on the community bank leverage ratio, setting the minimum required community bank leverage ratio at 9%. The rule will gowent into effect January 1, 2020. On April 6, 2020, the Federal Deposit Insurance Corporation (“FDIC”), Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework and implemented Section 4012 of the CARES Act. These changes related to the minimum Tier 1 leverage ratio that can be used to take advantage of the simplified community bank leverage ratio framework. The two interim final rules are applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets. The lower Tier 1 leverage ratio modification is temporary to 8% and will revert back to the existing 9 percent ratio effective January 1, 2022.
Off-Balance Sheet Arrangements and Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At SeptemberJune 30, 2019,2020, we had outstanding commitments to originate loans of $37.1$91.2 million, unused lines of credit totaling $12.4$27.5 million and $18.0$24.2 million in stand-by letters of credit outstanding. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from SeptemberJune 30, 20192020, totaled $62.4$39.4 million of total deposits which included brokered certificates of deposit of $29.0$10.0 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan BankFHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, agreements with respect to borrowed funds and deposit liabilities.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies
Item 4 – Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of SeptemberJune 30, 2019.2020. Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it
47
files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f)15d-15(f) under the Exchange Act) occurred during the firstsecond fiscal quarter of 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
At SeptemberJune 30, 2019,2020, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.
Not required for smaller reporting companies
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
| (a) | Not applicable |
| (b) | Not applicable |
| (c) | Purchase of Equity Securities |
The Company’s repurchases of its common stock made during the quarter ended June 30, 2020 are set forth in the table below:
Period |
| Total Number of Shares (1) |
|
| 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 (2) |
| ||||
April 1, 2020-April 30, 2020 |
|
| 18,044 |
|
| $ | 11.59 |
|
|
| 18,044 |
|
|
| 70,782 |
|
May 1, 2020-May 31, 2020 |
|
| 761 |
|
|
| 12.73 |
|
|
| 761 |
|
|
| 70,021 |
|
June 1, 2020-June 30, 2020 |
|
| 994 |
|
|
| 12.60 |
|
|
| 994 |
|
|
| 69,027 |
|
Total |
|
| 19,799 |
|
| $ | 11.68 |
|
|
| 19,799 |
|
|
|
|
|
(1) In April 2019, a stock repurchase plan was approved to repurchase up to 100,000 shares of the Company’s outstanding common stock. The Company did not repurchase any of its common stock during the three months ended September 30, 2019.There is no expiration date for this plan.
58
Item 3 – Defaults upon Senior Securities
Not Applicable
Item 4 – Mine Safety Disclosures
Not Applicable
None
|
|
|
31.1 |
| Rule 13a-14(a) Certification of the Chief Executive Officer * |
|
| |
31.2 |
| Rule 13a-14(a) Certification of the Chief Financial Officer * |
|
| |
|
| |
|
| |
101.INS |
| XBRL Instance Document |
|
| |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
| |
101.CAL |
| XBRL Taxonomy Calculation Linkbase Document |
48
|
| |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
| |
101.LAB |
| XBRL Taxonomy Label Linkbase Document |
|
| |
101.PRE |
| XBRL Taxonomy Presentation Linkbase Document |
| * | Filed herewith |
4959
HV BANCORP, INC.
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.
|
| HV BANCORP, INC. |
|
|
|
Date: | By: | /s/ Travis J. Thompson |
|
| Travis J. Thompson |
|
| President and Chief Executive Officer |
|
| (Duly Authorized Officer) |
|
|
|
Date: | By: | /s/ Joseph C. O’Neill, Jr. |
|
| Joseph C. O’Neill, Jr. |
|
| Executive Vice President and |
|
| Chief Financial Officer |
|
| (Principal Financial Officer) |
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