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EX-32 - EX-32 - HV Bancorp, Inc.hvbc-ex32_11.htm
EX-31.2 - EX-31.2 - HV Bancorp, Inc.hvbc-ex312_6.htm
EX-31.1 - EX-31.1 - HV Bancorp, Inc.hvbc-ex311_8.htm

 

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 September 30, 2017

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.)

3501 Masons Mill Road Suite 401 Huntingdon Valley, Pennsylvania  19006

(Address of Principal Executive Offices and Zip Code)

(267) 280-4000

(Registrant's Telephone Number, Including Area Code)

Not applicable

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company” or an “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to 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 November 10, 2017, there were 2,182,125 outstanding shares of the issuer’s common stock.

 

 

 

2


 

INDEX

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

1

 

 

 

 

 

 

Item 1 – Consolidated Financial Statements – Unaudited

1

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

 

 

 

 

 

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

29

 

 

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

41

 

 

 

 

 

 

Item 4 – Controls and Procedures

41

 

 

 

 

 

 

PART II- OTHER INFORMATION

42

 

 

 

 

Item 1 – Legal Proceedings

42

 

 

 

 

 

 

Item 1A – Risk Factors

42

 

 

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

 

Item 3 – Defaults upon Senior Securities

42

 

 

 

 

Item 4 – Mine Safety Disclosures

42

 

 

 

 

Item 5 – Other Information

42

 

 

 

 

Item 6 – Exhibits

42

 

 

 

SIGNATURES

43

 

 

 


PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements – Unaudited

HV BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition as of September 30, 2017 and June 30, 2017 (Unaudited) (Dollars in thousands)

 

 

At September 30,

 

 

At June 30,

 

 

 

2017

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,722

 

 

$

1,514

 

Interest-earning deposits with banks

 

 

13,885

 

 

 

27,063

 

Cash and cash equivalents

 

 

15,607

 

 

 

28,577

 

Investment securities available-for-sale, at fair value

 

 

31,166

 

 

 

42,820

 

Investment securities held-to-maturity (fair value of $11,889 at

   September 30, 2017 and $11,896 at June 30, 2017)

 

 

11,802

 

 

 

11,809

 

Loans held for sale, at fair value

 

 

10,535

 

 

 

12,784

 

Loans receivable, net of allowance for loan losses of $615 at

   September 30, 2017 and $593 at June 30, 2017

 

 

138,314

 

 

 

111,811

 

Bank-owned life insurance

 

 

5,895

 

 

 

4,005

 

Restricted investment in bank stock

 

 

629

 

 

 

643

 

Premises and equipment, net

 

 

1,808

 

 

 

1,835

 

Accrued interest receivable

 

 

654

 

 

 

620

 

Prepaid income taxes

 

 

16

 

 

 

171

 

Deferred income taxes, net

 

 

364

 

 

 

257

 

Prepaid expenses

 

 

348

 

 

 

272

 

Real estate owned

 

 

127

 

 

 

 

Mortgage banking derivatives

 

 

579

 

 

 

1,001

 

Other assets

 

 

101

 

 

 

160

 

Total Assets

 

$

217,945

 

 

$

216,765

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

$

171,259

 

 

$

170,481

 

Advances from the Federal Home Loan Bank

 

 

9,000

 

 

 

9,000

 

Securities sold under agreements to repurchase

 

 

3,713

 

 

 

2,883

 

Advances from borrowers for taxes and insurance

 

 

797

 

 

 

1,402

 

Deferred gain on sale - leaseback of building

 

 

306

 

 

 

310

 

Other liabilities

 

 

1,206

 

 

 

1,248

 

Total Liabilities

 

 

186,281

 

 

 

185,324

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Preferred  Stock, $0.01 par value, 2,000,000 shares authorized; no shares

   issued and outstanding as of September 30, 2017 and June 30, 2017

 

 

 

 

 

 

Common Stock, $0.01 par value, 20,000,000 shares authorized;

   2,182,125 shares issued and outstanding as of September 30,

   2017 and June 30, 2017

 

 

22

 

 

 

22

 

Additional paid in capital

 

 

20,369

 

 

 

20,369

 

Retained earnings

 

 

13,783

 

 

 

13,547

 

Accumulated other comprehensive loss

 

 

(148

)

 

 

(111

)

Unearned Employee Stock Option Plan

 

 

(2,362

)

 

 

(2,386

)

Total Shareholders' Equity

 

 

31,664

 

 

 

31,441

 

Total Liabilities and Shareholders' Equity

 

$

217,945

 

 

$

216,765

 

 

See Notes to the Unaudited Consolidated Financial Statements

 

1


HV BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income for the Three Months Ended September 30, 2017 and 2016; (Unaudited) (Dollars in thousands, except per share data)

 

Three Months Ended September 30,

 

2017

 

 

2016

 

Interest Income

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

1,350

 

 

$

1,206

 

Interest and dividends on investments:

 

 

 

 

 

 

 

 

Taxable

 

 

118

 

 

 

60

 

Nontaxable

 

 

65

 

 

 

42

 

Interest on mortgage-backed securities and collateralized

   mortgage obligations

 

 

85

 

 

 

63

 

Interest on interest-earning deposits

 

 

126

 

 

 

30

 

Total Interest Income

 

 

1,744

 

 

 

1,401

 

Interest Expense

 

 

 

 

 

 

 

 

Interest on deposits

 

 

216

 

 

 

166

 

Interest on advances from the Federal

 

 

 

 

 

 

 

 

Home Loan Bank

 

 

30

 

 

 

46

 

Interest on securities sold under agreements to repurchase

 

 

1

 

 

 

1

 

Total Interest Expense

 

 

247

 

 

 

213

 

Net interest income

 

 

1,497

 

 

 

1,188

 

(Credit) Provision for Loan Losses

 

 

(1

)

 

 

123

 

Net interest income after (credit) provision for loan losses

 

 

1,498

 

 

 

1,065

 

Non-Interest Income

 

 

 

 

 

 

 

 

Fees for customer services

 

 

45

 

 

 

54

 

Increase in cash surrender value of bank owned life insurance

 

 

34

 

 

 

28

 

Gain on sale of loans, net

 

 

1,236

 

 

 

1,569

 

Gain on sale of available-for-sale securities

 

 

34

 

 

 

11

 

Loss from hedging instruments

 

 

(390

)

 

 

(379

)

Change in fair value of loans held-for-sale

 

 

45

 

 

 

83

 

Other

 

 

1

 

 

 

2

 

Total Non-Interest Income

 

 

1,005

 

 

 

1,368

 

Non-Interest Expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,192

 

 

 

1,151

 

Occupancy

 

 

265

 

 

 

246

 

Federal deposit insurance premiums

 

 

30

 

 

 

38

 

Data processing related operations

 

 

152

 

 

 

147

 

Real estate owned expense

 

 

21

 

 

 

11

 

Professional fees

 

 

172

 

 

 

135

 

Other expenses

 

 

347

 

 

 

334

 

Total Non-Interest Expense

 

 

2,179

 

 

 

2,062

 

Income before income taxes

 

 

324

 

 

 

371

 

Income Tax Expense

 

 

88

 

 

 

118

 

Net Income

 

$

236

 

 

$

253

 

Net Income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

N/A

 

Diluted

 

$

0.11

 

 

$

N/A

 

 

See Notes to the Unaudited Consolidated Financial Statements


2


HV BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2017 and 2016 (Unaudited) (Dollars in thousands)

 

Three Months Ended September 30,

 

2017

 

 

2016

 

Comprehensive Income, Net of Taxes

 

 

 

 

 

 

 

 

Net Income

 

$

236

 

 

$

253

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities (pre-tax

   ($28) and ($47), respectively)

 

 

(12

)

 

 

(21

)

Less: Reclassification for gains included in income (pre-tax $34,

   and $11, respectively) (1)

 

 

25

 

 

 

7

 

Other comprehensive (loss)

 

 

(37

)

 

 

(28

)

Comprehensive Income

 

$

199

 

 

$

225

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


3


HV BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2017 and 2016 (Unaudited) (Dollars in thousands, except per share data)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

 

Additional Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Unearned ESOP

Shares

 

 

Total

 

Balance, July 1, 2017

 

 

2,182,125

 

$

22

 

 

$

20,369

 

 

$

13,547

 

 

$

(111

)

 

$

(2,386

)

 

$

31,441

 

ESOP shares committed to be

   released

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

24

 

Net income

 

 

 

 

 

 

 

 

 

 

236

 

 

 

 

 

 

 

 

 

236

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

(37

)

Balance, September 30, 2017

 

 

2,182,125

 

$

22

 

 

$

20,369

 

 

$

13,783

 

 

$

(148

)

 

$

(2,362

)

 

$

31,664

 

 

 

 

Shares (1)

 

Amount (1)

 

 

Additional Paid-in

Capital (1)

 

 

Retained

Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Unearned ESOP

Shares (1)

 

 

Total

 

Balance, July 1, 2016

 

 

 

$

 

 

$

 

 

$

12,978

 

 

$

(7

)

 

$

 

 

$

12,971

 

Net income

 

 

 

 

 

 

 

 

 

 

253

 

 

 

 

 

 

 

 

 

253

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

(28

)

Balance, September 30, 2016

 

 

 

$

 

 

$

 

 

$

13,231

 

 

$

(35

)

 

$

 

 

$

13,196

 

 

 

(1)

No common stock or ESOP shares were issued and outstanding during the three months ended September 30, 2016.

See Notes to the Unaudited Consolidated Financial Statements

 

 

 

 

 

4


HV BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2017 and 2016 (Unaudited) (Dollars in thousands)

 

Three Months Ended September 30,

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

236

 

 

$

253

 

Adjustments to reconcile net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

53

 

 

 

50

 

Impairment of real estate owned, net

 

 

 

 

 

5

 

Amortization of deferred loan costs (fees)

 

 

21

 

 

 

(8

)

Net amortization of securities premiums and discounts

 

 

44

 

 

 

76

 

Gain on sale of available-for-sale securities

 

 

(34

)

 

 

(11

)

Mortgage banking derivatives

 

 

390

 

 

 

498

 

(Credit) Provision for loan losses

 

 

(1

)

 

 

123

 

Deferred income taxes (benefit) expense

 

 

(82

)

 

 

(46

)

Amortization of deferred gain on sale-leaseback transaction

 

 

(4

)

 

 

(4

)

Earnings on bank owned life insurance

 

 

(34

)

 

 

(28

)

ESOP compensation expense

 

 

24

 

 

 

 

Loans held for sale:

 

 

 

 

 

 

 

 

Originations, net of prepayments

 

 

(42,481

)

 

 

(48,245

)

Proceeds from sales

 

 

46,011

 

 

 

50,340

 

Gain on sales

 

 

(1,236

)

 

 

(1,569

)

Change in fair value of loans held for sale

 

 

(45

)

 

 

(83

)

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(34

)

 

 

(4

)

Prepaid federal income taxes

 

 

155

 

 

 

143

 

Prepaid and other assets

 

 

(17

)

 

 

(478

)

Other liabilities

 

 

(9

)

 

 

(234

)

Net cash provided by operating activities

 

 

2,957

 

 

 

778

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Net Increase in loans receivable

 

 

(26,650

)

 

 

(1,021

)

Activity in available-for-sale securities:

 

 

 

 

 

 

 

 

Proceeds from sales

 

 

11,158

 

 

 

1,151

 

Maturities and repayments

 

 

423

 

 

 

1,065

 

Purchases

 

 

 

 

 

(500

)

Activity in held-to-maturity securities:

 

 

 

 

 

 

 

 

Maturities and repayments

 

 

7

 

 

 

 

Redemption of restricted investment in bank stock

 

 

14

 

 

 

6

 

Purchases of bank owned life insurance

 

 

(1,856

)

 

 

 

Purchases of premises and equipment

 

 

(26

)

 

 

(46

)

Net cash (used in) provided by investing activities

 

 

(16,930

)

 

 

655

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

778

 

 

 

(2,297

)

Net decrease in advances from borrowers for taxes and insurance

 

 

(605

)

 

 

(769

)

Net increase (decrease) in securities sold under agreements to repurchase

 

 

830

 

 

 

(1,829

)

Proceeds from borrowings from Federal Home Loan Bank

 

 

3,000

 

 

 

30,000

 

Repayment of borrowings from Federal Home Loan Bank

 

 

(3,000

)

 

 

(30,000

)

Net cash provided by (used in) financing activities

 

 

1,003

 

 

 

(4,895

)

Decrease in Cash and Cash Equivalents

 

 

(12,970

)

 

 

(3,462

)

Cash and Cash Equivalents, beginning of year

 

 

28,577

 

 

 

15,427

 

Cash and Cash Equivalents, end of year

 

$

15,607

 

 

$

11,965

 

Supplementary Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the year of interest

 

$

331

 

 

$

214

 

Cash paid during the year for income taxes

 

$

 

 

$

 

Supplementary Schedule of Noncash Investing Activities

 

 

 

 

 

 

 

 

Transfer of loans to real estate owned

 

$

127

 

 

$

65

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

 

5


 

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. A total of 2,182,125 shares of common stock were sold to depositors at $10.00 per share through which the Company received gross offering proceeds of approximately $21.8 million. Offering costs from the sale of the common stock totaled $1.4 million, resulting in net proceeds of $20.4 million. 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 (“PADOB”). 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) 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 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, 2017 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-K filed by the Company with the U.S. Securities and Exchange Commission on September 28, 2017. The results of operations for the three months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018 or any other period.

The Company has evaluated subsequent events through the date of issuance of the financial statements included herein.

Principles of Consolidation

 

The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank.  In January 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Prior to January 11, 2017, all financial information reflects the Bank’s transactions and balances only. All significant intercompany transactions and balances have been eliminated in consolidation.

6


 

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 balance sheet 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, interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale, other real estate owned, 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 May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU establishes a comprehensive revenue recognition standard for virtually all industries following U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate and construction industries. The revenue standard’s core principal is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this, the standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) identify the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies the performance obligation. Three basic transition methods are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the cumulative effect alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The guidance in this ASU is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net). While the ASU does not change the core provisions of Topic 606, it clarifies the implementation guidance on principal versus agent considerations. Namely, the ASU clarifies and offers guidance to help determine when the reporting entity is providing goods or services to a customer itself (i.e., the entity is a principal), or merely arranging for that good or service to be provided by the other party (i.e., the reporting entity is an agent). If the entity is a principal, it recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When the reporting entity is an agent, it recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party. An entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. The guidance includes indicators to assist in determining whether the control criteria are met. If a contract with a customer includes more than one specified good or service, an entity could be a principal for some specified goods or services and an agent for others.  In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing. This ASU clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The ASU includes targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. The ASU seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at

7


implementation and on an ongoing basis. The amendments in this ASU affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which will be effective for fiscal years beginning after December 31, 2017 for public entities.  In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. This ASU clarifies certain aspects of Topic 606 guidance as follows:

 

The objective of the collectability assessment is to determine whether the contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration in exchange for the goods or services transferred.

 

An entity can recognize revenue in the amount of consideration received when it has transferred control of the goods or services, has no additional obligation to transfer goods or services, and the consideration received is nonrefundable.

 

A reporting entity is permitted to make the accounting policy election to exclude amounts collected from customers for all sales taxes from the transaction price.

 

The measurement date is specified as being the contract inception, and variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration.

 

As a practical expedient, a reporting entity is permitted to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented in accordance with Topic 606 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations.

 

The ASU clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application. Accounting for elements of a contract that do not affect revenue under legacy GAAP are irrelevant to the assessment of whether a contract is complete. In addition, the amendments in this ASU permit an entity to apply the modified retrospective transition method either to all contracts or only to contracts that are not completed contracts.

The amendments in this ASU clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. However, an entity is still required to disclose the effect of the changes on any prior periods retrospectively adjusted.

The guidance in the revenue recognition ASUs listed above is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the various revenue recognition ASUs. The guidance does not apply to revenue associated with financial instruments, including loans and securities. The Company is currently evaluating its non-interest revenue sources and does not anticipate the adoption of these ASUs to have a material impact on its financial condition or results of operations.

In March 2017, the FASB issued Accounting Standards Update (ASU) 2017-08, Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 shortens the amortization for premiums on purchased callable debt securities to the earliest call date (i.e. yield-to-earliest call amortization), rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based on prepayments of the underlying loans, not because the issuer has exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of

8


the amendment. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. For all other entities, including emerging growth entities as further described above, the amendments are effective for fiscal periods beginning after December 15, 2019, and interim periods within fiscal periods beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company adopted this standard on July 1, 2017 with no material impact on our consolidated financial statements.  

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases. The new leases standard applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.

The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606.

Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The new leases standard addresses other considerations including identification of a lease, separating lease and non-lease components of a contract, sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of lease payments. It also contains comprehensive implementation guidance with practical examples.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments are effective for all other entities (including emerging growth entities as further described above) for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. Specific transition requirements apply. The Company’s leases are operating leases and ASU 2016-02 will require us to add them to our balance sheet. The Company’s operating leases are predominantly related to real estate. The Company is currently evaluating other impacts of the pending adoption of the new standard on our consolidated financial statements.

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.  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

9


(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.

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 is effective for public business entities for fiscal years after December 15, 2019, including interim periods within those fiscal years. The amendments are effective for all other entities (including emerging growth companies as further described above for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In anticipation of the ASU, the Company has compiled data for the modeling and entered into a contract with a third party. The Company is currently evaluating the impact of adoption of the new standard on the consolidated financial statements.

2. Investment Securities

Investment securities available-for-sale was comprised of the following:

 

 

 

September 30, 2017

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. Governmental securities

 

$

1,477

 

 

$

11

 

 

$

(12

)

 

$

1,476

 

Corporate notes

 

 

6,310

 

 

 

15

 

 

 

(49

)

 

 

6,276

 

Collateralized mortgage obligations - agency

   residential

 

 

11,694

 

 

 

41

 

 

 

(175

)

 

 

11,560

 

Mortgage-backed securities - agency

   residential

 

 

4,378

 

 

 

 

 

 

(68

)

 

 

4,310

 

Municipal securities

 

 

2,065

 

 

 

 

 

 

(7

)

 

 

2,058

 

Bank CDs

 

 

5,492

 

 

 

13

 

 

 

(19

)

 

 

5,486

 

 

 

$

31,416

 

 

$

80

 

 

$

(330

)

 

$

31,166

 

 

 

Investment securities held-to-maturity was comprised of the following:

 

 

 

September 30, 2017

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Corporate notes

 

$

2,000

 

 

$

 

 

$

 

 

$

2,000

 

Municipal securities

 

 

9,802

 

 

 

97

 

 

 

(10

)

 

 

9,889

 

 

 

$

11,802

 

 

$

97

 

 

$

(10

)

 

$

11,889

 

 

10


Investment securities available-for-sale was comprised of the following:

 

 

 

June 30, 2017

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. Governmental securities

 

$

4,330

 

 

$

26

 

 

$

(16

)

 

$

4,340

 

Corporate notes

 

 

11,231

 

 

 

59

 

 

 

(64

)

 

 

11,226

 

Collateralized mortgage obligations - agency

   residential

 

 

12,668

 

 

 

59

 

 

 

(160

)

 

 

12,567

 

Mortgage-backed securities - agency

   residential

 

 

4,520

 

 

 

 

 

 

(85

)

 

 

4,435

 

Municipal securities

 

 

3,517

 

 

 

1

 

 

 

(11

)

 

 

3,507

 

Bank CDs

 

 

6,742

 

 

 

23

 

 

 

(20

)

 

 

6,745

 

 

 

$

43,008

 

 

$

168

 

 

$

(356

)

 

$

42,820

 

 

Investment securities held-to-maturity was comprised of the following:

 

 

 

June 30, 2017

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Corporate notes

 

$

2,000

 

 

$

12

 

 

$

 

 

$

2,012

 

Municipal securities

 

$

9,809

 

 

$

88

 

 

$

(13

)

 

$

9,884

 

 

 

$

11,809

 

 

$

100

 

 

$

(13

)

 

$

11,896

 

 

The scheduled maturities of securities available-for-sale and held-to-maturity at September 30, 2017 were as follows:

 

 

 

September 30, 2017

 

 

 

Available-for-Sale

 

 

Held-to-Maturity

 

 

 

Amortized

 

 

 

 

 

 

Amortized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

Due in one year or less

 

$

1,550

 

 

$

1,551

 

 

$

 

 

$

 

Due from one to five years

 

 

8,571

 

 

 

8,562

 

 

 

2,641

 

 

 

2,645

 

Due from after five to ten years

 

 

3,750

 

 

 

3,711

 

 

 

7,492

 

 

 

7,555

 

Due after ten years

 

 

17,545

 

 

 

17,342

 

 

 

1,669

 

 

 

1,689

 

 

 

$

31,416

 

 

$

31,166

 

 

$

11,802

 

 

$

11,889

 

 

Securities with a fair value of $5.9 million and $8.2 million at September 30, 2017 and June 30, 2017, respectively, were pledged to secure public deposits and for other purposes as required by law.

Proceeds from the sale of available-for-sale securities for the three months ended September 30, 2017 were $11.2 million. Gross realized gains on such sales were approximately $39,000 and gross realized losses on such sales were $5,000 for the three months ended September 30, 2017.

Proceeds from the sale of available-for-sale securities for the three months ended September 30, 2016 were $1.2 million. Gross realized gains on such sales were approximately $11,000 and gross realized losses on such sales were $0.

11


The following tables summarize the unrealized loss positions of securities available-for-sale and held-to-maturity as of September 30, 2017 and June 30, 2017:

 

 

 

September 30, 2017

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

 

 

$

 

 

$

625

 

 

$

(12

)

 

$

625

 

 

$

(12

)

Corporate notes

 

 

1,945

 

 

 

(10

)

 

 

2,461

 

 

 

(39

)

 

 

4,406

 

 

 

(49

)

Collateralized mortgage obligations

 

 

1,061

 

 

 

(23

)

 

 

4,995

 

 

 

(152

)

 

 

6,056

 

 

 

(175

)

Mortgage-backed securities

 

 

3,198

 

 

 

(33

)

 

 

1,107

 

 

 

(35

)

 

 

4,305

 

 

 

(68

)

Municipal securities

 

 

851

 

 

 

(6

)

 

 

241

 

 

 

(1

)

 

 

1,092

 

 

 

(7

)

Bank CDs

 

 

2,736

 

 

 

(12

)

 

 

243

 

 

 

(7

)

 

 

2,979

 

 

 

(19

)

 

 

$

9,791

 

 

$

(84

)

 

$

9,672

 

 

$

(246

)

 

$

19,463

 

 

$

(330

)

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

2,435

 

 

$

(9

)

 

$

501

 

 

$

(1

)

 

$

2,936

 

 

$

(10

)

 

 

$

12,226

 

 

$

(93

)

 

$

10,173

 

 

$

(247

)

 

$

22,399

 

 

$

(340

)

 

 

 

June 30, 2017

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

1,115

 

 

$

(16

)

 

$

 

 

$

 

 

$

1,115

 

 

$

(16

)

Corporate notes

 

 

2,045

 

 

 

(6

)

 

 

2,492

 

 

 

(58

)

 

 

4,537

 

 

 

(64

)

Collateralized mortgage obligations

 

 

2,218

 

 

 

(40

)

 

 

4,278

 

 

 

(120

)

 

 

6,496

 

 

 

(160

)

Mortgage-backed  securities

 

 

3,297

 

 

 

(46

)

 

 

1,133

 

 

 

(39

)

 

 

4,430

 

 

 

(85

)

Municipal securities

 

 

2,214

 

 

 

(9

)

 

 

238

 

 

 

(2

)

 

 

2,452

 

 

 

(11

)

Bank CDs

 

 

2,736

 

 

 

(13

)

 

 

243

 

 

 

(7

)

 

 

2,979

 

 

 

(20

)

 

 

$

13,625

 

 

$

(130

)

 

$

8,384

 

 

$

(226

)

 

$

22,009

 

 

$

(356

)

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

$

3,227

 

 

$

(11

)

 

$

501

 

 

$

(2

)

 

$

3,728

 

 

$

(13

)

 

 

$

16,852

 

 

$

(141

)

 

$

8,885

 

 

$

(228

)

 

$

25,737

 

 

$

(369

)

 

At September 30, 2017 and June 30, 2017, the investment portfolio included five and ten U.S. Government securities, respectively, with total market values of $1.5 million and $4.3 million, respectively. Of these securities, two and three were in an unrealized loss position as of September 30, 2017 and June 30, 2017, respectively. These securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of September 30, 2017 and June 30, 2017, management found no evidence of Other Than Temporary Impairment (“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 will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2017 and June 30, 2017, the investment portfolio included fifteen and twenty-four corporate notes with total market values of $8.3 million and $13.2 million, respectively. Of these securities, nine were in an unrealized loss position as of September 30, 2017 and June 30, 2017. At the time of purchase and as of September 30, 2017 and June 30, 2017, these bonds continue to maintain investment grade ratings. As of September 30, 2017 and June 30, 2017, 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 will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2017 and June 30, 2017, the investment portfolio included thirty-four and thirty-five collateralized mortgage obligations (“CMOs”) with total market values of $11.6 million and $12.6 million,

12


respectively. Of these securities, twenty-eight were in an unrealized loss position as of September 30, 2017 and June 30, 2017. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2017 and June 30, 2017, 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 will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2017 and June 30, 2017, the investment portfolio included fifteen mortgage backed securities (“MBS”) with a total market value of $4.3 million and $4.4 million, respectively. Of these securities, twelve were in an unrealized loss position as of September 30, 2017 and June 30, 2017. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of September 30, 2017 and June 30, 2017, 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 will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2017 and June 30, 2017, the investment portfolio included twenty-six and thirty municipal securities with a total market value of $11.9 million and $13.4 million, respectively. Of these securities, eight and thirteen were in an unrealized loss position as of September 30, 2017 and June 30, 2017, respectively. The Company’s municipal portfolio issuers are located in Pennsylvania and at the time of purchase, and as of September 30, 2017 and June 30, 2017, continue to maintain investment grade ratings. Each of the municipal securities is reviewed quarterly for impairment. This includes research on each issuer to ensure the financial stability of the municipal entity. As of September 30, 2017 and June 30, 2017, 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 will not be required to sell the securities before a recovery of the cost has occurred.

At September 30, 2017 and June 30, 2017, the investment portfolio included twenty-two and twenty-six Bank CDs with a total market value of $5.5 million and $6.7 million, respectively. Of these securities, twelve were in an unrealized loss position as of September 30, 2017 and June 30, 2017. The Bank CDs are fully insured by the FDIC. As of September 30, 2017 and June 30, 2017, 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 will not be required to sell the securities before a recovery of the cost has occurred.

13


3. Loans Receivable

Loans receivable were comprised of the following:

 

 

 

September 30,

 

 

June 30,

 

(Dollars in thousands)

 

2017

 

 

2017

 

Residential:

 

 

 

 

 

 

 

 

One-to-four family

 

$

115,308

 

 

$

88,578

 

Home equity and HELOCs

 

 

5,453

 

 

 

5,466

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

12,414

 

 

 

12,191

 

Commercial business

 

 

4,773

 

 

 

3,801

 

Construction

 

 

289

 

 

 

2,004

 

Consumer

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

138,242

 

 

 

112,045

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

Unearned discounts, origination and commitment

   fees and costs

 

 

687

 

 

 

359

 

Allowance for loan losses

 

 

(615

)

 

 

(593

)

 

 

 

 

 

 

 

 

 

 

 

$

138,314

 

 

$

111,811

 

 

Overdraft deposits are reclassified as consumer loans and are included in the total loans on the statements of financial condition. Overdrafts were $5,000 at September 30, 2017 and June 30, 2017, respectively.

The following tables summarize the activity in the allowance for loan losses by loan class for the three months ended September 30, 2017 and 2016.

 

Allowance for Loan Losses

 

September 30, 2017

 

(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

 

$

399

 

 

$

 

 

$

44

 

 

$

(23

)

 

$

420

 

 

$

 

 

$

420

 

Home equity and HELOCs

 

 

38

 

 

 

 

 

 

 

 

 

1

 

 

 

39

 

 

 

 

 

 

39

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

89

 

 

 

(22

)

 

 

 

 

 

18

 

 

 

85

 

 

 

 

 

 

85

 

Commercial business

 

 

58

 

 

 

 

 

 

 

 

 

10

 

 

 

68

 

 

 

13

 

 

 

55

 

Construction

 

 

9

 

 

 

 

 

 

 

 

 

(6

)

 

 

3

 

 

 

 

 

 

3

 

Consumer:

 

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Unallocated reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

593

 

 

$

(22

)

 

$

45

 

 

$

(1

)

 

$

615

 

 

$

13

 

 

$

602

 

 

14


Allowance for Loan Losses

 

September 30, 2016

 

(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

 

$

314

 

 

$

 

 

$

3

 

 

$

43

 

 

$

360

 

 

$

 

 

$

360

 

Home equity and HELOCs

 

 

18

 

 

 

 

 

 

 

 

 

96

 

 

 

114

 

 

 

96

 

 

 

18

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

131

 

 

 

 

 

 

 

 

 

(13

)

 

 

118

 

 

 

30

 

 

 

88

 

Commercial business

 

 

23

 

 

 

 

 

 

 

 

 

(3

)

 

 

20

 

 

 

15

 

 

 

5

 

Construction

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

487

 

 

$

 

 

$

3

 

 

$

123

 

 

$

613

 

 

$

141

 

 

$

472

 

 

The following tables summarize information in regards to the recorded investment in loans receivable by loan class as of September 30, 2017 and June 30, 2017:

 

September 30, 2017

 

Loan Receivable

 

(Dollars in thousands)

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

115,308

 

 

$

1,217

 

 

$

114,091

 

Home equity and HELOCs

 

 

5,453

 

 

 

190

 

 

 

5,263

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

12,414

 

 

 

488

 

 

 

11,926

 

Commercial business

 

 

4,773

 

 

 

168

 

 

 

4,605

 

Construction

 

 

289

 

 

 

 

 

 

289

 

Consumer

 

 

5

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

138,242

 

 

$

2,063

 

 

$

136,179

 

 

15


 

June 30, 2017

 

Loan Receivable

 

(Dollars in thousands)

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

88,578

 

 

$

1,198

 

 

$

87,380

 

Home equity and HELOCs

 

 

5,466

 

 

 

196

 

 

 

5,270

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

12,191

 

 

 

507

 

 

 

11,684

 

Commercial business

 

 

3,801

 

 

 

173

 

 

 

3,628

 

Construction

 

 

2,004

 

 

 

 

 

 

2,004

 

Consumer

 

 

5

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

112,045

 

 

$

2,074

 

 

$

109,971

 

 

The following tables summarize information in regard to impaired loans by loan portfolio class as of September 30, 2017 and June 30, 2017:

 

 

 

September 30, 2017

 

 

June 30, 2017

 

(Dollars in thousands)

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,217

 

 

$

1,217

 

 

$

 

 

$

1,198

 

 

$

1,198

 

 

$

 

Home equity and HELOCs

 

 

190

 

 

 

190

 

 

 

 

 

 

196

 

 

 

196

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

488

 

 

 

488

 

 

 

 

 

 

514

 

 

 

514

 

 

 

 

 

 

 

1,895

 

 

 

1,895

 

 

 

 

 

 

1,908

 

 

 

1,908

 

 

 

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

168

 

 

 

168

 

 

 

13

 

 

 

173

 

 

 

173

 

 

 

15

 

 

 

 

168

 

 

 

168

 

 

 

13

 

 

 

173

 

 

 

173

 

 

 

15

 

 

 

$

2,063

 

 

$

2,063

 

 

$

13

 

 

$

2,081

 

 

$

2,081

 

 

$

15

 

 

16


The following table presents additional information regarding the impaired loans for the three months ended September 30, 2017 and September 30, 2016:

 

 

 

Three Months Ended September 30,

 

 

 

2017

 

 

2016

 

(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

 

$

1,207

 

 

$

2

 

 

$

788

 

 

$

2

 

Home equity and HELOCs

 

 

191

 

 

 

 

 

 

146

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

501

 

 

 

6

 

 

 

555

 

 

 

8

 

 

 

 

1,899

 

 

 

8

 

 

 

1,489

 

 

 

10

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

120

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

202

 

 

 

4

 

Commercial business

 

 

171

 

 

 

2

 

 

 

190

 

 

 

3

 

 

 

 

171

 

 

 

2

 

 

 

512

 

 

 

7

 

 

 

$

2,070

 

 

$

10

 

 

$

2,001

 

 

$

17

 

 

If these loans were performing under the original contractual rate, interest income on such loans would have increased approximately $22,000 and $16,000 for the three months ended September 30, 2017 and 2016, respectively.

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2017 and June 30, 2017:

 

 

 

September 30,

 

 

June 30,

 

(Dollars in thousands)

 

2017

 

 

2017

 

Residential:

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,074

 

 

$

1,198

 

Home equity and HELOCs

 

 

106

 

 

 

110

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

78

 

 

 

100

 

Commercial business

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,258

 

 

$

1,408

 

 

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 doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

17


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, 2017 and June 30, 2017:

 

 

 

September 30, 2017

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

113,811

 

 

$

 

 

$

1,497

 

 

$

 

 

$

115,308

 

Home equity and HELOCs

 

 

5,263

 

 

 

 

 

 

190

 

 

 

 

 

 

5,453

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

11,703

 

 

 

379

 

 

 

332

 

 

 

 

 

 

12,414

 

Commercial business

 

 

4,605

 

 

 

 

 

 

168

 

 

 

 

 

 

4,773

 

Construction

 

 

289

 

 

 

 

 

 

 

 

 

 

 

 

289

 

Consumer

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

$

135,676

 

 

$

379

 

 

$

2,187

 

 

$

 

 

$

138,242

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

87,099

 

 

$

 

 

$

1,479

 

 

$

 

 

$

88,578

 

Home equity and HELOCs

 

 

5,270

 

 

 

 

 

 

196

 

 

 

 

 

 

5,466

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

11,283

 

 

 

552

 

 

 

356

 

 

 

 

 

 

12,191

 

Commercial business

 

 

3,628

 

 

 

 

 

 

173

 

 

 

 

 

 

3,801

 

Construction

 

 

2,004

 

 

 

 

 

 

 

 

 

 

 

 

2,004

 

Consumer

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

109,289

 

 

$

552

 

 

$

2,204

 

 

$

 

 

$

112,045

 

 

The following tables present the segments of the loan portfolio summarized by aging categories as of September 30, 2017 and June 30, 2017:

 

 

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

 

 

30-59

 

 

60-89

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

>90 Days

 

 

 

Days

 

 

Days

 

 

than 90

 

 

Total

 

 

 

 

 

 

Total Loans

 

 

and

 

(Dollars in thousands)

 

Past Due

 

 

Past Due

 

 

Days

 

 

Past Due

 

 

Current

 

 

Receivable

 

 

Accruing

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

514

 

 

$

419

 

 

$

822

 

 

$

1,755

 

 

$

113,553

 

 

$

115,308

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

106

 

 

 

106

 

 

 

5,347

 

 

 

5,453

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

78

 

 

 

78

 

 

 

12,336

 

 

 

12,414

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,773

 

 

 

4,773

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

289

 

 

 

289

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

514

 

 

$

419

 

 

$

1,006

 

 

$

1,939

 

 

$

136,303

 

 

$

138,242

 

 

$

 

 

18


 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivable

 

 

 

30-59

 

 

60-89

 

 

Greater

 

 

 

 

 

 

 

 

 

 

 

 

 

 

>90 Days

 

 

 

Days

 

 

Days

 

 

than 90

 

 

Total

 

 

 

 

 

 

Total Loans

 

 

and

 

(Dollars in thousands)

 

Past Due

 

 

Past Due

 

 

Days

 

 

Past Due

 

 

Current

 

 

Receivable

 

 

Accruing

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

554

 

 

$

381

 

 

$

950

 

 

$

1,885

 

 

$

86,693

 

 

$

88,578

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

110

 

 

 

110

 

 

 

5,356

 

 

 

5,466

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

100

 

 

 

100

 

 

 

12,091

 

 

 

12,191

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,801

 

 

 

3,801

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,004

 

 

 

2,004

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

554

 

 

$

381

 

 

$

1,160

 

 

$

2,095

 

 

$

109,950

 

 

$

112,045

 

 

$

 

 

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.

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.

As of September 30, 2017 and June 30, 2017, the Company had two loans identified as TDRs totaling $324,000 and $331,000, respectively. At September 30, 2017 and June 30, 2017, both of the TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during 2017. No additional loan commitments were outstanding to these borrowers at September 30, 2017 and June 30, 2017.

 

The following table details the Company’s TDRs that are on accrual status and non-accrual status at September 30, 2017:

 

 

 

As of September 30, 2017

 

 

 

Number

 

 

Accrual

 

 

Non-Accrual

 

 

 

 

 

(Dollars in thousands)

 

Of Loans

 

 

Status

 

 

Status

 

 

Total TDRs

 

Commercial real estate

 

 

2

 

 

$

324

 

 

$

 

 

$

324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2

 

 

$

324

 

 

$

 

 

$

324

 

 

19


The following table details the Company’s TDRs that are on accrual status and non-accrual status at June 30, 2017:

 

 

 

As of June 30, 2017

 

 

 

Number

 

 

Accrual

 

 

Non-Accrual

 

 

 

 

 

(Dollars in thousands)

 

Of Loans

 

 

Status

 

 

Status

 

 

Total TDRs

 

Commercial real estate

 

 

2

 

 

$

331

 

 

$

 

 

$

331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2

 

 

$

331

 

 

$

 

 

$

331

 

 

The carrying amount of residential mortgage loans in the process of foreclosure was $647,000 and $946,000 at September, 2017 and June 30, 2017, respectively.

 

4. 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 September 30, 2017 and June 30, 2017 and for the three months ended September 30, 2017 and 2016. 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 September 30, 2017 and June 30, 2017 (in thousands):

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Mortgage banking derivatives

 

$

412

 

 

$

18,539

 

Forward loan sales commitments

 

Mortgage banking derivatives

 

 

148

 

 

 

3,518

 

To Be Announced securities

 

Mortgage banking derivatives

 

 

19

 

 

 

9,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Other liabilities

 

$

15

 

 

$

2,931

 

Forward loan sales commitments

 

Other liabilities

 

 

14

 

 

 

1,264

 

To Be Announced securities

 

Other liabilities

 

 

4

 

 

 

3,750

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Mortgage banking derivatives

 

$

786

 

 

$

21,389

 

Forward loan sales commitments

 

Mortgage banking derivatives

 

 

179

 

 

 

10,864

 

To Be Announced securities

 

Mortgage banking derivatives

 

 

36

 

 

 

14,750

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Other liabilities

 

$

19

 

 

$

4,089

 

Forward loan sales commitments

 

Other liabilities

 

 

37

 

 

 

3,713

 

To Be Announced securities

 

Other liabilities

 

 

8

 

 

 

2,750

 

 

20


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 September 30, 2017 and September 30, 2016 (in thousands):

 

 

 

 

 

Gain/(Loss)

 

 

 

 

 

Three Months Ended

 

 

 

Consolidated Statements of Income Presentation

 

September 30, 2017

 

 

September 30, 2016

 

Interest rate lock commitments

 

Gain from hedging Instruments

 

$

(369

)

 

$

217

 

Forward loan sales commitments

 

Loss from hedging instruments

 

 

(8

)

 

 

(345

)

To Be Announced securities

 

Loss from hedging instruments

 

 

(13

)

 

 

(251

)

 

 

Total loss from hedging instruments

 

$

(390

)

 

$

(379

)

 

5. Fair Value of Financial Instruments

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.

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.

21


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.

The incorporation of counterparty credit risk did not have significant impact on the valuation of assets and liabilities recorded at fair value as of September 30, 2017 or June 30, 2017.

Assets measured at fair value on a recurring basis at September 30, 2017 and June 30, 2017 are summarized below:

 

 

 

September 30, 2017

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. governmental securities

 

$

 

 

$

1,476

 

 

$

 

 

$

1,476

 

Corporate notes

 

 

 

 

 

5,294

 

 

 

982

 

 

 

6,276

 

Collateralized mortgage obligations - agency

   residential

 

 

 

 

 

11,560

 

 

 

 

 

 

11,560

 

Mortgage-backed securities - agency

   residential

 

 

 

 

 

4,310

 

 

 

 

 

 

4,310

 

Municipal securities

 

 

 

 

 

2,058

 

 

 

 

 

 

2,058

 

Bank CDs

 

 

 

 

 

5,243

 

 

 

243

 

 

 

5,486

 

Loans held for sale

 

 

 

 

 

10,535

 

 

 

 

 

 

10,535

 

Interest rate lock commitments

 

 

 

 

 

 

 

 

412

 

 

 

412

 

Forward loan sales commitments

 

 

 

 

 

148

 

 

 

 

 

 

148

 

To Be Announced securities

 

 

 

 

 

19

 

 

 

 

 

 

19

 

 

 

 

June 30, 2017

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. governmental securities

 

$

 

 

$

4,340

 

 

$

 

 

$

4,340

 

Corporate notes

 

 

 

 

 

10,258

 

 

 

968

 

 

 

11,226

 

Collateralized mortgage obligations - agency

   residential

 

 

 

 

 

12,567

 

 

 

 

 

 

12,567

 

Mortgage-backed securities - agency

   residential

 

 

 

 

 

4,435

 

 

 

 

 

 

4,435

 

Municipal securities

 

 

 

 

 

3,507

 

 

 

 

 

 

3,507

 

Bank CDs

 

 

 

 

 

6,502

 

 

 

243

 

 

 

6,745

 

Loans held for sale

 

 

 

 

 

12,784

 

 

 

 

 

 

12,784

 

Interest rate lock commitments

 

 

 

 

 

 

 

 

786

 

 

 

786

 

Forward loan sales commitments

 

 

 

 

 

179

 

 

 

 

 

 

179

 

To Be Announced securities

 

 

 

 

 

36

 

 

 

 

 

 

36

 

 

Liabilities measured at fair value on a recurring basis at September 30, 2017 are summarized below.

 

22


 

 

September 30, 2017

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Interest rate lock commitments

 

$

 

 

$

 

 

$

15

 

 

$

15

 

Forward loan sales commitments

 

 

 

 

 

14

 

 

 

 

 

 

14

 

To Be Announced securities

 

 

 

 

 

4

 

 

 

 

 

 

4

 

 

Liabilities measured at fair value on a recurring basis at June 30, 2017 are summarized below.

 

 

 

June 30, 2017

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Interest rate lock commitments

 

$

 

 

$

 

 

$

19

 

 

$

19

 

Forward loan sales commitments

 

 

 

 

 

37

 

 

 

 

 

 

37

 

To Be Announced securities

 

 

 

 

 

8

 

 

 

 

 

 

8

 

 

The following table represents assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2017:

 

 

Level 3

 

 

 

Bank Cds

 

 

Corporate notes

 

 

IRLC- Asset

 

 

IRLC- Liability

 

Beginning Balance: July 1, 2017

 

$

243

 

 

$

968

 

 

$

786

 

 

$

(19

)

Total gains (unrealized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

 

 

 

14

 

 

 

 

 

 

 

Total (losses) or gains included in earnings and held at reporting date

 

 

 

 

 

 

 

 

(374

)

 

 

4

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: September 30,

   2017

 

$

243

 

 

$

982

 

 

$

412

 

 

$

(15

)

 

 

 

Level 3

 

 

 

Bank CDs

 

 

Corporate notes

 

 

IRLC- Asset

 

 

IRLC- Liability

 

Beginning Balance: July 1, 2016

 

$

 

 

$

 

 

$

1,084

 

 

$

(32

)

Total  losses (unrealized):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

(7

)

 

 

(32

)

 

 

 

 

 

 

Total (losses) or gains included in earnings and held at reporting date

 

 

 

 

 

 

 

 

(298

)

 

 

13

 

Transfers in and/or out of Level 3

 

 

250

 

 

 

1,000

 

 

 

 

 

 

 

Ending Balance: June 30, 2017

 

$

243

 

 

$

968

 

 

$

786

 

 

$

(19

)

 

For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2017 is as follows:

 

 

 

September 30, 2017

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Real estate owned

 

 

 

 

 

 

 

 

127

 

 

 

127

 

 

 

23


The following table presents additional qualitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

 

 

 

Balances as of September 30, 2017

 

 

Qualitative Information about Level 3 Fair Value Measurements

 

 

 

 

 

 

 

 

 

 

Range

 

 

 

 

 

 

Valuation

 

Unobservable

 

(Weighted

(Dollars in thousands)

 

Fair Value

 

 

Techniques

 

Input

 

Average)

Real estate owned

 

$

127

 

 

Appraisal of

collateral (1)

 

Liquidation

expenses

 

8.0% - 8.0% (8.0%)

 

 

 

 

 

(1)

Appraisals may be discounted for qualitative factors such as age of appraisal, interior condition of the property, and liquidation expenses. Fair value may also be based on negotiated settlements with the borrowers.

The estimated fair values of the Company's financial instruments at September 30, 2017 and June 30, 2017 are as follows:

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

September 30, 2017

 

Carrying

 

 

Estimated

 

 

Assets

 

 

Inputs

 

 

Inputs

 

(Dollars in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,607

 

 

$

15,607

 

 

$

15,607

 

 

$

 

 

$

 

Investment securities held-to-maturity

 

 

11,802

 

 

 

11,889

 

 

 

 

 

 

9,889

 

 

 

2,000

 

Loans receivable, net

 

 

138,314

 

 

 

134,811

 

 

 

 

 

 

 

 

 

134,811

 

Restricted investment in bank stock

 

 

629

 

 

 

629

 

 

 

 

 

 

 

 

 

629

 

Accrued interest receivable

 

 

654

 

 

 

654

 

 

 

 

 

 

654

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

171,259

 

 

$

142,782

 

 

$

 

 

$

142,782

 

 

$

 

Advances from the FHLB

 

 

9,000

 

 

 

8,971

 

 

 

 

 

 

8,971

 

 

 

 

Securities sold under agreements to

repurchase

 

 

3,713

 

 

 

3,713

 

 

 

 

 

 

3,713

 

 

 

 

Accrued interest payable

 

 

21

 

 

 

21

 

 

 

 

 

 

21

 

 

 

 

Off-balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitment to extend credit

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

24


 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

June 30, 2017

 

Carrying

 

 

Estimated

 

 

Assets

 

 

Inputs

 

 

Inputs

 

(Dollars in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,577

 

 

$

28,577

 

 

$

28,577

 

 

$

 

 

$

 

Investment securities held-to-maturity

 

 

11,809

 

 

 

11,896

 

 

 

 

 

 

9,884

 

 

 

2,012

 

Loans receivable, net

 

 

111,811

 

 

 

107,510

 

 

 

 

 

 

 

 

 

107,510

 

Restricted investment in bank stock

 

 

643

 

 

 

643

 

 

 

 

 

 

 

 

 

643

 

Accrued interest receivable

 

 

620

 

 

 

620

 

 

 

 

 

 

620

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

170,481

 

 

$

160,764

 

 

$

 

 

$

160,764

 

 

$

 

Advances from the FHLB

 

 

9,000

 

 

 

8,958

 

 

 

 

 

 

8,958

 

 

 

 

Securities sold under agreements to repurchase

 

 

2,883

 

 

 

2,883

 

 

 

   —

 

 

 

2,883

 

 

 

         —

 

Accrued interest payable

 

 

     20

 

 

 

     20

 

 

 

 

 

 

     20

 

 

 

 

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 during the three months ended September 30, 2017. During the three months ended June 30, 2017, certain investment securities were transferred into a Level 3 valuation as significant observable inputs that the Bank relied upon to classify certain investment securities as Level 2 in prior periods are no longer sufficiently observable at June 30, 2017.

 

 

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2017 and June 30, 2017:

 

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. Level 1 investment securities include highly liquid U.S. Treasury securities and most equity securities. 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. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain Mortgage Backed Securities (MBS). 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 municipal bonds, certain Asset Backed Securities (ABS), and other less liquid investment securities. If observable market-based inputs

25


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 September 30, 2017 and June 30, 2017 (in thousands):

 

Loans held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Amount

 

 

Aggregated Unpaid Principal Balance

 

 

Excess Carrying

Amount Over Aggregate Unpaid Principal Balance

 

September 30, 2017

 

$

10,535

 

 

$

10,241

 

 

$

294

 

June 30, 2017

 

$

12,784

 

 

$

12,534

 

 

$

250

 

 

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, 2017, or June 30, 2017.

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

Impaired loans include those collateral-dependent loans and leases for which the practical expedient under ASC 310-40 was applied, resulting in a fair value adjustment to the loans. Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair

26


value is measured based on the value of the collateral securing these loans less cost to sell and is classified at Level 3 in the fair value hierarchy. The fair value of collateral is based on appraisals performed by qualified licensed appraisers hired by the Company.

Restricted Investment in Bank Stock

The stock is carried at cost; which approximates fair value and considers the limited marketability of such securities.

Real Estate Owned

The fair value basis of real estate owned is generally determined based upon the lower of an independent appraisal of the property’s appraisal value or applicable listing price or contracted sales price. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurements.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amount of accrued interest receivable and payable approximates their respective fair values.

Deposits

The fair value of demand deposits, savings accounts, and money market deposits is estimated by discounting expected cash flow, net of expected servicing costs, using the current rates and anticipated maturities of each deposit category. As these deposits do not have stated maturity dates, the average lives of these deposits are estimated when calculating the discounted cash flow. 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.  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.

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.

6. 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. There were no common shares outstanding for the three months ended September 30, 2016. For the three months ended September 30, 2017 and 2016, there

27


were no stock options or other convertible instruments outstanding for either period.  Therefore, there is no effect of dilution on the Company’s earnings per share.

The calculation of EPS for the three months ended September 30, 2017 and 2016 is as follows (in thousands, except per share data):

 

 

 

For the Three Months

 

 

 

Ended September 30,

 

 

 

2017

 

 

2016

 

Net income (basic and diluted)

 

$

236

 

 

$

253

 

Weighted average shares outstanding

 

 

2,182,125

 

 

N/A

 

Net income per share – basic and diluted

 

$

0.11

 

 

$

N/A

 

 

 

7. Employee Stock Ownership Plan

The Company adopted the Huntingdon Valley Bank Employee Stock Ownership Plan (the “ESOP”) for eligible employees. Eligible employees who have attained age 21 may participation in the ESOP on the later of the effective date of the ESOP or upon the first entry date commencing on or after the eligible employee’s completion of 1,000 hours of service during a continuous 12-month period.

 

During the three months ended September 30, 2017, ESOP shares committed to be released was 2,182 with a value of approximately $24,000. There no shares were purchased by the ESOP during the three months ended September 30, 2017.

28


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, changes in the interest rate environment, changes in general economic conditions, 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 Huntingdon Valley, 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 Warminster, Pennsylvania and a loan origination office in Montgomeryville, Pennsylvania. Our primary market area includes Montgomery, Bucks and Philadelphia Counties in Pennsylvania. 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, 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 Home Loan Bank 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 currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market, fees and service charges on deposit accounts, gain from hedging instruments and sales of securities. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy, data processing related operations, professional fees, real estate owned 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.  

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

29


comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Financial Statements as of September 30, 2017 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K, for the year ended June 30, 2017.

The Jumpstart Our Business Startups Act (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private 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 September 30, 2017 and June 30, 2017, there is not a significant difference in the presentation of our 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, for the year ended June 30, 2017.

Comparison of Statements of Financial Condition at September 30, 2017 and at June 30, 2017

Total Assets

Total assets increased $1.1 million, or 0.5%, to $217.9 million at September 30, 2017 from $216.8 million at June 30, 2017. The increase was primarily the result of increases of $26.5 million in loans receivable, and $1.9 million in bank owned life insurance, partially offset by decreases in investment securities of $11.6 million, $13.0 million in cash and cash equivalents and $2.2 million in loans held for sale.

Cash and cash equivalents

Cash and cash equivalents decreased $13.0 million, or 45.5%, to $15.6 million at September 30, 2017 from $28.6 million at June 30, 2017, primarily as a result of funding loans as our continued strategic emphasis is growing our adjustable-rate jumbo one- to four-family residential real estate loan portfolio. We originated $27.0 million in adjustable-rate jumbo one- to four-family residential real estate loan portfolio for the three months ended September 30, 2017.

Investment Securities

Investment securities decreased by $11.6 million, or 21.2%, to $43.0 million at September 30, 2017 from $54.6 million at June 30, 2017. The decrease was primarily due to sales and principal repayments of $11.6 million. At September 30, 2017, our held-to-maturity portion of the securities portfolio, at amortized cost, was $11.8 million, and our available-for-sale portion of the securities portfolio, at fair value, was $31.2 million compared to our held-to-maturity portion of the securities portfolio of $11.8 million and our available-for-sale portion of the securities portfolio of $42.8 million at June 30, 2017.

Net Loans

Net loans increased $26.5 million, or 23.7%, to $138.3 million at September 30, 2017 from $111.8 million at June 30, 2017. One- to four-family residential real estate loans increased $26.7 million, or 30.1%, to $115.3 million at September 30, 2017 from $88.6 million at June 30, 2017 as a result of our continued strategic emphasis on growing our adjustable-rate jumbo one- to four-family residential real estate loan portfolio. Commercial real estate loans increased by $223,000 from $12.2 million at June 30, 2017 to $12.4 million at September 30, 2017. Commercial business loans increased by $1.0 million from $3.8 million at June 30, 2017 to $4.8 million at September 30, 2017. Construction loans decreased $1.7 million from $2.0 million at June 30, 2017 to $289,000 at September 30, 2017 primarily as a result of a

30


construction loan that was converted to a permanent mortgage loan. Home equity and HELOC loans remained flat at $5.5 million at September 30, 2017 and June 30, 2017.

Loans Held For Sale

Loans held for sale decreased $2.3 million, or 18.0%, to $10.5 million at September 30, 2017 from $12.8 million at June 30, 2017 as the pipeline of one- to four-family residential real estate loans decreased during the three months ended September 30, 2017 due to lower demand.

Deposits

Deposits increased $0.8 million, or 0.5%, to $171.3 million at September 30, 2017 from $170.5 million at June 30, 2017. Certificates of deposit increased $1.0 million, or 3.6%, to $28.9 million at September 30, 2017 from $27.9 million at June 30, 2017. Offsetting the increase in certificates of deposit, was a decrease in our core deposits (consisting of NOW, money market, pass book and statement and checking accounts) of $0.2 million, or 0.01%, to $142.4 million at September 30, 2017 from $142.6 million at June 30, 2017.

Advances from the Federal Home Loan Bank

Advances from the Federal Home Loan Bank of $9.0 million remained unchanged at September 30, 2017 from June 30, 2017 as advances of $3.0 million were offset by repayments of $3.0 million.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase increased approximately $830,000 million, or 28.6%, to $3.7 million at September 30, 2017 from $2.9 million at June 30, 2017 as a result of an increase in the underlying deposit balances, which are primarily held by title companies.

Total Shareholders’ Equity

Total shareholders’ equity increased $223,000 to $31.7 million at September 30, 2017 compared to $31.4 million at June 30, 2017 primarily as a result of net income for the three months ended September 30, 2017 of $236,000 and ESOP shares committed to be released of $24,000, partially offset by other comprehensive losses of $37,000 due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio during the three months ended September 30, 2017.

Comparison of Statements of Income for the Three Months Ended September 30, 2017 and 2016

General

Net income decreased $17,000, or 6.7%, to $236,000 for the three months ended September 30, 2017 from $253,000 for the three months ended September 30, 2016.  The decrease in net income was primarily due to a decrease in non-interest income of $363,000 primarily from a decline in mortgage operations and an increase in non-interest expense of $117,000 partially offset by an increase in net interest income of $309,000 and a decrease in provision for loan losses of $124,000.

Interest Income

Total interest income increased approximately $343,000, or 24.5%, to $1.7 million for the three months ended September 30, 2017 from $1.4 million for the three months ended September 30, 2016. The increase was primarily the result of increases in interest and fees on loans, interest on interest-bearing deposits due with banks and interest and dividends on investments, due to higher average volumes of interest earning assets.

31


Interest income on interest-earning deposits increased by $96,000 to $126,000 for the three months ended September 30, 2017, from $30,000 for the three months ended September 30, 2016. The increase was due to an increase in the average balances of interest-earning deposits with banks of $4.2 million, which increased to $19.2 million for the three months, ended September 30, 2017 from $15.0 million for the three months ended September 30, 2016. Interest on interest-earning deposits with banks increased primarily as a result of the subscription proceeds related to the Company’s initial public offering and the conversion of the Bank from the mutual to the stock form of organization. Additionally, the average yield on interest-bearing deposits due with banks increased 182 basis points, to 2.62% for the three months ended September 30, 2017 from 80 basis points for the three months ended September 30, 2016.  The increase was primarily due to recent rate increases in the Federal funds rate by the Federal Reserve Bank during 2017 as well as investments in higher yielding cash equivalents, which had rates ranging from 2%-4%.

Interest and fees on loans increased $144,000 to $1.4 million for the three months ended September 30, 2017 from $1.2 million for the same period in 2016. This increase was primarily due to an increase in average loans outstanding of $21.0 million, which increased to $138.3 million for the three months ended September 30, 2017 from $117.3 million for the three months ended September 30, 2016 as a result of the Company’s effort to increase originations of more one-to-four family residential loans.  The benefit from the higher loan volume was partially offset by a reduction in average yield of loans of 21 basis points, which decreased to 3.90% for the three months ended September 30, 2017 from 4.11% for the three months ended September 30, 2016, as lower yielding Jumbo one-to-four family adjustable rate mortgages were originated.

 

Interest on investment securities increased by $104,000, or 66.2% to $261,000 for the three months ended September 30, 2017, from $157,000 for three months ended September 30, 2016. The increase was primarily the result of an increase in interest income on U.S. Government Agency securities, corporate bonds and municipal securities which increased $11.3 million or 30.0%.In addition, interest income on mortgage backed securities and collateral mortgage obligation securities increased by $22,000, or 34.9%, to $85,000 for the three months ended September 30, 2017, from $63,000 for the three months ended September 30, 2016.  The average yield on total securities increased 46 basis points to 2.12% for the three months ended September 30, 2017 from 1.66% for the same period in 2016, as market rates increased reflecting higher yielding investments. A portion of the conversion proceeds were used to purchase new investment securities, which caused the average balance of investment securities to increase by $11.3 million to $49.1 million for the three months ended September 30, 2017, from $37.8 million for the three months ended September 30, 2016.

Interest Expense

Total interest expense increased $34,000 or 16.0%, to $247,000 for the three months ended September 30, 2017 from $213,000 for the three months ended September 30, 2016, primarily due to a $50,000 increase in interest expense on deposits, partially offset by a $16,000 decrease in interest expense on advances from the Federal Home Loan Bank.  

Interest expense on deposits increased $50,000, or 30.1%, to $216,000 for the three months ended September 30, 2017 from $166,000 for the three months ended September 30, 2016 primarily as a result of an increase in average interest bearing deposits of $25.4 million to $158.9 million during the three months ended September 30, 2017 as compared to $133.5 million for the three months ended September 30, 2016. The increase in the average balance of interest bearing deposits was primarily as a result of a $34.9 million increase in the average balance of our core deposit accounts, which was partially offset by a $9.5 million decrease in the average balance of our certificates of deposit. The increase in the average balance of core deposits was primarily the result of the introduction of a new demand product attracting clients of local professional firms such as CPA firms, totaling $23.6 million at September 30, 2017. The average cost of checking deposits increased by 71 basis points to 1.00% during the three months ended September 30, 2017 as compared to 0.29% for the three months ended September 30, 2016 as a result of the new demand product. This product can pay up to 1.00% on interest per annum. The average rates paid on NOW accounts remained flat at 0.19% and the money market deposits increased by four basis

32


points to 0.34% from 0.30% for the three months ended September 30, 2016. The average cost of certificates of deposit decreased by three basis points to 1.06% for the three months ended September 30, 2017 as compared to 1.09% for the three months ended September 30, 2016, reflecting runoff of higher priced certificates of deposit held by credit unions and banks.

Interest expense on advances from the Federal Home Loan Bank decreased $16,000 to $30,000 for the three months ended September 30, 2017 from $46,000 for the three months ended September 30, 2016 as a result of a decrease in the average balance of Federal Home Loan Bank advances. The average balance of the of Federal Home Loan Bank advances decreased $10.5 million to $9.5 million for the three months ended September 30, 2017 from $20.0 million for the three months ended September 30, 2016 primarily due to the Company utilizing available liquidity of $11.2 million from proceeds from the sale of available-for-sale securities for the three months ended September 30, 2017 to fund loan requirements in place of advances from the Federal Home Loan Bank. The decrease in interest expense on advances was partially offset by an increase in the average rate on the Federal Home Loan Bank advances, which increased from 0.92% for the three months ended September 30, 2016 to 1.27% for the three months ended September 30, 2017 due to increased rates on advances.

Net Interest Income

Net interest income increased approximately $309,000 or 25.8%, to $1.5 million for the three months ended September 30, 2017 from $1.2 million for the three months ended September 30, 2016 as we increased our interest income at a greater rate than our interest expense. Our net interest-earning assets increased to $36.8 million for the three months ended September 30, 2017 from $15.8 million for the three months ended September 30, 2016. This increase in net interest-earning assets was primarily the result of the stock offering proceeds related to the Company’s initial public offering and the conversion of the Bank from the mutual to the stock form of organization during the year ended June 30, 2017. Our interest rate spread increased to 2.79% for the three months ended September 30, 2017 from 2.72% for the three months ended September 30, 2016.  Our net interest margin increased by 11 basis points to 2.89% for the three months ended September 30, 2017 from 2.78% for the three months ended September 30, 2016.  

33


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,

 

 

 

2017

 

 

2016

 

 

 

Average Balance

 

 

Interest Income/

Expense

 

 

Yield/

Cost (5)

 

 

Average Balance

 

 

Interest Income/

Expense

 

 

Yield/

Cost (5)

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

138,304

 

 

$

1,350

 

 

 

3.90

%

 

$

117,331

 

 

$

1,206

 

 

 

4.11

%

Interest-earning deposits with banks

 

 

19,211

 

 

 

126

 

 

 

2.62

%

 

 

14,981

 

 

 

30

 

 

 

0.80

%

Investment securities

 

 

49,134

 

 

 

261

 

 

 

2.12

%

 

 

37,798

 

 

 

157

 

 

 

1.66

%

Restricted investment in bank stock

 

 

655

 

 

 

7

 

 

 

4.27

%

 

 

1,106

 

 

 

8

 

 

 

2.89

%

Total interest-earning assets

 

 

207,304

 

 

 

1,744

 

 

 

3.37

%

 

 

171,216

 

 

 

1,401

 

 

 

3.27

%

Non-interest-earning assets

 

 

8,495

 

 

 

 

 

 

 

 

 

 

 

7,485

 

 

 

 

 

 

 

 

 

Total assets

 

$

215,799

 

 

 

 

 

 

 

 

 

 

$

178,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

35,874

 

 

17

 

 

 

0.19

%

 

$

30,178

 

 

 

14

 

 

 

0.19

%

Money market deposit accounts

 

 

32,112

 

 

27

 

 

 

0.34

%

 

 

25,230

 

 

 

19

 

 

 

0.30

%

Passbook and statement savings

   accounts

 

 

33,070

 

 

23

 

 

 

0.28

%

 

 

34,774

 

 

 

26

 

 

 

0.30

%

Checking accounts

 

 

29,620

 

 

74

 

 

 

1.00

%

 

 

5,597

 

 

 

4

 

 

 

0.29

%

Certificates of deposit

 

 

28,241

 

 

75

 

 

 

1.06

%

 

 

37,697

 

 

 

103

 

 

 

1.09

%

Total deposits

 

 

158,917

 

 

216

 

 

 

0.54

%

 

 

133,476

 

 

 

166

 

 

 

0.50

%

Federal Home Loan Bank advances

 

 

9,471

 

 

30

 

 

 

1.27

%

 

 

20,000

 

 

 

46

 

 

 

0.92

%

Securities sold under agreements to

   repurchase

 

 

2,109

 

 

1

 

 

 

0.19

%

 

 

1,985

 

 

 

1

 

 

 

0.20

%

Total interest-bearing liabilities

 

 

170,497

 

 

247

 

 

 

0.58

%

 

 

155,461

 

 

 

213

 

 

 

0.55

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

 

12,155

 

 

 

 

 

 

 

 

 

 

 

9,247

 

 

 

 

 

 

 

 

 

Other

 

 

1,585

 

 

 

 

 

 

 

 

 

 

 

945

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

184,237

 

 

 

 

 

 

 

 

 

 

 

165,653

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

31,562

 

 

 

 

 

 

 

 

 

 

 

13,048

 

 

 

 

 

 

 

 

 

Total liabilities and Shareholders'

   equity

 

$

215,799

 

 

 

 

 

 

 

 

 

 

$

178,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

1,497

 

 

 

 

 

 

 

 

 

 

$

1,188

 

 

 

 

 

Interest rate spread (2)

 

 

 

 

 

 

 

 

 

 

2.79

%

 

 

 

 

 

 

 

 

 

 

2.72

%

Net interest-earning assets (3)

 

$

36,807

 

 

 

 

 

 

 

 

 

 

$

15,755

 

 

 

 

 

 

 

 

 

Net interest margin (4)

 

 

 

 

 

 

 

 

 

 

2.89

%

 

 

 

 

 

 

 

 

 

 

2.78

%

Average interest-earning assets to

average interest-bearing liabilities

 

 

121.59

%

 

 

 

 

 

 

 

 

 

 

110.13

%

 

 

 

 

 

 

 

 

 

(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

34


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, 2017 vs 2016

 

 

 

Increase (Decrease) Due to

 

 

Total

Increase

 

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

 

 

(In thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

297

 

 

$

(153

)

 

$

144

 

Interest-earning deposits with banks

 

 

4

 

 

92

 

 

 

96

 

Investment securities

 

 

22

 

 

82

 

 

 

104

 

Restricted investment in bank stock

 

 

(6

)

 

 

5

 

 

 

(1

)

Total interest-earning assets

 

 

317

 

 

 

26

 

 

 

343

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

 

3

 

 

 

 

 

 

3

 

Money market deposit accounts

 

 

3

 

 

 

5

 

 

 

8

 

Passbook and statement savings accounts

 

 

(3

)

 

 

 

 

 

(3

)

Checking accounts

 

 

21

 

 

 

49

 

 

 

70

 

Certificates of deposit

 

 

(20

)

 

 

(8

)

 

 

(28

)

Total deposits

 

 

4

 

 

 

46

 

 

 

50

 

Federal Home Loan Bank advances

 

 

(40

)

 

 

24

 

 

 

(16

)

Securities sold under agreements to

   repurchase

 

 

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

(36

)

 

 

70

 

 

 

34

 

Change in net interest income

 

$

353

 

 

$

(44

)

 

$

309

 

 

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.

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 assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance.

Provision for loan losses decreased by $124,000 to a credit of $1,000 for the three months ended September 30, 2017, from $123,000 for the three months ended September 30, 2016 primarily as the result of lower provision expense related to impaired loans during the three months ended September 30, 2017. During the three months ended September 30, 2017, total charge-offs of $22,000 were recorded and $45,000 of recoveries were received. During the three months ended September 30, 2016, no charge-offs were recorded and $3,000 of recoveries were received.

Non-Interest Income

Non-interest income decreased $363,000, or 25.9%, to $1.0 million for the three months ended September 30, 2017 from $1.4 million for the three months ended September 30, 2016. The decrease in

35


non-interest income was primarily due to a decrease in gain on sales of loans, which decreased $333,000, or 20.8%, to $1.2 million for the three months ended September 30, 2017 from $1.6 million for the three months ended September 30, 2016. This was due to lower sales of loans of $4.3 million and reduced margin on loans sold when compared to the same quarter of 2016. Additionally, the change in fair value of loans held for sale decreased by $38,000 to $45,000 for the three months ended September 30, 2017, from $83,000 for the three months ended September 30. 2016. Loss from hedging instruments increased $11,000 to $390,000 for the three months ended September 30, 2017 from $379,000 for the three months ended September 30, 2016 due to the less favorable interest rate environment and decreased volume of locked loans associated with hedging. These decreases in non-interest income were partially offset by an increase in the gain on sale of available-for-sale securities of $23,000 to $34,000 for the three months ended September 30, 2017 from $11,000 for the three months ended September 30, 2016.

Non-Interest Expense

Non-interest expense increased $117,000, or 5.6%, to $2.2 million for the three months ended September 30, 2017 from $2.1 million for the three months ended September 30, 2016.  The increase primarily reflected a $50,000 increase in professional fees and other expenses, a $41,000 increase in salaries and employee benefits and a $10,000 increase in real estate owned expenses. Professional fees and other expenses increased $50,000, or 10.7%, to $519,000 for the three months ended September 30, 2017 from $469,000 for the three months ended September 30, 2016 due to increased ongoing compliance associated with being a public company. Salary expense increased by $41,000 to $1,192,000 for the three months ended September 30, 2017 from $1,151,000 for the three months ended September 30, 2016. Salaries increased as full time equivalent (“FTE”) employees increased to 72 FTEs as of September 30, 2017, from 67 FTEs as of September 30, 2016, primarily as a result of the expansion in our mortgage loan department. Real estate owned expense increased $10,000, to $21,000 for the three months ended September 30, 2017 from $11,000 for the three months ended September 30, 2016 due to operating expenses related to real estate owned.

Income Tax Expense

Income tax expense was $88,000 for the three months ended September 30, 2017 as compared to $118,000 for the three months ended September 30, 2016.  Federal income taxes included in total taxes for the three months ended September 30, 2017 and 2016 were $73,000 and $97,000, with effective federal tax rates of 23.6% and 27.7%, respectively. Due to the increase in municipal tax free bonds during the three months ended September 30, 2017, federal income tax expense was reduced which caused a lower effective tax rate for the three months ended September 30, 2017 compared to the three months ended September 30, 2016.  

Pennsylvania state tax expense decreased $6,000 to $15,000 for the three months ended September 30, 2017 from $21,000 for the three months ended September 30, 2016 with effective rates of 4.6% and 5.7%, respectively.

 

 

 

 

 

 

 

 

 

36


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 $1.4 million, or 0.64% of total assets, at September 30, 2017. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated.  We had no accruing loans past due 90 days or more at September 30, 2017, June 30, 2017 or 2016.

 

 

 

At September 30,

 

 

At June 30,

 

 

 

2017

 

 

2017

 

 

 

(Dollars in thousands)

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

One- to four-family

 

$

1,074

 

 

$

1,198

 

Home equity & HELOCs

 

 

106

 

 

 

110

 

Commercial real estate

 

 

78

 

 

 

100

 

Commercial business

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

Total non-accrual loans

 

 

1,258

 

 

 

1,408

 

 

 

 

 

 

 

 

 

 

Total non-performing loans

 

 

1,258

 

 

 

1,408

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

 

127

 

 

 

 

Other non-performing assets

 

 

 

 

 

 

Total non-performing assets

 

$

1,385

 

 

$

1,408

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

Total non-performing loans to total loans

 

 

0.91

%

 

 

1.26

%

Total non-performing loans to total

   assets

 

 

0.58

%

 

 

0.65

%

Total non-performing assets to total

   assets

 

 

0.64

%

 

 

0.65

%

 

37


Allowance for Loan Losses  

The following table sets forth activity in our allowance for loan losses for the periods indicated.

 

 

 

At or For the

Three Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

 

(Dollars in thousands)

 

Balance at beginning of year

 

$

593

 

 

$

487

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

One- to four-family

 

 

 

 

 

 

Home equity & HELOCs

 

 

 

 

 

 

Commercial real estate

 

 

(22

)

 

 

 

Commercial business

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

Total charge-offs

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

One- to four-family

 

 

44

 

 

 

3

 

Home equity & HELOCs

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Consumer

 

 

1

 

 

 

 

Total recoveries

 

 

45

 

 

 

3

 

 

 

 

 

 

 

 

 

 

Net recoveries

 

 

23

 

 

 

3

 

(Credit) Provision for loan losses

 

 

(1

)

 

 

123

 

Balance at end of period

 

$

615

 

 

$

613

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

Net recoveries to average loans outstanding

 

 

0.02

%

 

 

 

Allowance for loan losses to non-performing

   loans at end of period

 

 

48.89

%

 

 

54.68

%

Allowance for loan losses to total loans at

   end of period

 

 

0.44

%

 

 

0.65

%

 

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, and matured loans and securities.  We also have the ability to borrow from the Federal Home Loan Bank of Pittsburgh.  Huntingdon Valley Bank had Federal Home Loan Bank of Pittsburgh advances of $9.0 million outstanding with unused borrowing capacity of $69.4 million as of September 30, 2017. Additionally, at September 30, 2017, 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, which was $2.3 million at September 30, 2017. We have not borrowed against the credit lines with

38


the Atlantic Community Bankers Bank and the Federal Reserve Bank during the three months ended September 30, 2017 and 2016.

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 enough sources of liquidity to satisfy our short and long-term liquidity needs as of September 30, 2017.

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 September 30, 2017, cash and cash equivalents totaled $15.6 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $31.2 million at September 30, 2017.  

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash provided by operating activities was $3.0 million and $778,000 for the three months ended September 30, 2017 and September 30, 2016, respectively. Net cash (used in) provided by 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 ($16.9) million and $655,000 for the three months ended September 30, 2017 and September 30, 2016, respectively. During the three months ended September 30, 2017 and September 30, 2016, we sold $11.2 million and $1.2 million, respectively, in securities available-for-sale.  Net cash provided by (used in) financing activities, consisting primarily of decreases in deposits and advances from borrowers for taxes and insurance, was $1.0 million for the three months ended September 30, 2017 and ($4.9) million for the three months ended September 30, 2016.

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 September 30, 2017, totaled $12.3 million, or 7.2%, of total deposits. 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 Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay.  We believe, however, based on past experience that a significant 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 Valley 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 September 30, 2017, Huntingdon Valley Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

Regulatory Capital

Information presented for September 30, 2017 and June 30, 2017, 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 Banks 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.

39


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 September 30, 2017, the Bank met all the capital adequacy requirements to which it was subject. At September 30, 2017, 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 September 30, 2017 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under the Prompt

 

 

 

 

 

 

 

 

 

 

Capital Adequacy

 

Corrective Action

 

 

Actual

 

 

Purposes

 

Provision

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

As of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital (to

   risk-weighted assets)

 

$

24,259

 

 

 

20.8

%

 

           $>9,343

 

 

> 8.0%

 

           $>11,679

 

 

>10.0%

Tier 1 capital (to risk-weighted assets)

 

 

23,644

 

 

 

20.3

 

 

>7,007

 

 

> 6.0%

 

>9,343

 

 

>  8.0%

Tier 1 capital (to average assets)

 

 

23,644

 

 

 

11.3

 

 

>8,389

 

 

> 4.0%

 

>10,486

 

 

>  5.0%

Tier 1 common equity (to risk-weighted

   assets)

 

 

23,644

 

 

 

20.3

 

 

>5,255

 

 

> 4.5%

 

>7,591

 

 

>  6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital (to

   risk-weighted assets)

 

$

24,113

 

 

 

21.8

%

 

$

≥8,870

 

 

> 8.0%

 

$

≥11,087

 

 

>10.0%

Tier 1 capital (to risk-weighted assets)

 

 

23,520

 

 

 

21.2

 

 

>6,652

 

 

> 6.0%

 

>8,870

 

 

>  8.0%

Tier 1 capital (to average assets)

 

 

23,520

 

 

 

11.2

 

 

>8,377

 

 

> 4.0%

 

>10,471

 

 

>  5.0%

Tier 1 common equity (to risk-weighted

   assets)

 

 

23,520

 

 

 

21.2

 

 

>4,989

 

 

> 4.5%

 

>7,207

 

 

>  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 originated by the Bank). Failure to meet the net worth requirements could adversely impact the ability to originate loans and access secondary markets. As of September 30, 2017 and June 30, 2017, 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 September 30, 2017, the Bank is required to maintain a capital conservation buffer of 1.25%. At September 30, 2017, 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.

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 September 30, 2017, we had outstanding

40


commitments to originate loans of $22.1 million, unused lines of credit totaling $7.7 million and no 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 September 30, 2017 totaled $12.3 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 Bank 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 September 30, 2017.  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 are designed to ensure that information required to be disclosed by the Company in reports that it 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) under the Exchange Act) occurred during the first fiscal quarter of 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


41


PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

At September 30, 2017, 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.

Item 1A – Risk Factors

Not required for smaller reporting companies

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)

Not applicable

 

(b)

Not applicable

 

(c)

Not Applicable

Item 3 – Defaults upon Senior Securities

Not Applicable

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

 

31.1

  

Rule 13a-14(a) Certification of the Chief Executive Officer *

 

 

31.2

  

Rule 13a-14(a) Certification of the Chief Financial Officer *

 

 

32.0

  

Section 1350 Certification *

 

 

101.INS

  

XBRL Instance Document

 

 

101.SCH

  

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

XBRL Taxonomy Calculation Linkbase Document

 

 

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

  

XBRL Taxonomy Label Linkbase Document

 

 

101.PRE

  

XBRL Taxonomy Presentation Linkbase Document

 

 

*

Filed herewith

42


SIGNATURES

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: November 13, 2017

By:

/s/ Travis J. Thompson

 

 

Travis J. Thompson

 

 

President and Chief Executive Officer

 

 

(Duly Authorized Officer)

 

 

 

Date: November 13, 2017

By:

/s/ Joseph C. O’Neill, Jr.

 

 

Joseph C. O’Neill, Jr.

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

43