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EX-32 - EX-32 - ESSA Bancorp, Inc.essa-ex32_7.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2019

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                  to                 

Commission File No. 001-33384

 

ESSA Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

20-8023072

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

200 Palmer Street, Stroudsburg, Pennsylvania

18360

(Address of Principal Executive Offices)

(Zip Code)

(570) 421-0531

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

ESSA

Nasdaq Stock Market LLC

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted  pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES     NO  ☐

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

 

Large accelerated filer

   ☐

Accelerated filer

 

 

 

 

Non-accelerated filer

   ☐

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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  ☒

As of February 5, 2020, there were 11,290,451 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

 

 


 

ESSA Bancorp, Inc.

FORM 10-Q

Table of Contents

 

 

 

Page

 

Part I. Financial Information

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

2

 

 

 

 

Item 2.

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

 

33

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

Item 4

Controls and Procedures

 

40

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

41

 

 

 

 

Item 4.

Mine Safety Disclosures

 

41

 

 

 

 

Item 5.

Other Information

 

41

 

 

 

 

Item 6.

Exhibits

 

42

 

 

 

 

Signature Page

 

43

 

 

 


 

Part I. Financial Information

Item 1.

Financial Statements

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 

 

 

December 31,

 

 

September 30,

 

 

 

2019

 

 

2019

 

 

 

(dollars in thousands)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

35,581

 

 

$

48,426

 

Interest-bearing deposits with other institutions

 

 

6,971

 

 

 

3,816

 

Total cash and cash equivalents

 

 

42,552

 

 

 

52,242

 

Investment securities available for sale, at fair value

 

 

312,768

 

 

 

313,393

 

Loans receivable (net of allowance for loan losses of $12,747 and $12,630)

 

 

1,345,311

 

 

 

1,328,653

 

Regulatory stock, at cost

 

 

11,126

 

 

 

11,579

 

Premises and equipment, net

 

 

14,373

 

 

 

14,335

 

Bank-owned life insurance

 

 

39,842

 

 

 

39,601

 

Foreclosed real estate

 

 

343

 

 

 

240

 

Intangible assets, net

 

 

994

 

 

 

1,066

 

Goodwill

 

 

13,801

 

 

 

13,801

 

Deferred income taxes

 

 

4,781

 

 

 

5,122

 

Other assets

 

 

24,752

 

 

 

19,395

 

TOTAL ASSETS

 

$

1,810,643

 

 

$

1,799,427

 

LIABILITIES

 

 

 

 

 

 

 

 

Deposits

 

$

1,349,364

 

 

$

1,342,830

 

Short-term borrowings

 

 

104,719

 

 

 

107,701

 

Other borrowings

 

 

137,960

 

 

 

140,581

 

Advances by borrowers for taxes and insurance

 

 

10,361

 

 

 

6,700

 

Other liabilities

 

 

16,876

 

 

 

12,107

 

TOTAL LIABILITIES

 

 

1,619,280

 

 

 

1,609,919

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred Stock ($0.01 par value; 10,000,000 shares authorized, none issued)

 

 

 

 

 

 

Common stock ($0.01 par value; 40,000,000 shares authorized, 18,133,095 issued;

   11,290,451 and 11,321,417 outstanding at December 31, 2019 and September 30,

   2019, respectively)

 

 

181

 

 

 

181

 

Additional paid in capital

 

 

181,056

 

 

 

181,161

 

Unallocated common stock held by the Employee Stock Ownership Plan (ESOP)

 

 

(7,689

)

 

 

(7,803

)

Retained earnings

 

 

105,012

 

 

 

102,465

 

Treasury stock, at cost; 6,842,644 and 6,811,678 shares outstanding at

   December 31, 2019 and September 30, 2019, respectively

 

 

(85,845

)

 

 

(85,216

)

Accumulated other comprehensive loss

 

 

(1,352

)

 

 

(1,280

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

191,363

 

 

 

189,508

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,810,643

 

 

$

1,799,427

 

 

See accompanying notes to the unaudited consolidated financial statements.

2


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(dollars in thousands, except per

share data)

 

INTEREST INCOME

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

14,190

 

 

$

13,907

 

Investment securities:

 

 

 

 

 

 

 

 

Taxable

 

 

1,957

 

 

 

2,482

 

Exempt from federal income tax

 

 

48

 

 

 

136

 

Other investment income

 

 

318

 

 

 

344

 

Total interest income

 

 

16,513

 

 

 

16,869

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

Deposits

 

 

3,333

 

 

 

3,388

 

Short-term borrowings

 

 

505

 

 

 

1,077

 

Other borrowings

 

 

849

 

 

 

519

 

Total interest expense

 

 

4,687

 

 

 

4,984

 

NET INTEREST INCOME

 

 

11,826

 

 

 

11,885

 

Provision for loan losses

 

 

375

 

 

 

876

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN

   LOSSES

 

 

11,451

 

 

 

11,009

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

Service fees on deposit accounts

 

 

827

 

 

 

863

 

Services charges and fees on loans

 

 

533

 

 

 

330

 

Realized and unrealized gain (loss) on equity securities

 

 

1

 

 

 

(2

)

Trust and investment fees

 

 

318

 

 

 

239

 

Gain on sale of investment securities available for sale, net

 

 

221

 

 

 

4

 

Earnings on Bank-owned life insurance

 

 

241

 

 

 

244

 

Insurance commissions

 

 

208

 

 

 

201

 

Other

 

 

77

 

 

 

247

 

Total noninterest income

 

 

2,426

 

 

 

2,126

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

6,238

 

 

 

6,124

 

Occupancy and equipment

 

 

1,067

 

 

 

1,026

 

Professional fees

 

 

459

 

 

 

524

 

Data processing

 

 

1,017

 

 

 

903

 

Advertising

 

 

116

 

 

 

155

 

Federal Deposit Insurance Corporation (FDIC) premiums

 

 

133

 

 

 

187

 

Gain on foreclosed real estate

 

 

(20

)

 

 

(115

)

Amortization of intangible assets

 

 

72

 

 

 

84

 

Other

 

 

681

 

 

 

764

 

Total noninterest expense

 

 

9,763

 

 

 

9,652

 

Income before income taxes

 

 

4,114

 

 

 

3,483

 

Income taxes

 

 

704

 

 

 

474

 

NET INCOME

 

$

3,410

 

 

$

3,009

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.27

 

Diluted

 

$

0.33

 

 

$

0.27

 

Dividends per share

 

$

0.11

 

 

$

0.10

 

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(dollars in thousands)

 

Net income

 

$

3,410

 

 

$

3,009

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain

 

 

(21

)

 

 

5,059

 

Tax effect

 

 

5

 

 

 

(1,068

)

Reclassification of gains recognized in net income

 

 

(221

)

 

 

(4

)

Tax effect

 

 

46

 

 

 

1

 

Net of tax amount

 

 

(191

)

 

 

3,988

 

Derivative and hedging activities adjustments:

 

 

 

 

 

 

 

 

Changes in unrealized holding gains (losses) on derivatives included in net income

 

 

219

 

 

 

(725

)

Tax effect

 

 

(46

)

 

 

152

 

Reclassification adjustment for gains on derivatives included in net income

 

 

(68

)

 

 

(217

)

Tax effect

 

 

14

 

 

 

46

 

Net of tax amount

 

 

119

 

 

 

(744

)

Total other comprehensive (loss) income

 

 

(72

)

 

 

3,244

 

Comprehensive income

 

$

3,338

 

 

$

6,253

 

 

See accompanying notes to the unaudited consolidated financial statements.

4


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Common

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid In

 

 

Stock Held by

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

the ESOP

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Equity

 

 

 

(dollars in thousands except share data)

 

Balance, September 30, 2018

 

 

11,782,718

 

 

$

181

 

 

$

180,765

 

 

$

(8,255

)

 

$

94,112

 

 

$

(77,707

)

 

$

(9,910

)

 

$

179,186

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,009

 

 

 

 

 

 

 

 

 

 

 

3,009

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,244

 

 

 

3,244

 

Change in accounting principal for adoption of ASU 2016-01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

4

 

 

 

 

Cash dividends declared ($0.10

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,091

)

 

 

 

 

 

 

 

 

 

 

(1,091

)

Stock based compensation

 

 

 

 

 

 

 

 

 

 

252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

252

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

 

 

62

 

 

 

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

175

 

Stock options exercised

 

 

37,096

 

 

 

 

 

 

 

(448

)

 

 

 

 

 

 

 

 

 

 

448

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

11,819,814

 

 

$

181

 

 

$

180,631

 

 

$

(8,142

)

 

$

96,026

 

 

$

(77,259

)

 

$

(6,662

)

 

$

184,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Common

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

 

 

 

 

Paid In

 

 

Stock Held by

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

the ESOP

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Equity

 

 

 

(dollars in thousands except share data)

 

Balance, September 30, 2019

 

 

11,321,417

 

 

$

181

 

 

$

181,161

 

 

$

(7,803

)

 

$

102,465

 

 

$

(85,216

)

 

$

(1,280

)

 

$

189,508

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,410

 

 

 

 

 

 

 

 

 

 

 

3,410

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72

)

 

 

(72

)

Cash dividends declared ($0.11

   per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,153

)

 

 

 

 

 

 

 

 

 

 

(1,153

)

Change in accounting principal for adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

 

 

290

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

240

 

Allocation of ESOP stock

 

 

 

 

 

 

 

 

 

 

75

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

189

 

Allocation of treasury shares to

   incentive plan

 

 

33,134

 

 

 

 

 

 

 

(420

)

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

 

(4

)

Purchase of common stock

 

 

(64,100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,045

)

 

 

 

 

 

 

(1,045

)

Balance, December 31, 2019

 

 

11,290,451

 

 

$

181

 

 

$

181,056

 

 

$

(7,689

)

 

$

105,012

 

 

$

(85,845

)

 

$

(1,352

)

 

$

191,363

 

See accompanying notes to the unaudited consolidated financial statements.

 

5


 

ESSA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(dollars in thousands)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

3,410

 

 

$

3,009

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Provision for loan losses

 

375

 

 

 

876

 

Provision for depreciation and amortization

 

 

263

 

 

 

286

 

Amortization and accretion of discounts and premiums, net

 

 

600

 

 

 

848

 

Net gain on sale of investment securities

 

 

(221

)

 

 

(4

)

Realized and unrealized (gains) losses on equity and securities

 

 

(1

)

 

 

2

 

Compensation expense on ESOP

 

 

189

 

 

 

175

 

Amortization of right-of-use asset

 

 

211

 

 

 

 

Stock based compensation

 

 

240

 

 

 

252

 

(Decrease) increase in accrued interest receivable

 

 

(53

)

 

 

379

 

(Decrease) increase in accrued interest payable

 

 

(5

)

 

 

119

 

Earnings on bank-owned life insurance

 

 

(241

)

 

 

(244

)

Deferred federal income taxes

 

 

360

 

 

 

743

 

Decrease in accrued pension liability

 

 

(148

)

 

 

(119

)

Gain on foreclosed real estate, net

 

 

(20

)

 

 

(115

)

Amortization of identifiable assets

 

 

72

 

 

 

84

 

Other, net

 

 

(128

)

 

 

(2,942

)

Net cash provided by operating activities

 

 

4,903

 

 

 

3,349

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

Proceeds from sale of investment securities

 

 

13,024

 

 

 

9,931

 

Proceeds from principal repayments and maturities

 

 

13,434

 

 

 

10,833

 

Purchases

 

 

(26,235

)

 

 

(20,729

)

Increase in loans receivable, net

 

 

(17,446

)

 

 

(30,601

)

Redemption of regulatory stock

 

 

3,882

 

 

 

4,239

 

Purchase of regulatory stock

 

 

(3,429

)

 

 

(6,387

)

Proceeds from sale of foreclosed real estate

 

 

111

 

 

 

432

 

Purchase of premises, equipment and software

 

 

(328

)

 

 

(237

)

Net cash used for investing activities

 

 

(16,987

)

 

 

(32,519

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Increase (decrease) in deposits, net

 

 

6,534

 

 

 

(28,938

)

Net (decrease) increase in short-term borrowings

 

 

(2,982

)

 

 

60,051

 

Proceeds from other borrowings

 

 

13,928

 

 

 

20,000

 

Repayment of other borrowings

 

 

(16,549

)

 

 

(26,350

)

Increase in advances by borrowers for taxes and insurance

 

 

3,661

 

 

 

1,609

 

Purchase of treasury shares

 

 

(1,045

)

 

 

 

Dividends on common stock

 

 

(1,153

)

 

 

(1,091

)

Net cash provided by financing activities

 

 

2,394

 

 

 

25,281

 

Decrease in cash and cash equivalents

 

 

(9,690

)

 

 

(3,889

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

52,242

 

 

 

43,539

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

$

42,552

 

 

$

39,650

 

SUPPLEMENTAL CASH FLOW DISCLOSURES

 

 

 

 

 

 

 

 

Cash Paid:

 

 

 

 

 

 

 

 

Interest

 

$

4,692

 

 

$

4,865

 

Income taxes

 

 

3

 

 

 

 

Noncash items:

 

 

 

 

 

 

 

 

Transfers from loans to foreclosed real estate

 

 

194

 

 

 

52

 

Initial recognition of operating right-of-use asset

 

 

(7,272

)

 

 

 

Initial recognition of operating lease liability

 

 

7,272

 

 

 

 

Unrealized holding (losses) gains

 

 

(242

)

 

 

5,055

 

 

See accompanying notes to the unaudited consolidated financial statements.

6


 

ESSA BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(unaudited)

1.

Nature of Operations and Basis of Presentation

The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the “Company”), its wholly owned subsidiary, ESSA Bank & Trust (the “Bank”), and the Bank’s wholly owned subsidiaries, ESSACOR Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Delaware, Chester, Montgomery, Lackawanna, and Luzerne Counties, Pennsylvania. The Bank is a Pennsylvania chartered Savings bank and is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the “FDIC”). The investment in the Bank on the parent company’s financial statements is carried at the parent company’s equity in the underlying net assets.

ESSACOR, Inc. is a Pennsylvania corporation that has been used to purchase properties at tax sales that represent collateral for delinquent loans of the Bank and is currently inactive. Pocono Investment Company is a Delaware corporation formed as an investment company subsidiary to hold and manage certain investments, including certain intellectual property. ESSA Advisory Services, LLC is a Pennsylvania limited liability company owned 100 percent by ESSA Bank & Trust. ESSA Advisory Services, LLC is a full-service insurance benefits consulting company offering group services such as health insurance, life insurance, short-term and long-term disability, dental, vision, and 401(k) retirement planning as well as individual health products. Integrated Financial Corporation is a Pennsylvania corporation that provided investment advisory services to the general public and is currently inactive. Integrated Abstract Incorporated is a Pennsylvania corporation that provided title insurance services and is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three month period ended December 31, 2019 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020.

2.

Earnings per Share

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the three month periods ended December 31, 2019 and 2018.

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Weighted-average common shares outstanding

 

 

18,133,095

 

 

 

18,133,095

 

Average treasury stock shares

 

 

(6,830,518

)

 

 

(6,316,361

)

Average unearned ESOP shares

 

 

(763,787

)

 

 

(809,051

)

Average unearned non-vested shares

 

 

(56,517

)

 

 

(56,327

)

Weighted average common shares and common stock

   equivalents used to calculate basic earnings per share

 

 

10,482,273

 

 

 

10,951,356

 

Additional common stock equivalents (stock options) used

   to calculate diluted earnings per share

 

 

10

 

 

 

 

Weighted average common shares and common stock

   equivalents used to calculate diluted earnings per share

 

 

10,482,283

 

 

 

10,951,356

 

 

For the three months ended December 31, 2019 there were 53,257  shares of nonvested stock outstanding at an average weighted price of $16.16 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. For the three months ended December 31, 2018 there were 52,272 shares of nonvested stock outstanding at an average weighted price of $15.95 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.   

7


 

3.

Use of Estimates in the Preparation of Financial Statements

The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles conform to U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ from those estimates.

4.

Accounting Pronouncements

Adoption of New Standards

 

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

ASU 2016-02 was adopted by us on October 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addresses 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement

Upon adoption of ASU 2016-02, ASU 2018-01, ASU 2018-11, ASU 2018-20, and ASU 2019-01 on October 1, 2019, we recognized right-of-use assets and related lease liabilities totaling $7.3 million and $7.3 million, respectively.

We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also did not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We utilized the modified-retrospective transition approach prescribed by ASU 2018-11.

 

 

 

 

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining

8


 

life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)