Company Quick10K Filing
Quick10K
Best Hometown Bancorp
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
8-K 2019-07-01 Other Events, Exhibits
8-K 2019-02-01 Other Events, Exhibits
8-K 2018-06-06 Shareholder Vote
8-K 2018-01-24 Amend Bylaw, Exhibits
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ENB Enbridge 73,960
PRGO Perrigo 7,150
GLIBA GCI Liberty 6,290
BC Brunswick 4,460
EBS Emergent Biosolutions 2,460
RIGL Rigel Pharmaceuticals 375
RWGE Regalwood Global Energy 304
AMGI Ameri Metro 0
IHRT iHeartMedia 0
BTHT 2019-03-31
Item 1. Financial Statements
Part 1. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tv520743_ex31-1.htm
EX-31.2 tv520743_ex31-2.htm
EX-32.1 tv520743_ex32-1.htm

Best Hometown Bancorp Earnings 2019-03-31

BTHT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv520743_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

xQuarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 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. 000-55652

 

Best Hometown Bancorp, Inc.

(Exact name of registrant as specified in its charter) 

 

Maryland 81-1959486
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
   
100 East Clay Street, Collinsville, Illinois 62234
(Address of Principal Executive Offices) Zip Code

 

(618) 345-1121

(Registrant’s telephone number)

 

Not Applicable
(Former name or former address, 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 requirements for the past 90 days.

YES x  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES x      NO ¨.

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨ Smaller reporting company x
       
    Emerging Growth Company x

 

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 x  

 

As of April 19, 2019, there were 826,208 shares of the Registrant’s common stock issued and outstanding.

 

Securities registered pursuant to Section 12(b) of the Act: None 

  

 

 

 

 

 

BEST HOMETOWN BANCORP, INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

PART I. FINANCIAL INFORMATION
     
ITEM 1. FINANCIAL STATEMENTS 2
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 27
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 33
     
ITEM 4. CONTROLS AND PROCEDURES 33
     
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS 33
     
ITEM 1A. RISK FACTORS 33
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 33
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 33
     
ITEM 4. MINE SAFETY DISCLOSURES 33
     
ITEM 5. OTHER INFORMATION 33
     
ITEM 6. EXHIBITS 33
     
SIGNATURES 34
   
INDEX TO EXHIBITS 35

 

 1 

 

 

BEST HOMETOWN BANCORP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

 

ITEM 1. FINANCIAL STATEMENTS

 

   March 31,   December 31, 
   2019   2018 
ASSETS          
Cash and due from banks  $2,649   $1,289 
Interest-earning deposits in banks   2,584    1,950 
Total cash and cash equivalents   5,233    3,239 
Available-for-sale securities   12,359    12,841 
Loans   87,248    86,851 
Allowance for loan losses   (1,169)   (1,205)
Net loans   86,079    85,646 
Premises and equipment, net   3,062    3,120 
Bank owned life insurance   3,609    3,584 
Real estate owned, net   121    81 
Accrued interest receivable          
Investment securities   43    41 
Loans receivable   296    273 
Deferred tax asset   85    107 
Restricted equity securities   307    338 
Other assets   104    105 
Total assets  $111,298   $109,375 
           
LIABILITIES          
Deposits          
Noninterest-bearing  $5,052   $4,715 
Interest-bearing   87,245    85,692 
Total deposits   92,297    90,407 
Federal Home Loan Bank ("FHLB") advances   5,500    5,500 
Accrued defined benefit pension and postretirement plans   830    827 
Other liabilities   336    284 
Total liabilities   98,963    97,018 
           
Commitments and contingencies          
Redeemable common stock held by ESOP plan   124    113 
           
SHAREHOLDERS' EQUITY          
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued and outstanding   -    - 
Common stock, $0.01 par value, 30,000,000 shares authorized, 826,208 shares issued and outstanding   8    8 
Additional paid-in capital   6,855    6,854 
Retained earnings - substantially restricted   6,957    7,087 
Unearned Employee Stock Ownership Plan ("ESOP") common stock, 55,521 and 56,356 shares   (553)   (562)
Accumulated other comprehensive loss, net of tax:          
Net unrealized losses on available-for-sale securities   (322)   (402)
Net unrealized losses on defined benefit pension plan and postretirement medical plans, net   (610)   (628)
Total accumulated other comprehensive loss, net of tax   (932)   (1,030)
Less maximum cash obligation related to ESOP shares   (124)   (113)
Total shareholders' equity   12,211    12,244 
Total liabilities and shareholders' equity  $111,298   $109,375 

 

See accompanying notes to the condensed consolidated financial statements

 

 2 

 

 

BEST HOMETOWN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2019   2018 
Interest income:          
Loans receivable  $981   $870 
Investment securities, taxable   66    74 
Other interest-earning assets   19    11 
Total interest income   1,066    955 
Interest expense:          
Deposits   403    254 
Advances from FHLB   32    43 
Total interest expense   435    297 
Net interest income   631    658 
Provision for loan losses   -    - 
Net interest income after provision for loan losses   631    658 
Noninterest income:          
Service charges on deposit accounts   14    26 
Income on bank owned life insurance   25    26 
Other   5    7 
Total noninterest income   44    59 
Noninterest expense:          
Salaries and employee benefits   419    431 
Occupancy and equipment   121    123 
Data processing   71    71 
Professional and supervisory fees   94    99 
Office expense   13    12 
Advertising   11    12 
FDIC deposit insurance   8    8 
Provision for real estate owned and related expenses   4    6 
Other   64    56 
Total noninterest expense   805    818 
Loss before income taxes   (130)   (101)
Income tax expense   -    - 
Net loss  $(130)  $(101)
           
Basic net loss per share  $(0.17)  $(0.13)

 

See accompanying notes to the condensed consolidated financial statements

 

 3 

 

 

BEST HOMETOWN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

(Unaudited)

 

   Three Months Ended 
   March 31, 
   2019   2018 
         
Net loss  $(130)  $(101)
Other comprehensive income:          
Unrealized gain (loss) on available-for-sale securities:          
Unrealized holding gain (loss) arising during the period   100   $(156)
Tax effect   (20)   32 
Net of tax   80    (124)
           
Defined benefit pension and post retirement medical plans:          
Net gain (loss) arising during the period on plans   -    - 
Reclassification adjustment for settlement of portion of accumulated benefit obligation   -      
Reclassification adjustment for amortization of prior service cost and net gain/loss included in net periodic pension cost   18    24 
Tax effect   -    - 
Net of tax   18    24 
Total other comprehensive income   98    (100)
Comprehensive loss  $(32)  $(201)

 

See accompanying notes to the condensed consolidated financial statements

 

 4 

 

 

BEST HOMETOWN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

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

(Unaudited)

 

                       Net Unrealized         
                       Losses         
                   Net Unrealized   On Defined   Maximum     
       Additional       Unearned   Losses   Benefit Pension and   Cash Obligation     
   Common   Paid-In   Retained   ESOP   On Available-for-sale   Postretirement   Related to     
   Stock   Capital   Earnings   Shares   Securities, Net   Medical Plans, Net   ESOP Shares   Total 
                                 
Balance at December 31, 2017  $8   $6,847   $8,096   $(595)  $(302)  $(1,591)  $(77)  $12,386 
Net loss   -    -    (101)   -    -    -    -    (101)
Other comprehensive income   -    -    -    -    (124)   24    -    (100)
ESOP shares earned   -    2    -    8    -    -    -    10 
Change related to ESOP shares cash obligation   -    -    -    -    -    -    (9)   (9)
Balance at March 31, 2018  $8   $6,849   $7,995   $(587)  $(426)  $(1,567)  $(86)  $12,186 
                                         
Balance at December 31, 2018   8    6,854    7,087    (562)   (402)   (628)   (113)   12,244 
Net loss   -    -    (130)   -    -    -    -    (130)
Other comprehensive income   -    -    -    -    80    18    -    98 
ESOP shares earned   -    1    -    9    -    -    -    10 
Change related to ESOP shares cash obligation   -    -    -    -    -    -    (11)   (11)
Balance at March 31, 2019  $8   $6,855   $6,957   $(553)  $(322)  $(610)  $(124)  $12,211 

 

See accompanying notes to the condensed consolidated financial statements

 

 5 

 

 

BEST HOMETOWN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

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

 

   Three Months Ended 
   March 31 
   2019   2018 
         
Cash flows from operating activities:          
Net loss  $(130)  $(101)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization, net   106    141 
Income on bank owned life insurance   (25)   (26)
ESOP compensation expense   10    10 
Net change in operating assets and liabilities:          
Accrued interest receivable   (25)   6 
Accrued interest payable   -    (3)
Other   76    215 
Net cash provided by operating activities   12    242 
           
Cash flows from investing activities:          
Loan originations and repayments, net   (473)   170 
Proceeds from maturities, paydowns and calls of available-for-sale securities   534    722 
Redemptions (purchases) of FHLB stock, net   31    79 
Net cash provided by investing activities   92    971 
           
Cash flows from financing activities:          
Net change in deposits   1,890    (361)
Borrowings of FHLB advances   -    2,000 
Repayments of FHLB advances   -    (4,000)
Net cash provided by (used in) financing activities   1,890    (2,361)
Change in cash and cash equivalents   1,994    (1,148)
Cash and cash equivalents at beginning of period   3,239    5,190 
Cash and cash equivalents at end of period  $5,233   $4,042 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
Interest on deposits  $403   $253 
Interest on advances from FHLB   32    46 
           
Real estate acquired in settlement of loans  $40   $38 

 

See accompanying notes to the condensed consolidated financial statements

 

 6 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(1) BASIS OF PRESENTATION

 

General

 

On June 29, 2016, Best Hometown Bank (the “Bank”) (formerly known as Home Federal Savings and Loan Association of Collinsville) completed its conversion (the “Conversion”) from a federally-chartered mutual savings association to the capital stock form of organization, including the establishment of a stock holding company, Best Hometown Bancorp, Inc. (referred to herein as “the Company,” “we,” “us,” or “our”), as parent of the Bank. The stock holding company is organized under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank. In connection with the Conversion, the Company sold 826,208 shares of its common stock, including 66,096 shares (8% of shares sold) that were purchased by the Bank’s employee stock ownership plan (“ESOP”), at a price of $10.00 per share, for gross offering proceeds of $8.3 million. The cost of the conversion and issuance of common stock was $1.4 million, which was deducted from the gross offering proceeds. The Company contributed $5.0 million of the net proceeds from the offering by the Company to the Bank, and $1.2 million was retained by the Company. In addition, $661,000 of the net proceeds were used to fund a loan to the ESOP, with which the ESOP purchased Company shares.

 

Voting rights are held and exercised exclusively by the shareholders of the holding company. Deposit account holders continue to be insured by the FDIC up to the applicable limits. A liquidation account was established in an amount equal to the Bank’s total equity as of the latest balance sheet date in the final offering circular used in the conversion. Each eligible account holder or supplemental account holder are entitled to a proportionate share of this account in the event of a complete liquidation of the Bank, and only in such event. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

 

The Bank may not pay a dividend on its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements. In addition, the stock holding company is subject to certain regulations related to the repurchase of its capital stock.

 

The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

 

The accompanying unaudited consolidated financial statements of Best Hometown Bancorp, Inc., which include the accounts of its wholly owned subsidiary Best Hometown Bank have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Intercompany accounts and transactions are eliminated during consolidation.

 

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included to present fairly the financial position as of March 31, 2019 and December 31, 2018 and the results of operations and cash flows for the three months ended March 31, 2019 and 2018. All interim amounts have not been audited and the results of operations for the three months ended March 31, 2019, herein are not necessarily indicative of the results of operations to be expected for the entire year.

 

Cash and cash equivalents include cash on hand, federal funds sold, overnight interest-bearing deposits and amounts due from other depository institutions.

 

 7 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of foreclosed real estate, fair values of financial instruments, measurement of defined benefit pension and postretirement medical plans and valuation of deferred tax assets.

 

Contingencies

 

The Company is involved in certain legal actions arising from normal business activities. Management believes that the outcome of such proceedings will not have any material adverse effect on the financial statements of the Company.

 

(2) NEW ACCOUNTING STANDARDS

 

The Company is an emerging growth company and as such will be subject to the effective dates noted for the private companies if they differ from the effective dates noted for public companies.

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved amendments deferring the effective date by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March and April 2016, the FASB issued final amendments (ASU 2016-08 and ASU 2016-10) to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property. In May 2016, the FASB issued final amendments (ASU-11) to clarify guidance related to collectability, noncash considerations, presentation of sales tax, and transition. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. Early application is permitted but not before the original public entity effective date, i.e., annual periods beginning after December 15, 2016. This new guidance will not have a material effect on the consolidated financial statements. This will be effective for year-end December 31, 2019.

 

On January 6, 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. The portion of the ASU 2016-01 that is likely to have an effect on our financial statements and disclosures relates a clarification of accounting standards with respect to deferred tax assets arising from unrealized losses on available-for-sale securities. This ASU 2016-01 requires an entity to evaluate the need for a valuation allowance on a deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets. As an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 31, 2021, and interim periods within years beginning after December 31, 2022. The Company does not believe that this new guidance will have a material effect on the consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments. The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost 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 amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

 

 8 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense.

 

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.

 

As an emerging growth company, ASU 2016-13 is effective, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently working with its core data processor in compiling the necessary loan data to comply with the ASU, and we have not completed our evaluation of the effects of implementing this ASU will have on our allowance, our financial statements and disclosures.

 

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20). The update changes the amortization period of associated premiums with the purchase of callable debt securities from amortization over the life of the security to the earliest call date of the security. The standard takes effect for fiscal years and interim periods within those fiscal years, beginning after Dec. 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company early adopted this standard, and there have been no purchases of callable debt securities. Accordingly, the adoption of this standard will not have an effect on the Company’s consolidated financial statements as the company does not own any callable debt securities.

 

In March 2017, the FASB issued ASU 2017-08, “Premium Amortization on Purchased Callable Debt.” This ASU applies to all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The ASU requires the premium to be amortized to the earliest call date, not the maturity date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. As an emerging growth company, ASU 2017-08 is effective as to the Company for years beginning after December 15, 2019 and interim periods within years beginning after December 15, 2020. Early adoption is permitted. Management is still in the process of evaluating the impact of adopting this guidance, but does not expect the ASU to have a material effect on the Company’s financial position or results of operations.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 9 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(3) EARNINGS (LOSS) PER SHARE

 

Basic EPS or loss per common share is determined by dividing net earnings or loss available to common shareholders by the weighted average number of common shares outstanding for the period. ESOP shares are considered outstanding for this calculation unless unearned. The factors used in the earnings per common share computation follow:

 

   Three Months Ended 
   March 31,   March 31, 
   2019   2018 
         
Loss per share          
Net loss  $(130)  $(101)
Weighted average common shares outstanding   826,208    826,208 
Less: average unearned ESOP shares   (55,939)   (59,126)
Weighted average common shares outstanding   770,270    767,082 
           
Basic loss per share  $(0.17)  $(0.13)

 

Given a net loss for the three ended March 31, 2019 and 2018, only basic loss per share is applicable.

 

(4) SECURITIES AVAILABLE FOR SALE

 

Debt and mortgage-backed securities have been classified in the condensed consolidated balance sheets according to management’s intent. U.S. Government agency mortgage-backed securities consist of securities issued by U.S. Government agencies and U.S. Government sponsored enterprises. Investment securities at March 31, 2019 and December 31, 2018 are as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
March 31, 2019  Cost   Gains   Losses   Value 
Debt securities:                    
U.S. Government agency SBAP security  $585   $-   $(17)  $568 
U.S. Government agency mortgage-backed securities - residential   12,182    -    (391)   11,791 
   $12,767   $-   $(408)  $12,359 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
December 31, 2018  Cost   Gains   Losses   Value 
Debt securities:                    
U.S. Government agency SBAP security  $586   $-   $(21)  $565 
U.S. Government agency mortgage-backed securities - residential   12,763    -    (487)   12,276 
   $13,349   $-   $(508)  $12,841 

 

As of March 31, 2019 and December 31, 2018, no investment securities were pledged for public deposits.

 

 10 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following tables show the fair value and unrealized loss of securities that have been in unrealized loss positions for less than twelve months and for more than twelve months at March 31, 2019 and December 31, 2018. The tables also show the number of securities in an unrealized loss position for each category of investment security as of the respective dates.

 

Because the actual cash flows for the Small Business Administration Program (“SBAP”) asset backed security and mortgage-backed securities may differ from their contractual maturities, a maturity table is not shown.

 

   Less than 12 Months   12 Months or Longer 
           Number in           Number in 
   Fair   Unrealized   Unrealized   Fair   Unrealized   Unrealized 
March 31, 2019  Value   Loss   Loss (1)   Value   Loss   Loss (1) 
U.S. Government agency SBAP security  $-   $-    -   $568   $(17)   1 

U.S. Government agency mortgage-backed securities - residential

   -    -    -    11,791    (391)   27 
   $-   $-    -   $12,359   $(408)   28 

 

   Total  
           Number in  
   Fair   Unrealized   Unrealized  
March 31, 2019  Value   Loss   Loss (1)  
U.S. Government agency SBAP security  $568   $(17)   1  

U.S. Government agency mortgage-backed securities - residential

   11,791    (391)   27  
Total  $12,359   $(408)   28  

 

   Less than 12 Months   12 Months or Longer 
           Number in           Number in 
   Fair   Unrealized   Unrealized   Fair   Unrealized   Unrealized 
December 31, 2018  Value   loss   Loss (1)   Value   loss   Loss (1) 
U.S. Government agency bonds  $-   $-    -   $565   $(21)   1 
U.S. Government agency mortgage-backed securities - residential   -    -    -    12,276    (487)   27 
Total  $-   $-    -   $12,841   $(508)   28 

 

   Total  
           Number in  
   Fair   Unrealized   Unrealized  
December 31, 2018  Value   Loss   Loss (1)  
U.S. Government agency bonds  $565   $(21)   1  
U.S. Government agency mortgage-backed securities - residential   12,276    (487)   27  
Total  $12,841   $(508)   28  

 

(1)Represents actual number of securities in an unrealized loss position.

 

 11 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The SBAP agency security is an investment comprised of a pool of loans issued under the Small Business Administration, which come with an unconditional guarantee by the U.S. government for the timely payment of principal and interest.

 

The Company evaluates securities for other-than-temporary impairments (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. Additionally, the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior to the security's anticipated recovery in fair value. In analyzing an issuer's financial condition, the Company may consider whether the securities are issued by Federal Government agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition.

 

Total fair value securities with unrealized losses at March 31, 2019 and December 31, 2018, was $12,359 and $12,841, which was 100% at March 31, 2019 and December 31, 2018, respectively, of the Company’s available-for-sale securities. None of the unrealized losses at March 31, 2019 were recognized into net income for the three months ended March 31, 2019 because the issuers’ bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value of these securities is expected to recover as they approach their maturity date or reset date. None of the unrealized losses at December 31, 2018 were recognized as having OTTI during the three months ended March 31, 2019.

 

There were no sales of securities for the three months ended March 31, 2019 and 2018.

 

(5) LOANS

 

The components of loans at March 31, 2019 and December 31, 2018 were as follows:

 

   March 31,   December 31, 
   2019   2018 
Real estate loans:          
One-to four-family, owner occupied  $40,322   $41,159 
One-to four-family, non-owner occupied   10,767    10,787 
Commercial and multi-family   27,821    26,664 
Construction and land   3,412    3,598 
Commercial business loans   2,593    2,587 
Consumer loans   2,300    2,031 
    87,215    86,826 
Net deferred loan (fees) costs   33    25 
Total  $87,248   $86,851 

 

 12 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following tables present the activity in the allowance for loan losses for the three months ended March 31, 2019 and 2018 by portfolio segment:

 

   Beginning               Ending 
   Balance   Provision   Charge-offs   Recoveries   Balance 
Three Months Ended March 31, 2019                         
Real estate loans:                         
One-to-four family, owner occupied  $423   $42   $(36)  $-   $429 
One-to-four family, non-owner occupied   139    (11)   -    -    128 
Commercial and multi-family   431    19    -    -    450 
Construction and land   34    (3)   -    -    31 
Commercial business loans   52         -    -    52 
Consumer loans   52    7    -    -    59 
Unallocated   74    (54)   -    -    20 
   $1,205   $-   $(36)  $-   $1,169 

 

   Beginning               Ending 
   Balance   Provision   Charge-offs   Recoveries   Balance 
Three Months Ended March 31, 2018                         
Real estate loans:                         
One-to-four family, owner occupied  $525   $(12)  $-   $-   $513 
One-to-four family, non-owner occupied   81    (4)   -    2    79 
Commercial and multi-family   407    (6)   -    -    401 
Construction and land   34    4    -    -    38 
Commercial business loans   41    18    -    -    59 
Consumer loans   39    4    -    -    43 
Unallocated   88    (4)   -    -    84 
   $1,215   $-   $-   $2   $1,217 

 

 13 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following tables present the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at March 31, 2019 and December 31, 2018:

 

   Ending Allowance on Loans   Loans 
   Individually   Collectively       Individually   Collectively     
   Evaluated for   Evaluated for       Evaluated for   Evaluated for     
   Impairment   Impairment   Total   Impairment   Impairment   Total 
March 31, 2019                              
Real estate loans:                              
One-to four-family, owner occupied  $-   $429   $429   $536   $39,786   $40,322 
One-to four-family, non-owner occupied   -    128    128    74    10,693    10,767 
Commercial and multi-family   -    450    450    -    27,821    27,821 
Construction and land   -    31    31    12    3,400    3,412 
Commercial business loans   -    52    52    -    2,593    2,593 
Consumer loans   -    59    59    -    2,300    2,300 
Unallocated   -    20    20    -    -    - 
   $-   $1,169   $1,169   $622   $86,593   $87,215 

 

   Ending Allowance on Loans   Loans 
   Individually   Collectively       Individually   Collectively     
   Evaluated for   Evaluated for       Evaluated   Evaluated     
   Impairment   Impairment   Total   Impairment   Impairment   Total 
December 31, 2018                              
Real estate loans:                              
One-to four-family, owner occupied  $-   $423   $423   $543   $40,616   $41,159 
One-to four-family, non-owner occupied   -    139    139    75    10,712    10,787 
Commercial and multi-family   -    431    431    -    26,664    26,664 
Construction and land   -    34    34    13    3,585    3,598 
Commercial business loans   -    52    52    -    2,587    2,587 
Consumer loans   -    52    52    -    2,031    2,031 
Unallocated   -    74    74    -    -    - 
   $-   $1,205   $1,205   $631   $86,195   $86,826 

 

 14 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The Company, at times, will maintain an unallocated allowance for loan losses due to uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance for loan losses is maintained to cover probable and incurred credit losses inherent in the loan portfolio but not captured in the general component, such as historical loss experience data that may not precisely correspond to individual loan portfolio segments and to uncertainties in economic conditions.

 

The tables below present loans that were individually evaluated for impairment by portfolio segment at March 31, 2019 and December 31, 2018.

 

   March 31, 2019   December 31, 2018 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
 
With no recorded allowance:                              
Real estate loans:                              
One-to four-family, owner occupied  $689   $536   $-   $698   $543   $- 
One-to four-family, non-owner occupied   98    74    -    99    75    - 
Commercial and multi-family   -    -    -    -    -    - 
Construction and land   12    12    -    13    13    - 
Commercial business loans   -    -    -    -    -    - 
Consumer loans   -    -    -    -    -    - 
Total  $799   $622   $-   $810   $631   $- 
                               
With recorded allowance:                              
Real estate loans:                              
One-to four-family, owner occupied  $-   $-   $-   $-   $-   $- 
One-to four-family, non-owner occupied   -    -    -    -    -    - 
Commercial and multi-family   -    -    -    -    -    - 
Construction and land   -    -    -    -    -    - 
Commercial business loans   -    -    -    -    -    - 
Consumer loans   -    -    -    -    -    - 
Total  $-   $-   $-   $-   $-   $- 
                               
Totals:                              
Real estate loans  $799   $622   $-   $810   $631   $- 
Commercial loans   -    -    -    -    -    - 
Consumer and other loans   -    -    -    -    -    - 
Total  $799   $622   $-   $810   $631   $- 

 

Generally, impaired loans with identified losses have been reduced by partial charge-offs and are carried at their estimated net realizable value. The Company believes no further allowance for loan losses were necessary at March 31, 2019 and December 31, 2018.

 

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2019 and 2018 or commitments to lend additional funds to borrowers with loans whose terms have been modified as a troubled debt restructure.

 

At March 31, 2019 there were no loans in the process of foreclosure.

 

 15 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The tables below present the average recorded investment of loans individually evaluated for impairment and the amount of interest earned on those loans for the three months ended March 31, 2019 and 2018:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
   Average
Recorded
Investment
   Interest
Income
Recognized
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                    
Real estate loans:                    
One-to four-family, owner occupied  $694   $12   $607   $11 
One-to four-family, non-owner occupied   98    1    96    1 
Commercial and multi-family   -    -    -    - 
Construction and land   12    -    13    - 
Commercial business loans   -    -    -    - 
Consumer loans   -    -    -    - 
Total  $804   $13   $716   $12 
                     
With recorded allowance:                    
Real estate loans:                    
One-to four-family, owner occupied  $-   $-   $-   $- 
One-to four-family, non-owner occupied   -    -    -    - 
Commercial and multi-family   -    -    -    - 
Construction and land   -    -    -    - 
Commercial business loans   -    -    -    - 
Consumer loans   -    -    -    - 
Total  $-   $-   $-   $- 
                     
Totals:                    
Real estate loans  $804   $13   $716   $12 
Commercial business loans   -    -    -    - 
Consumer and other loans   -    -    -    - 
Total  $804   $13   $716   $12 

 

 16 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following tables present the aging of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past due 90 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively or individually for impairment.

 

   30-59 Days
 Past Due
   60-89 Days
Past Due
   90 Days or
More Past
Due
   Current   Total   Nonaccrual
Loans
   Accruing Loans
Past Due 90
Days or More
 
March 31, 2019                                   
Real estate loans:                                   
One-to four-family, owner occupied  $140   $185   $67   $39,930   $40,322   $-   $67 
One-to four-family, non-owner occupied   209    -    -    10,558    10,767    -    - 
Commercial and multi-family   -    188    -    27,633    27,821    -    - 
Construction and land   -    -    -    3,412    3,412    13    - 
Commercial business loans   -    -    -    2,593    2,593    -    - 
Consumer loans   307    -    -    1,993    2,300    -    - 
   $656   $373   $67   $86,119   $87,215   $13   $67 

 

   30-59 Days
Past Due
   60-89 Days
Past Due
   90 Days or
More Past
Due
   Current   Total   Nonaccrual
Loans
  

Accruing Loans
Past Due 90

Days or More

 
December 31, 2018                                   
Real estate loans:                                   
One-to four-family, owner occupied  $339   $207   $71   $40,542   $41,159   $71   $- 
One-to four-family, non-owner occupied   24    -    -    10,763    10,787    -    - 
Commercial and multi-family   189    -    -    26,475    26,664    -    - 
Construction and land   -    -    -    3,598    3,598    13    - 
Commercial business loans   -    -    -    2,587    2,587    -    - 
Consumer loans   26    -    -    2,005    2,031    -    - 
   $578   $207   $71   $85,970   $86,826   $84   $- 

 

Loan Grades:

 

Loan Grades:

 

The Company utilizes a grading system whereby all loans are assigned a grade based on the risk profile of each loan. Loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. All loans, regardless of size, are analyzed and are given a grade based upon the management’s assessment of the ability of borrowers to service their debts.

 

Pass: Loan assets of this grade conform to a preponderance of our underwriting criteria and are acceptable as a credit risk, based upon the current net worth and paying capacity of the obligor. Loans in this category also include loans secured by liquid assets and secured loans to borrowers with unblemished credit histories.

 

Pass-Watch: Loan assets of this grade represent our minimum level of acceptable credit risk. This grade may also represent obligations previously rated “Pass”, but with significantly deteriorating trends or previously rated.

 

Special Mention: Loan assets of this grade have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.

 

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

 

 17 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loss: Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

 

Loan Portfolio Segments:

 

The Company groups loans of similar type that share common risk characteristics. We segment our loan portfolio along with assigning individual risk grades to each loan as part of our methodology for determining our allowance for loan losses. Those portfolio segments and significant risk characteristics are as follows:

 

One-to four-family, owner occupied:   One-to four-family, owner occupied loans consist primarily of loans secured by first or second mortgages on primary residences, and are originated as primarily as fixed-rate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties.

 

The Company currently originates residential mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes. For traditional homes, the Company may originate loans with loan-to-value ratios in excess of 80% if the borrower provides additional readily marketable collateral.

 

One-to four-family, non-owner occupied:   One-to four-family, non-owner occupied loans are similar to owner occupied one-to four-family loans in terms of collateral, but they carry greater inherent risks than owner occupied loans, since the repayment ability of the borrower is generally reliant on the success of the income generated from the property. The Company currently originates one-to four-family, non-owner occupied mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.

 

Commercial and multi-family:   Commercial real estate loans are secured primarily by office buildings, churches and various income producing properties. Multi-family real estate loans are secured by generally apartment complexes. Commercial and multifamily real estate loans are underwritten based on the economic viability of the property and creditworthiness of the borrower, with emphasis given to projected cash flow as a percentage of debt service requirements. These loans carry increased risks as they involve larger balances concentrated with single borrowers or groups of related borrowers. Repayment of loans secured by income producing properties depends on the successful operation of the real estate and the economy. The Company generally obtains personal guarantees on these loans.

 

The Company currently originates commercial and multi-family loans in amounts of up to 80% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio.

 

Construction and Land:   The Company makes construction loans to individuals for the construction of their primary residences and to commercial businesses for their real estate needs. These loans generally have maximum terms of nine months, and upon completion of construction convert to conventional amortizing mortgage loans. Residential construction loans have rates and terms comparable to one-to-four family residential mortgage loans that the Company originates. Commercial construction loans have rates and terms comparable to other commercial real estate loans that we originate. During the construction phase, the borrower generally pays interest only. Generally, the maximum loan-to-value ratio of our owner-occupied construction loans is 80%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential mortgage loans. Commercial construction loans are generally underwritten pursuant to the same guidelines used for originating other commercial real estate loans.

 

 18 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

  

The Company also makes interim construction loans for nonresidential properties. In addition, the Company occasionally makes loans for the construction of homes “on speculation,” but the Company generally permits a borrower to have only two such loans at a time. These loans generally have a maximum term of nine months, and upon completion of construction, borrowers can convert to conventional amortizing nonresidential real estate loans. These construction loans have rates and terms comparable to permanent loans secured by property of the type being constructed that we originate. Generally, the maximum loan-to-value ratio of these construction loans is 85%.

 

Commercial business loans:  Commercial, non-real estate, loans are offered to businesses and professionals in the Company’s market area. These loans generally have short and medium terms on a collateralized basis. The structure of these loans are largely determined by the loan purpose and collateral. Sources of collateral can include a lien on equipment, inventory, receivables and other assets of the company. A UCC-1 is typically filed to perfect our lien on these assets.

 

Commercial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans and leases involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans and leases. Repayment of commercial loans largely depends on the successful operation of the business for which and operating loan is utilized.

 

Consumer loans:  The Company offers installment loans for various consumer purposes, including the purchase of automobiles, boats, and for other legitimate personal purposes. The maximum terms of consumer loans is 12 months for unsecured loans and 12 to 60 months for loans secured by a vehicle, depending on the age of the vehicle. The Company generally only extends consumer loans to existing customers or their immediate family members, and these loans generally

have relatively low balances. We also originate floating rate home equity lines of credit and home improvement loans secured by second mortgages.

 

Consumer loans may entail greater credit risk than a typical residential mortgage loan, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount, which can be recovered on such loans.

 

 19 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following tables present total loans by risk grade and portfolio segment at March 31, 2019 and December 31, 2018:

 

           Special                 
   Pass   Watch   Mention   Substandard   Doubtful   Loss   Total 
March 31, 2019                            
Real estate loans:                                   
One-to four-family, owner occupied  $38,686   $250   $101   $1,285   $-   $-   $40,322 
One-to four-family, non-owner occupied   10,439    -    254    74    -    -    10,767 
Commercial and multi-family   27,821    -    -    -    -    -    27,821 
Construction and land   3,199    -    200    13    -    -    3,412 
Commercial business loans   2,365    -    228    -    -    -    2,593 
Consumer loans   2,295    -    5    -    -    -    2,300 
   $84,805   $250   $788   $1,372   $-   $-   $87,215 

 

           Special                 
   Pass   Watch   Mention   Substandard   Doubtful   Loss   Total 
December 31, 2018                            
Real estate loans:                                   
One-to four-family, owner occupied  $39,433   $350   $102   $1,274   $-   $-   $41,159 
One-to four-family, non-owner occupied   10,457    -    254    76    -    -    10,787 
Commercial and multi-family   26,664    -    -    -    -    -    26,664 
Construction and land   3,386    -    200    12    -    -    3,598 
Commercial business loans   2,353    -    234    -    -    -    2,587 
Consumer loans   2,026    -    5    -    -    -    2,031 
   $84,319   $350   $795   $1,362   $-   $-   $86,826 

 

(6) FHLB Advances

 

At March 31, 2019 and December 31, 2018, advances from the Federal Home Loan Bank were as follows:

 

   Interest   March 31,   December 31, 
Maturity Date  Rate   2019   2018 
             
April 10, 2019   2.38%   1,500    1,500 
July 18, 2019   2.21%   2,000    2,000 
October 2, 2019   2.46%   2,000    2,000 
Total       $5,500   $5,500 

 

Each advance is payable at its maturity date, with a prepayment penalty if paid earlier than its maturity date. The advances were collateralized by $53,767 and $53,885 of first mortgage loans under a blanket lien arrangement at March 31, 2019 and December 31, 2018. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to a total of $44,367 at March 31, 2019.

 

 20 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(7) EMPLOYEE STOCK OWNERSHIP PLAN

 

Employees participate in an Employee Stock Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase 66,096 shares of the Company’s common stock at $10 per share on June 29, 2016. The Bank may make discretionary contributions to the ESOP and pays dividends on unallocated shares to the ESOP. The ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Any dividends on allocated shares increase participant accounts. Participants receive the shares at the end of employment.

 

No contributions to the ESOP were made during the three months ended March 31, 2019. The expense recognized for the three months ended March 31, 2019 and 2018 was $10, and is reported in salaries and wages.

 

ESOP shares at March 31, 2019 and December 31, 2018 are summarized as follows:

 

   March 31,   December 31, 
   2019   2018 
Committed to be released to participants   835    - 
Allocated to participants   9,740    9,740 
Unearned   55,521    56,356 
Total ESOP shares   66,096    66,096 
           
Fair value of unearned shares  $652   $654 

 

At March 31, 2019, the fair value of the 10,575 allocated shares held by the ESOP is $124 and is reported on the balance sheet as mezzanine capital. The fair value of all shares subject to the repurchase obligation is $777.

 

In the event the ESOP is unable to satisfy the obligation to repurchase the shares held by each beneficiary upon the beneficiary’s termination or retirement, the Company is obligated to purchase such shares at their fair market value based on the most recent valuation report any time within 60 days of the distribution date. If this right is not exercised, an additional 60-day exercise period is available in the year following the year in which the distribution is made and begins after a new valuation of the stock has been determined and communicated to the participant or beneficiary. The allocated shares held by the ESOP and the outstanding shares held by former employees subject to the repurchase option totaled 10,575 and 6,557 at March 31, 2019 and 2018. At March 31, 2019 the 10,575 shares had a fair value of $124,256 ($11.75 per share based on the most recent valuation report) and have been classified as mezzanine capital. At March 31, 2018 the 6,557 shares had a fair value of $76,717 ($11.70 per share based on the most recent valuation report) and have been classified as mezzanine capital.

 

 21 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(8) DEFINED BENEFIT AND POST RETIREMENT MEDICAL PLANS

 

Net periodic cost for the defined benefit pension plan and postretirement medical plan for the three months ended March 31, 2019 and 2018 included the following components:

 

   Defined Benefit   Postretirement 
   Pension Plan   Medical Plan 
   Three Months Ended   Three Months Ended 
   March 31,   March 31,   March 31,   March 31, 
   2019   2018   2019   2018 
                 
Service cost  $-   $-   $-   $- 
Interest cost   23    29    4    7 
Expected return on plan assets   (26)   (36)   -    - 
Settlements   -    -    -    - 
Amortization:                    
Unrecognized net loss   25    25    -    1 
Unrecognized prior service cost   -    -    (7)   (2)
Asset (loss) gain deferred   -    -    -    - 
Net periodic cost  $22   $18   $(3)  $6 

 

 22 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

The following table summarizes plan assets for the defined benefit pension plan, measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018, segregated by the level of the inputs (as defined in Note 9) within the hierarchy used to measure fair value:

 

               Total 
   Level 1   Level 2   Level 3   Fair Value 
March 31, 2019                    
Pooled separate accounts  $-   $2,078   $-   $2,078 

 

               Total 
   Level 1   Level 2   Level 3   Fair Value 
December 31, 2018                    
Pooled separate accounts  $-   $1,965   $-   $1,965 

 

During the three months ended March 31, 2019, benefits paid, employer contributions and the actual return on plan assets for the defined benefit pension plan were $73, $0 and $166 respectively. During three months ended March 31, 2018, benefits paid, employer contributions, and the actual return on plan assets were $116, $0, and $72.

 

 The Company’s defined benefit pension plan target allocations and weighted-average allocations by asset category are as follows:

 

      March 31,   December 31, 
   Target Allocation
2019
  2019   2018 
Pooled separate accounts             
Equity  30%-40%   35%   32%
Debt  60%-70%   65%   68%

 

The Company’s investment strategy is to maintain a diversified investment portfolio. Rebalancing occurs on a periodic basis to maintain the target allocations, but normal market activity may result in deviations. As a result of the percentage of equities held, actual return of plan assets for any period may fluctuate significantly due to changes in the stock market.

 

 23 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Changes in accumulated other comprehensive loss associated with the defined benefit and postretirement medical plans are as follows:

 

   Defined Benefit   Postretirement 
   Pension Plan   Medical Plan 
   Three Months Ended   Three Months Ended 
   March 31   March 31 
   2019   2018   2019   2018 
Settlements  $-   $-   $-   $- 
Amortization of:                    
Unrecognized net loss   25   $25    -    1 
Unrecognized prior service cost   -    -    (7)   (2)
    25    25    (7)   (1)
Tax effect   -    -    -    - 
Unrecognized net (gain) loss, net of tax  $25   $25   $(7)  $(1)

 

 24 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

 

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

 

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

 

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

 

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

 

Investment Securities:

 

The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

 

Impaired Loans:

 

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Real Estate Owned:

 

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

 

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.

 

 25 

 

 

BEST HOMETOWN BANCORP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

Assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018 are summarized below:

 

   Level 2 
   March 31,   December 31, 
   2019   2018 
Financial Assets          
Available-for-sale securities  $12,359   $12,841 

 

There were no financial or nonfinancial assets that required nonrecurring level 3 adjustments for the three months ended March 31, 2019 and 2018.

 

Fair Value of Financial Instruments

 

Many of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the consolidated balance sheet approximate fair value and are considered Level 1 assets and liabilities. These items include cash and cash equivalents, accrued interest receivable and accrued interest payable balances. The estimated fair values of the Company’s remaining on-balance sheet financial instruments at September 30, 2018 and December 31, 2017 are summarized below:

 

   Carrying   Fair Value 
   Amount   Level 1   Level 2   Level 3   Total 
March 31, 2019                         
Financial assets                         
Available-for-sale securities  $12,359   $-   $12,359   $-   $12,359 
Restricted equity securities (1)   307    NA    NA    NA    NA 
Loans, net   86,079    -    -    81,274    81,274 
                          
Financial liabilities                         
Deposits  $92,297   $22,703   $69,468   $-   $92,171 
FHLB Advances   5,500    -    5,503    -    5,503 
                          
December 31, 2018                         
Financial assets                         
Available-for-sale securities  $12,841   $-   $12,841   $-   $12,841 
Restricted equity securities (1)   338    NA    NA    NA    NA 
Loans, net   85,646    -    -    81,812    81,812 
                          
Financial liabilities                         
Deposits  $90,407   $22,961   $67,555   $-   $90,516 
FHLB Advances   5,500    -    5,503    -    5,503 

 

 

(1) It is not practicable to determine fair value of restricted equity securities due to restrictions placed on transferability.

 

 26 

 

  

PART 1. FINANCIAL INFORMATION

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management’s discussion and analysis of financial condition and results of operations at March 31, 2019 and for the three months ended March 31, 2019 and 2018 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

  · statements of our goals, intentions and expectations;

 

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

 

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

 

  · estimates of our risks and future costs and benefits.

 

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Form 10-Q, except as required by law.

 

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

 

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

 

  · competition among depository and other financial institutions;

 

  · changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 

  · adverse changes in the securities markets;

 

  · changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

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

 

  · changes in consumer spending, borrowing and savings habits;

 

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

 

  · changes in our organization, compensation and benefit plans;

 

  · changes in our financial condition or results of operations that reduce capital; and

 

  · changes in the financial condition or future prospects of issuers of securities that we own.

 

 27 

 

 

Additional factors that may affect our results are discussed in Best Hometown Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on March 28, 2019, including under the section titled “Risk Factors”. These factors and the other factors listed above should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for Best Hometown Bancorp, Inc. for the year ended December 31, 2018.

 

Comparison of Financial Condition at March 31, 2019 and December 31, 2018

 

Our total assets increased by $1.9 million, or 1.76%, to $111.3 million at March 31, 2019 from $109.4 million at December 31, 2018. The increase in total assets is primarily due to the net increase of $2.0 million in total cash and cash equivalents and the decrease of $482,000 in available-for-sale securities, offset partially by an increase of $397,000 in gross loans and a decrease in allowance for loan loss of $36,000. The increase in total cash and cash equivalents reflects the increase in total deposits of $1.9 million. The decrease in available-for-sale securities reflects the repayments of principal on available-for-sale securities of $534,000 and a decrease in gross unrealized losses on these securities of $100,000.

 

Gross loans increased by $397,000 to $87.2 million at March 31, 2019 from $86.9 million at December 31, 2018. One-to four-family, owner occupied and non-owner in total decreased by $857,000 to $51.1 million at March 31, 2019 from $51.9 million at December 31, 2018, which reflects normal principal reductions on amortizing loans and our shift in focus toward commercial and multi-family real estate and commercial business lending. Commercial and multi-family loans increased by $1.1 million to $27.8 million at March 31, 2019 from $26.7 million at December 31, 2018. There were also increases in construction and land loans, commercial business loans, and consumer loans, which increased in total by $89,000 to a combined total for these portfolio segments of $8.3 million at March 31, 2019 from $8.2 million at December 31, 2018.

 

Available-for-sale securities decreased by $482,000, or 3.75%, to $12.3 million at March 31, 2019 from $12.8 million at December 31, 2018. The decrease is attributable to pay downs on our mortgage-backed securities.

 

Real estate owned increased by $40,000, or 49.38%, to $121,000 at March 31, 2019 from $81,000 at December 31, 2018. The increase was the result of a foreclosure on a one-to four-family loan.

 

Our deposits increased $1.9 million, or 2.09%, to $92.3 million at March 31, 2019 from $90.4 million at December 31, 2018. Interest-bearing deposits increased by $1.5 million, or 1.81%, to $87.2 million at March 31, 2019 from $85.7 million at December 31, 2018. Noninterest-bearing deposits increased by $337,000 or 7.15%, to $5.0 million at March 31, 2019 from $4.7 million at December 31, 2018.

 

FHLB advances remained unchanged at $5.5 million at March 31, 2019 from December 31, 2018. The weighted-average rate of our total outstanding advances is 2.36%.

 

Shareholders’ equity decreased by $51,000, or 0.42%, to $12.2 million at March 31, 2019 from $12.2 million at December 31, 2018. The decrease in shareholders’ equity reflects our net loss of $130,000 and a decrease in net unrealized losses on available-for-sale securities of $80,000, and the combined increase in our unearned ESOP and additional paid-in capital of $10,000 from the recognition of ESOP compensation expense for the three months ended March 31, 2019.

 

 28 

 

 

Nonperforming Assets

 

The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

 

   March 31   December 31, 
   2019   2018 
   (Dollars in thousands) 
Nonaccrual loans:          
Real estate mortgage loans:          
One- to four-family, owner occupied  $-   $71 
One- to four-family, non-owner occupied   -    - 
Commercial and multi-family   -    - 
Construction and land   13    13 
Commercial business loans   -    - 
Consumer loans   -    - 
Total nonaccrual loans   13    84 
           
Accruing loans past due 90 days or more:          
One- to four-family, non-owner occupied   67    - 
           
Accruing troubled debt restructured loans:          
Real estate mortgage loans:          
One- to four-family, owner occupied   80    81 
One- to four-family, non-owner occupied   -    - 
Commercial and multi-family   -    - 
Construction and land   -    - 
Commercial business loans   -    - 
Consumer loans   -    - 
Total accruing troubled debt restructured loans   80    81 
Total nonperforming loans   160    165 
           
Foreclosed real estate held for sale:          
One- to four-family   121    81 
Commercial and multi-family   -    - 
Construction and land   -    - 
Total foreclosed real estate held for sale   121    81 
           
Total nonperforming assets  $281   $246 
           
Total nonperforming loans to total gross loans   0.18%   0.19%
Total nonperforming assets to total assets   0.25%   0.22%

 

Interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was less than $1,000 for the three months ended March 31, 2019 and 2018. No interest income was recognized on these loans during these periods.

 

Interest income that would have been recorded had our trouble debt restructured loan been current in accordance with its original term was $1,000 and $1,000 for three months ended March 31, 2019 and 2018. Interest income recognized for both the three months ended was $1,000 and $1,000 for the three months ended March 31, 2019 and 2018.

 

 29 

 

 

Analysis of Net Interest Margin

 

The following table sets forth average balance sheets, average annualized yields and rates, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to income.

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
   Average
Balance
   Interest
and
Dividends
   Yield/
Cost
   Average
Balance
   Interest
and
Dividends
   Yield/
Cost
 
   (Dollars in Thousands) 
Assets:                        
Interest-earning assets:                              
Loans  $87,121   $981    4.50%  $79,825   $870    4.36%
Investment securities   12,625    66    2.09    22,512    74    1.31 
Interest-bearing deposits   2,537    19    3.00    2,357    11    1.87 
Total interest-earning assets   102,283    1,066    4.17    104,694    955    3.65 
Noninterest-earning assets   8,835              7,668           
Total assets  $111,118             $112,362           
                               
Liabilities and equity:                              
Interest-bearing liabilities:                              
Checking accounts  $394   $1    1.03%  $443   $1    0.92%
Savings accounts   6,549    3    0.19    7,488    1    0.05 
Money market accounts   11,183    23    0.83    14,175    19    0.54 
Certificates of deposit   68,848    376    2.21    61,556    233    1.54 
Total interest-bearing deposits   86,974    403    1.88    83,662    254    1.23 
FHLB advances   5,500    32    2.36    8,786    43    1.98 
Total interest-bearing liabilities   92,474    435    1.91    92,448    297    1.30 
Noninterest bearing deposits   5,087              5,238           
Other noninterest-bearing liabilities   1,239              2,168           
Total liabilities   98,800              99,854           
Equity   12,318              12,508           
Total liabilities and equity  $111,118             $112,362           
                               
Net interest income       $631             $658      
Interest rate spread             2.26%             2.35%
Net interest margin             2.47%             2.51%
Average interest-earning assets to average interest-bearing liabilities   1.11X             1.13X          

 

 30 

 

 

Comparison of Operating Results for the Three Months Ended September 30, 2018 and 2017

 

General. We recognized a net loss of $130,000 for the three months ended March 31, 2019 compared to a net loss of $101,000 for the three months ended March 31, 2018.

 

Interest Income. Interest income increased $111,000, or 11.6%, to $1.1 million for the three months ended March 31, 2019 from $955,000 for the three months ended March 31, 2018. The increase in interest income reflects the increase in the yield on interest-earning assets of 52 basis points to 4.17% for the three months ended March 31, 2019 from 3.65% for the three months ended March 31, 2018, which offset the decrease of $2.4 million, or 2.3%, in the average balances of our interest-earning assets to $102.3 million for the three months ended March 31, 2019 from $104.7 million for the three months ended March 31, 2018.

 

Interest income on loans increased by $111,000, or 12.76%, to $981,000 for the three months ended March 31, 2019 from $870,000 for the three months ended March 31, 2018. The increase in loan interest income reflects the increase in the average balance of our loans of $7.3 million, or 9.1%, to $87.1 million for the three months ended March 31, 2019 from $79.8 million for the three months ended March 31, 2018. The yield on loans increased 14 basis points to 4.50% from 4.36% for the same periods.

 

Interest income on investment securities decreased by $8,000, or 10.8% to $66,000 for the three months ended March 31, 2019 from $74,000 for the three months ended March 31, 2018. The decrease reflects a decrease in the average balance of our investment securities of $9.9 million, or 44.0%, to $12.6 million for the three months ended March 31, 2019 from $22.5 million for the three months ended March 31, 2018, which offset the increase in yield on our investment securities of 78 basis points to 2.09% for the three months ended March 31, 2019 from 1.31% for the three months ended March 31, 2018. The decrease in the average balance of our investment securities reflects paydowns on our available-for-sale investment portfolio and no purchases of securities for 2019 as we are investing available funds into new loans.

 

Interest from interest-bearing deposits increased to $19,000 for the three months ended March 31, 2019 from $11,000 for the three months ended March 31, 2018. The increase in interest income reflects higher rates paid on our excess funds on deposit with other institutions. Our yield on interest-bearing deposits increased to 3.0% for the three months ended March 31, 2019 from 1.87% for the three months ended March 31, 2018.

 

Interest Expense.  Interest expense increased by $138,000, or 46.5%, to $435,000 for the three months ended March 31, 2019 from $297,000 for the three months ended March 31, 2018. The increase in interest expense reflects an increase in interest expense on deposits which was offset by a decrease in interest on FHLB advances. Our average cost of funds increased 61 basis points to 1.91 basis points for the three months ended March 31, 2019 from 1.30 basis points for the three months ended March 31, 2018.

 

Deposit interest expense increased by $149,000, or 58.7%, to $403,000 for the three months ended March 31, 2019 from $254,000 for the three months ended March 31, 2018. The deposit interest expense yield increased to 1.88%, or 65 basis points, for the three months ended March 31, 2019 from 1.23% for the three months ended March 31, 2018 due to the rising rate environment. Interest expense on certificates of deposit increased $143,000 to $376,000 for the three months ended March 31, 2019 from $233,000 for the three months ended March 31, 2018. The increase in the average rate of our certificates of deposit reflects a larger portion of higher rate, longer-term certificates within our total certificates of deposits. As shorter-term, lower rate certificates mature, depositors are beginning to invest their funds by rolling their funds over into another higher rate certificate of deposit, as well as moving funds from demand deposits or money markets into certificate of deposits. This is evidenced by the increase in the average balance of our certificate of deposits of $7.2 million, or 11.7%, to $68.8 million for the three months ended March 31, 2019 from $61.5 million at March 31, 2018.

 

Interest expense on FHLB advances decreased by $11,000 or 25.6%, to $32,000 for the three months ended March 31, 2019 from $43,000 for the three months ended March 31, 2018. The decrease in FHLB interest expense reflects the decrease in the average advance balances, which decreased by $3.3 million, or 37.5%, to $5.5 million for the three months ended March 31, 2019 from $8.8 million for the three months ended March 31, 2018. The yield on FHLB advances increased to 2.36%, or 38 basis points, for the three months ended March 31, 2019 from 1.98% for the three months ended March 31, 2018 as a result of the rising rate environment.

 

Net Interest Income. Net interest decreased $27,000 to $631,000 for the three months ended March 31, 2019 from $658,000 for the three months ended March 31, 2018.

 

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Provision for Loan Losses. There was no provision for loan losses for the three months ended March 31, 2019 or 2018, which is a reflection of our continued strong credit quality as evidenced by our continued low and decreasing levels of nonperforming loans.

 

Our total allowance for loans losses was 1.34% of total gross loans at March 31, 2019 and 1.39% at December 31, 2018. We do not have an allowance for specifically identified impaired loans as we generally charge-off identified impairments on impaired loans to the allowance for loan losses to a net realizable value on those loans. As needed, we may have an unallocated portion in our general allowance that we believe represents those probable incurred losses within our loan portfolio not specifically identified with any particular portfolio segment.

 

Noninterest Income. Noninterest income decreased $15,000, or 25.4%, to $44,000 for the three months ended March 31, 2019 from $59,000 for the three months ended March 31, 2018. The decrease is the effect of the decrease of service charge income of $12,000, a decrease of bank owned life insurance income of $1,000 and a decrease of other income of $2,000 for three months ended March 31, 2019 compared to the three months ended March 31, 2018.

 

Noninterest Expense. Noninterest expense decreased $13,000, or 1.6%, to $805,000 for the three months ended March 31, 2019 from $818,000 for the three months ended march 31, 2018. The decrease was largely attributed to decrease in salaries and employee benefits which decreased by $12,000, or 2.8%, to $419,000 for the three months ended March 31, 2019 as compared to $431,000 for the three months ended March 31, 2018.

 

Income Tax Expense. There was no provision for income taxes for the three months ended March 31, 2019 or March 31, 2018. A valuation allowance has been recorded against all components of the net deferred tax asset, except for the unrealized loss on available-for-sale securities, based upon our cumulative operating losses in recent years.

 

The deferred tax asset will only be recognized in future periods upon the Company’s ability to realize and maintain profitable results of operations.

 

Liquidity and Capital Resources

 

Our primary sources of funds consist of deposit inflows, loan repayments, FHLB advances, and repayments, maturities and calls of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Committee 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 March 31, 2019.

 

We regularly monitor and adjust our investments in liquid assets based upon our assessment of: (i) expected loan demand; (ii) expected deposit flows; (iii) yields available on interest-earning deposits and securities; and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning and non interest-earning deposits and short- and medium-term securities.

 

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, we have borrowing agreements with the Federal Home Loan Bank of Chicago (FHLB) that provide an additional source of funds. Our FHLB advances totaled $5.5 million at March 31, 2019. In addition, the Company has an irrevocable standby letter of credit with the FHLB of $3.9 million at March 31, 2019 to secure public deposits. At March 31, 2019, we had the ability to borrow up to an additional $44.4 million from the FHLB, subject to pledging additional collateral. We also have an unused open line of credit at The Independent BankersBank that would allow us to borrow up to $2.5 million at March 31, 2019.

 

The Company 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 March 31, 2019 and December 31, 2018, the Company exceeded all regulatory capital requirements. The Company is considered “well capitalized” under regulatory guidelines.

 

The net proceeds from the stock offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of new loans. Our results of operations will be enhanced by the net proceeds from the stock offering, resulting in increased net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, our return on equity will be adversely affected.

 

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable, as the Registrant is a smaller reporting company.

 

ITEM 4. Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Bank’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2019. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Principal Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended March 31, 2019, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Best Hometown Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2017 (“Form 10-K”) as filed with the Securities and Exchange Commission on March 29, 2018, including under the section titled “Risk Factors, which could materially affect our business, financial condition or future results. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. At March 31, 2019, the risk factors for Best Hometown Bancorp, Inc. have not changed materially from those reported in our Form 10-K. However, the risks described in the Form 10-K are not the only risks that we face.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed in the “Index to Exhibits” immediately following the Signatures.

 

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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.

 

  BEST HOMETOWN BANCORP, INC.
   
Date: May 14, 2019 /s/ Ronnie R. Shambaugh
  Ronnie R. Shambaugh
  President and Chief Executive Officer
   
Date: May 14, 2019 /s/ Jennifer M. Lanzafame
  Jennifer M. Lanzafame
  Principal Financial Officer

 

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INDEX TO EXHIBITS

 

Exhibit 
number
 

 

Description

31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32.1   Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0   The following materials from Best Hometown Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to Condensed Consolidated Financial Statements

 

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