Company Quick10K Filing
Quick10K
Coastway Bancorp
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
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-10-05 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K 2018-09-12 Other Events
8-K 2018-06-21 Shareholder Vote
8-K 2018-06-05 Other Events
8-K 2018-04-06 Other Events, Exhibits
8-K 2018-03-14 Enter Agreement, Other Events, Exhibits
8-K 2018-02-09 Earnings, Exhibits
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B Barnes Group 2,780
CRNX Crinetics Pharmaceuticals 569
REPL Replimune Group 396
CART Carolina Trust Bancshares 78
UNAM Unico American 30
VIVE Viveve Medical 27
SUMR Summer Infant 14
VSPC Viaspace 0
CWAY 2018-06-30
Part I-Financial Information
Item 1 - Financial Statements
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 - Other Information
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 a18-14033_1ex31d1.htm
EX-31.2 a18-14033_1ex31d2.htm
EX-32 a18-14033_1ex32.htm

Coastway Bancorp Earnings 2018-06-30

CWAY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a18-14033_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

or

 

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

 

FOR THE TRANSITION PERIOD FROM            TO                 .

 

For the quarterly period ended June 30, 2018

 

Commission File Number: 001-36263

 

Coastway Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

 

46-4149994

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

 

 

One Coastway Blvd, Warwick, Rhode Island

 

02886

(Address of principal executive offices)

 

(Zip code)

 

(401) 330-1600

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer

o

Accelerated filer

x

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

 

 

 

Smaller reporting company

o

 

 

 

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.     o

 

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

 

As of July 31, 2018 there were 4,386,351 shares of the issuer’s common stock outstanding- par value $0.01 per share

 

 

 



Table of Contents

 

COASTWAY BANCORP, INC. and SUBSIDIARY

Index

 

 

 

 

Page Number

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1

Financial Statements

 

 

 

Consolidated Balance Sheets – June 30, 2018 and December 31, 2017 (unaudited)

 

1

 

Consolidated Statements of Net Income and Comprehensive Income – Three and Six months ended June 30, 2018 and 2017 (unaudited)

 

2

 

Consolidated Statement of Changes in Stockholders’ Equity - Six months ended June 30, 2018 (unaudited)

 

3

 

Consolidated Statements of Cash Flows - Six months ended June 30, 2018 and 2017
(unaudited)

 

4

 

Notes to the Unaudited Consolidated Financial Statements

 

5

Item 2

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

 

26

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

45

Item 4

Controls and Procedures

 

47

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

 

47

Item 1A

Risk Factors

 

48

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

Item 3

Defaults Upon Senior Securities

 

48

Item 4

Mine Safety Disclosures

 

48

Item 5

Other Information

 

48

Item 6

Exhibits

 

48

 

Signature page

 

49

 



Table of Contents

 

PART I-FINANCIAL INFORMATION

 

Item 1 -     Financial Statements

 

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Balance Sheets

(Unaudited)

 

(Dollars in thousands except per share amounts)

 

June 30, 2018

 

December 31,
2017

 

Assets

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

Cash and due from banks

 

$

2,435

 

$

3,258

 

Interest-earning deposits

 

47,649

 

51,311

 

Total cash and cash equivalents

 

50,084

 

54,569

 

Federal Home Loan Bank stock, at cost

 

11,368

 

8,299

 

Loans, net of allowance for loan losses of $3,358 and $2,920, respectively

 

708,755

 

614,593

 

Loans held for sale

 

16,238

 

11,077

 

Premises and equipment, net

 

31,204

 

31,849

 

Accrued interest receivable

 

2,267

 

1,962

 

Foreclosed real estate

 

 

4,223

 

Bank-owned life insurance

 

4,646

 

4,585

 

Net deferred tax asset

 

1,049

 

1,047

 

Other assets

 

9,293

 

6,701

 

Total assets

 

$

834,904

 

$

738,905

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Interest-bearing

 

$

368,031

 

$

360,068

 

Non-interest-bearing

 

133,913

 

116,888

 

Total deposits

 

501,944

 

476,956

 

Borrowed funds

 

250,950

 

181,675

 

Accrued expenses and other liabilities

 

8,580

 

8,929

 

Total liabilities

 

761,474

 

667,560

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $0.01 par value; 20,000,000 shares authorized, none issued or outstanding at June 30, 2018 and December 31, 2017

 

 

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 4,386,351 and 4,389,045 issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

44

 

44

 

Additional paid-in capital

 

40,217

 

40,065

 

Retained earnings

 

36,688

 

34,834

 

Unearned compensation - Employee Stock Ownership Plan (ESOP)

 

(3,248

)

(3,327

)

Accumulated other comprehensive loss

 

(271

)

(271

)

Total stockholders’ equity

 

73,430

 

71,345

 

 

 

$

834,904

 

$

738,905

 

 

The accompanying notes are an integral part of the consolidated unaudited financial statements.

 

1



Table of Contents

 

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Net Income and Comprehensive Income

(Unaudited)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

(in thousands except share amounts)

 

2018

 

2017

 

2018

 

2017

 

Interest income:

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

7,426

 

$

5,706

 

$

  14,114

 

$

    11,169

 

Other interest income

 

305

 

153

 

550

 

303

 

Total interest income

 

7,731

 

5,859

 

14,664

 

11,472

 

Interest expense:

 

 

 

 

 

 

 

 

 

Interest on deposits

 

814

 

733

 

1,621

 

1,439

 

Interest on borrowed funds

 

1,162

 

290

 

1,936

 

516

 

Total interest expense

 

1,976

 

1,023

 

3,557

 

1,955

 

Net interest income

 

5,755

 

4,836

 

11,107

 

9,517

 

Provision for loan losses

 

207

 

153

 

569

 

213

 

Net interest income after provision for loan losses

 

5,548

 

4,683

 

10,538

 

9,304

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Customer service fees

 

950

 

868

 

1,847

 

1,700

 

Net gain on sales of loans and other mortgage banking income

 

1,011

 

1,025

 

1,635

 

1,843

 

Bank-owned life insurance income

 

31

 

32

 

61

 

70

 

Other income

 

34

 

48

 

27

 

108

 

Total non-interest income

 

2,026

 

1,973

 

3,570

 

3,721

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

Salary and employee benefits

 

2,900

 

2,991

 

5,799

 

5,950

 

Occupancy and equipment

 

751

 

795

 

1,575

 

1,665

 

Data processing

 

489

 

481

 

968

 

955

 

Professional fees

 

478

 

178

 

1,095

 

400

 

Deposit servicing

 

232

 

235

 

468

 

476

 

FDIC insurance assessment

 

122

 

73

 

232

 

152

 

Advertising

 

63

 

92

 

142

 

193

 

Foreclosed real estate

 

17

 

7

 

88

 

14

 

Other general and administrative

 

477

 

431

 

977

 

923

 

Total non-interest expenses

 

5,529

 

5,283

 

11,344

 

10,728

 

Income before income taxes

 

2,045

 

1,373

 

2,764

 

2,297

 

Income tax expense

 

638

 

556

 

910

 

918

 

Net income and comprehensive income

 

$

1,407

 

$

817

 

$

1,854

 

$

1,379

 

Weighted average common shares outstanding-basic

 

4,030,306

 

4,002,657

 

4,026,715

 

4,008,281

 

Weighted average common shares outstanding-diluted

 

4,096,031

 

4,028,360

 

4,087,301

 

4,030,141

 

Per share information:

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.35

 

$

0.20

 

$

0.46

 

$

0.34

 

Diluted earnings per common share

 

$

0.34

 

$

0.20

 

$

0.45

 

$

0.34

 

 

The accompanying notes are an integral part of the consolidated unaudited financial statements.

 

2



Table of Contents

 

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statement of Changes in Stockholders’ Equity

Six months ended June 30, 2018

(Unaudited)

 

 

 

 

 

 

 

Additional

 

 

 

Unearned

 

Accumulated
Other

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Compensation-

 

Comprehensive

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

ESOP

 

Loss

 

Equity

 

 

 

(Dollars in thousands)

 

Balance at December 31, 2017

 

4,389,045

 

$

44

 

$

40,065

 

$

34,834

 

$

(3,327

)

$

(271

)

$

71,345

 

Net income

 

 

 

 

1,854

 

 

 

1,854

 

Stock-based compensation, net of awards surrendered

 

(2,694

)

 

32

 

 

 

 

32

 

ESOP shares committed to be allocated (7,918 shares)

 

 

 

120

 

 

79

 

 

199

 

Balance at June 30, 2018

 

4,386,351

 

$

44

 

$

40,217

 

$

36,688

 

$

(3,248

)

$

(271

)

$

73,430

 

 

The accompanying notes are an integral part of the consolidated unaudited financial statements.

 

3



Table of Contents

 

COASTWAY BANCORP, INC. and SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Six months ended June 30,

 

(Dollars in thousands)

 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

1,854

 

$

1,379

 

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

 

 

 

 

 

Provision for loan losses

 

569

 

213

 

Loans originated for sale

 

(84,890

)

(95,253

)

Loans sold

 

80,835

 

107,172

 

Gain on sale of mortgage loans, net

 

(1,106

)

(1,990

)

Amortization of deferred loan costs

 

559

 

493

 

Provision on foreclosed real estate

 

9

 

 

Depreciation and amortization expense

 

731

 

719

 

Income from Bank-owned life insurance

 

(61

)

(70

)

Deferred income tax expense (benefit)

 

(2

)

(134

)

ESOP expense

 

199

 

145

 

Stock-based compensation

 

91

 

93

 

Net change in:

 

 

 

 

 

Accrued interest receivable

 

(305

)

(118

)

Other, net

 

(2,929

)

(1,812

)

Net cash provided (used) by operating activities

 

(4,446

)

10,837

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of FHLB stock

 

(3,069

)

(826

)

Redemption of FHLB stock

 

 

838

 

Loan originations, net of principal payments

 

(29,984

)

(25,124

)

Purchase of loans from third party originators

 

(65,306

)

(13,273

)

Purchases of premises and equipment

 

(86

)

(977

)

Proceeds from sale of foreclosed real estate

 

4,202

 

 

Net cash used by investing activities

 

(94,243

)

(39,362

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

24,988

 

24,053

 

Net change in short-term borrowed funds

 

69,275

 

6,691

 

Restricted stock forfeited for tax withholdings

 

(59

)

(44

)

Repurchase of common stock

 

 

(333

)

Net cash provided by financing activities

 

94,204

 

30,367

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(4,485

)

1,842

 

Cash and cash equivalents at beginning of period

 

54,569

 

44,658

 

Cash and cash equivalents at end of period

 

$

50,084

 

$

46,500

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid on deposits

 

$

1,620

 

$

1,438

 

Interest paid on borrowed funds

 

1,871

 

515

 

Income taxes paid

 

350

 

1,741

 

 

The accompanying notes are an integral part of the consolidated unaudited financial statements.

 

4



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

 

(1)         Basis of Presentation and Consolidation

 

General information

 

Coastway Bancorp, Inc., a Maryland chartered stock corporation (“Company” or “Corporation”), was formed to serve as the holding company for Coastway Community Bank.  Coastway Community Bank (the “Bank”) is a Rhode Island-chartered savings bank.  The Bank provides a variety of financial services to individuals and small businesses throughout Rhode Island.  Its primary deposit products are savings, demand, money market and term certificate accounts and its primary lending products are one-to four-family residential mortgage loans, home equity loans and lines of credit, commercial real estate and SBA loans.

 

Acquisition

 

On March 14, 2018, the Company and HarborOne Bancorp, Inc. (“HONE”) announced they had entered into a definitive agreement (“Merger Agreement”) under which HONE will acquire the Company in an all cash transaction valued at approximately $125.6 million.  The Company’s stockholders will receive $28.25 for each share of Company common stock that they own.  The transaction is expected to close in the second half of 2018 and is subject to customary closing conditions, including required regulatory approvals.  On June 21, 2018, the Corporation’s stockholders approved and adopted the Merger Agreement.  However, it is possible that factors outside the control of both companies, including whether or when the required regulatory approvals will be received, could result in the merger being delayed or not completed at all.  In connection with the merger, the Company had incurred $278,000 and $676,000 of merger expenses for the three and six months ended June 30, 2018, primarily legal and investment banker costs, which are included in professional fees in the Statements of Net Income and Comprehensive income.

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Corporation and its subsidiary.  In June 2018, Rhode Island Passive Investment Corp. was formed which is a wholly-owned subsidiary of the Bank.  All significant intercompany transactions have been eliminated.  The unaudited consolidated financial statements of the Corporation presented herein have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules of the SEC for quarterly reports on Form 10-Q and Regulation S-X and do not include all of the information and note disclosures required by GAAP for a complete set of financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The results of operations for interim periods are not necessarily indicative of results for the full year or any other interim period. The accompanying unaudited financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017, included in the Corporation’s annual report on Form 10-K.

 

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the valuation of loans held for sale, mortgage-banking derivatives and commitments to sell fixed-rate residential mortgages.

 

Stock-Based Compensation

 

Compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of these awards at the grant date.  A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s stock at the grant date is utilized for restricted stock awards.  Compensation cost is recognized over the required service period, generally defined as the vesting period.  For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

 

Income Taxes

 

The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in December 2017 which reduced the corporate federal statutory tax rate from 34% to 21% effective January 1, 2018.

 

5



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Recent Accounting Pronouncements

 

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act, the Corporation has elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.  In June 2018, the SEC revised the definition of smaller reporting company to include companies with public float of less than $250 million, an increase from the prior $75 million threshold. This revised rule has not yet taken effect.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.”  The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS.  This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards.  In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard.  The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2018.  During 2016, the FASB issued further implementation guidance regarding revenue recognition.  This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters.  The Corporation’s largest sources of income is net interest income on financial assets and liabilities and net gain on sales of loans and other mortgage banking income, which are explicitly excluded from the scope of this ASU.  Accordingly the majority of our revenues will not be affected.  The Corporation does not expect the adoption of this guidance will have a significant impact on the Corporation’s consolidated financial statements, but is expected to require additional disclosures.

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The ASU requires equity instruments (except those accounted for under the equity method of accounting or that result in consolidations of the investee) to be measured at fair value with changes in fair value recognized in net income.  However, an entity may choose to measure an equity investment that does not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions.  For public business entities, the standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including emerging growth companies, the standard is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal periods after December 15, 2019.  We do not expect a significant impact upon adoption on January 1, 2019.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  Under the new guidance, a lessee will be required to recognize right to use assets and lease liabilities for leases with lease terms of more than 12 months.  However, unlike current Generally Accepted Accounting Principles (GAAP) — which requires only capital leases to be recognized on the balance sheet — the new ASU will require both types of leases to be recognized on the balance sheet. The accounting by organizations that own the assets leased by the lessee — also known as lessor accounting — will remain largely unchanged from current GAAP.  However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model.  The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other organizations, including emerging growth companies, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  We are currently evaluating the impact of adoption of this standard, including identifying contracts that are, or contain, leases, as the lease identification guidance in the new standard is different than the current standard.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, that will significantly change how banks measure and recognize credit impairment for many financial assets from an incurred loss methodology to a current expected credit loss model.  The current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard.  The FASB also made targeted amendments to the current impairment model for available-for-sale debt securities.  The ASU is effective for public business entities that are SEC filers, for annual and interim periods in fiscal years beginning after December 15, 2019, and for other companies, including emerging growth companies, for interim and annual periods in fiscal years beginning after December 15, 2020.  All entities may early adopt the standard for annual and interim periods in fiscal years after December 15, 2018.  The standard will be effective for the Corporation on January 1, 2020.  We are currently evaluating the impact of adoption of this standard, including different methodologies that may be employed to estimate credit losses, such as loss rate methods, component loss methods, and qualitative factors, as well as additional data gathering that will be needed to

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

adopt the standard.  The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors, and reasons for the changes as well as the method applied to revert to historical credit loss experience.

 

ASU 2017-07, Compensation — Retirement Benefits (Topic 715):  Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost which in March 2017, the FASB issued amended existing guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost.  The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  The amendments allow only the service cost component to be eligible for capitalization.  The amendments are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those periods.  For emerging growth companies, the amendments are effective for annual periods after December 15, 2018, including interim periods within those periods.  Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance.  The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of net income and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retroactive presentation requirements.  The amendment requires disclosure that the practical expedient was used.  The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

 

(2)         Loans

 

Major classifications of loans at the dates indicated, are as follows:

 

(Dollars in thousands)

 

June 30,
2018

 

December 31,
2017

 

Residential real estate mortgage loans:

 

 

 

 

 

1-4 family

 

$

395,185

 

$

312,095

 

Home equity loans and lines of credit

 

68,561

 

71,844

 

Total residential real estate mortgage loans

 

463,746

 

383,939

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

Commercial real estate

 

173,978

 

156,024

 

Commercial business

 

13,984

 

17,158

 

Commercial construction

 

13,262

 

13,552

 

SBA

 

40,533

 

41,020

 

Consumer

 

1,215

 

1,229

 

Total loans

 

706,718

 

612,922

 

 

 

 

 

 

 

Allowance for loan losses

 

(3,358

)

(2,920

)

Net deferred loan costs

 

5,395

 

4,591

 

Loans, net

 

$

708,755

 

$

614,593

 

 

Residential one- to four-family loans of $395.2 million at June 30, 2018 and $312.1 million at December 31, 2017 include purchased loans which were individually underwritten based on the Bank’s credit standards, totaling $151.5 million and $96.8 million at June 30, 2018 and December 31, 2017, respectively.  During the six months ended June 30, 2018 and 2017, the Bank purchased $64.5 million and $13.1 million of loans at a cost of $65.3 million and $13.3 million, respectively.  The loans purchased from third parties are located in New England, primarily Massachusetts.

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Loan Segments

 

One-to four-family residential real estate and home equity — Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower.  The Bank generally has first liens on one-to four-family residential real estate loans and first or second liens on property securing home equity loans and equity lines-of-credit.  Jumbo one- to four-family loans generally have maximum loan-to-value ratios of 95%.  Loan-to-value ratios of one- to four-family loans without private mortgage insurance may be made with loan-to-value ratios up to 95%.  Home equity loans and lines of credit may be underwritten with a loan-to-value ratio up to 80%.  The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in these segments.

 

Commercial — Commercial loan segments include commercial real estate, commercial and industrial loans for businesses and construction financing for business/properties located principally in Rhode Island.  For commercial real estate loans, the underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment.  Non-real estate commercial loans are made to businesses and are generally secured by assets of the business.  Repayment is expected from the cash flows of the business.  Commercial construction generally represent loans to finance construction of retail and office space.  Commercial loans also include loans made under the SBA 504 program which is an economic development program that finances the expansion of small businesses.  The Bank generally provides 50% of the projected costs, and the loan is secured by a first lien on the commercial property.  The SBA does not provide a guarantee on loans made under the SBA 504 program.  A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.  Management monitors the cash flows of these loans.

 

SBA — Loans in this segment include commercial loans underwritten using SBA guidelines for the SBA’s 7(a) program and include both guaranteed and unguaranteed portions of the same loans.  Currently, under the SBA 7(a) program, loans may qualify for guarantees up to 85% of principal and accrued interest up to a maximum SBA guarantee of $3.75 million per borrower and related entities.  The Bank does not treat the SBA guarantee as a substitute for a borrower meeting reasonable credit standards.  SBA guarantees are generally sought on loans to borrowers that exhibit minimum capital levels, a short time in business, lower collateral coverage or maximum loan terms beyond the Bank’s normal underwriting criteria.  For a number of SBA loans, the Bank has sold portions of certain loans and retains the unguaranteed portion while continuing to service the entire loan.  The guaranteed portion of SBA loans in the Bank’s portfolio is not allocated a general reserve because the Bank has not experienced losses on such loans and management expects the guarantees will be effective, if necessary.  Guaranteed portions of SBA loans totaled $26.6 million and $26.7 million at June 30, 2018 and December 31, 2017, respectively.

 

Consumer — This segment includes unsecured and vehicle loans and repayment is dependent on the credit quality of the individual borrower.  Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.

 

Allowance for Loan Losses

 

Allowance for Loan Loss Methodology

 

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  For impaired loans that are deemed collateral dependent, the recorded balance of the loan is reduced by a charge-off to fair value of the collateral net of estimated selling costs.

 

The allowance for loan losses is evaluated on a regular basis by management.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  The allowance consists of general and specific components as described below.

 

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by loan segments.  Management uses a ten year historical loss period to capture relevant loss data for each loan segment.  This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; charge-off trends over the past three and five year periods; weighted average risk ratings; loan concentrations; management’s assessment of internal factors; and management’s assessment of external factors such as interest rates, real estate markets and local and national economic factors.  There were no changes in the Bank’s policies or methodology pertaining to the general component of the allowance for loan losses during the three and six months ended June 30, 2018 and the year ended December 31, 2017.

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

The Corporation evaluates the need for a specific allowance when loans are determined to be impaired.  Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses.  Factors in identifying a specific problem loan and the need for a specific allowance include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of the collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency.

 

In addition, for loans secured by real estate, the Corporation considers the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage when evaluating the need for a specific allowance on loans determined to be impaired.

 

Credit Quality Indicators

 

Commercial and SBA loans are risk rated based on key factors such as management ability, financial condition, debt repayment ability, collateral, industry conditions and loan structure.

 

Risk Rating 6 — Special Mention:  these loans have potential weaknesses and require management’s close attention.  If these weaknesses are not addressed, they may weaken the prospects for repayment at a future date.  Special mention assets do not expose the institution to sufficient risk to warrant a classified rating.

 

Risk Rating 7 — Substandard:  loans in this category are inadequately protected by the current financial condition and repayment ability of the borrower or pledged collateral, if any.  These assets have a well-defined weakness(es) that jeopardizes the repayment of the debt in full, and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Risk Rating 8 — Doubtful:  loans have all the weaknesses of those classified substandard.  In addition, it is highly unlikely that a doubtful asset can be collected or liquidated in full.  The possibility of loss is extremely high.  However, because of certain important and reasonably specific pending factors, which may work to strengthen the asset, its classification as a loss is deferred until the asset’s status can be better determined.

 

Risk Rating 9 — Loss:  loans classified as loss are considered uncollectible and of such little value that they are no longer considered bankable.  This classification does not mean that the asset has no recovery or salvage value.  However, it is not practical or desirable to defer writing off the asset even though partial recovery may occur in the future.

 

Loans not meeting the criteria above that are analyzed individually as part of the above process are considered to be pass-rated.

 

On an annual basis, or more often if needed, the Bank formally reviews the ratings on commercial and SBA loans over $250,000.  On an annual basis, the Bank engages an independent third-party to review a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review of its control process related to loan ratings.  Credit quality for residential real estate mortgage and consumer loans is determined by monitoring loan payment history and on-going communications with borrowers, and are not risk graded.  Non-performing homogenous loans are individually evaluated for impairment.  The following table presents the credit risk profile by internally assigned risk rating category at the dates indicated:

 

 

 

June 30, 2018

 

 

 

Commercial

 

Commercial

 

Commercial

 

 

 

 

 

(Dollars in thousands)

 

Real Estate

 

Business

 

Construction

 

SBA

 

Total

 

Pass

 

$

170,330

 

$

13,984

 

$

13,262

 

$

39,542

 

$

237,118

 

Loans rated 6

 

 

 

 

47

 

47

 

Loans rated 7

 

3,648

 

 

 

819

 

4,467

 

Loans rated 8

 

 

 

 

125

 

125

 

 

 

$

173,978

 

$

13,984

 

$

13,262

 

$

40,533

 

$

241,757

 

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

 

 

December 31, 2017

 

 

 

Commercial

 

Commercial

 

Commercial

 

 

 

 

 

(Dollars in thousands)

 

Real Estate

 

Business

 

Construction

 

SBA

 

Total

 

Pass

 

$

152,296

 

$

17,158

 

$

13,552

 

$

39,040

 

$

222,046

 

Loans rated 6

 

 

 

 

76

 

76

 

Loans rated 7

 

3,728

 

 

 

1,904

 

5,632

 

Loans rated 8

 

 

 

 

 

 

 

 

$

156,024

 

$

17,158

 

$

13,552

 

$

41,020

 

$

227,754

 

 

Past Due and Non-Accrual Loans

 

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is both well secured and in the process of collection.  Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on non-accrual at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued, but not collected for loans that are placed on non-accrual, is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time, typically a minimum of six months and future payments are reasonably assured.

 

The following table presents past due loans as of the dates indicated.

 

June 30, 2018

 

(Dollars in thousands)

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
or More
Past Due

 

Total
Past Due

 

Past Due > 90
Days and Still
Accruing

 

Loans on
Non-accrual

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family

 

$

728

 

$

 

$

310

 

$

1,038

 

$

 

$

2,966

 

Home equity loans and lines of credit

 

794

 

220

 

61

 

1,075

 

 

701

 

Commercial real estate

 

 

 

254

 

254

 

 

254

 

Commercial business

 

 

17

 

 

17

 

 

 

Commercial construction

 

 

 

 

 

 

 

SBA

 

 

 

261

 

261

 

 

347

 

Consumer

 

 

 

 

 

 

 

Total gross loans

 

$

1,522

 

$

237

 

$

886

 

$

2,645

 

$

 

$

4,268

 

 

December 31, 2017

 

(Dollars in thousands)

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days
or More
Past Due

 

Total
Past Due

 

Past Due > 90
Days and Still
Accruing

 

Loans on
Non-accrual

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family

 

$

4,337

 

$

237

 

$

531

 

$

5,105

 

$

 

$

3,385

 

Home equity loans and lines of credit

 

611

 

100

 

132

 

843

 

 

573

 

Commercial real estate

 

1,404

 

376

 

254

 

2,034

 

 

254

 

Commercial business

 

 

32

 

 

32

 

 

 

Commercial construction

 

 

 

 

 

 

 

SBA

 

1,079

 

179

 

281

 

1,539

 

 

524

 

Consumer

 

11

 

 

 

11

 

 

 

Total gross loans

 

$

7,442

 

$

924

 

$

1,198

 

$

9,564

 

$

 

$

4,736

 

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

The balance of loans on non-accrual at June 30, 2018 and December 31, 2017 exceeds loans 90 days or more past due, due to a combination of loans that are current, but that have been modified in a troubled debt restructuring and/or loans for which future payments are not reasonably assured.

 

Impaired Loans

 

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

 

The Bank periodically may agree to modify the contractual terms of loans, such as a reduction in interest rate of the loan for some period of time, an extension of the maturity date or an extension of time to make payments with the delinquent payments added to the end of the loan term.  When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  All TDRs are classified as impaired.  Loans on non-accrual status at the date of modification are initially classified as non-accruing troubled debt restructurings.  TDRs may be returned to accrual status after a period of satisfactory payment performance according to the terms of the restructuring, generally six months of current payments.

 

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dates indicated.

 

June 30, 2018

 

(Dollars in thousands)

 

Unpaid
contractual
principal balance

 

Total recorded
investment in
impaired loans

 

Recorded
investment
with no
allowance

 

Recorded
investment
with
allowance

 

Related
allowance

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

1-4 family

 

$

4,941

 

$

4,682

 

$

4,367

 

$

315

 

$

5

 

Home equity loans & lines of credit

 

1,873

 

1,832

 

1,795

 

37

 

6

 

Commercial real estate

 

465

 

465

 

465

 

 

 

SBA

 

2,175

 

2,025

 

2,025

 

 

 

Consumer

 

119

 

119

 

41

 

78

 

13

 

Total

 

$

9,573

 

$

9,123

 

$

8,693

 

$

430

 

$

24

 

 

December 31, 2017

 

(Dollars in thousands)

 

Unpaid
contractual
principal balance

 

Total recorded
investment in
impaired loans

 

Recorded
investment
with no
allowance

 

Recorded
investment
with
allowance

 

Related
allowance

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

1-4 family

 

$

5,382

 

$

5,125

 

$

4,810

 

$

314

 

$

6

 

Home equity loans & lines of credit

 

1,888

 

1,845

 

1,807

 

39

 

6

 

Commercial real estate

 

475

 

476

 

475

 

 

 

SBA

 

2,660

 

2,640

 

2,492

 

149

 

8

 

Consumer

 

55

 

55

 

43

 

12

 

2

 

Total

 

$

10,460

 

$

10,141

 

$

9,627

 

$

514

 

$

22

 

 

Of the $2.0 million and $2.6 million of impaired SBA loans at June 30, 2018 and at December 31, 2017, respectively, guaranteed portions of such loans amounted to $1.6 million and $1.9 million at June 30, 2018 and December 31, 2017, respectively.

 

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COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

The following table presents the average recorded investment in impaired loans and the related interest recognized during the periods indicated.

 

 

 

Three Months Ended
June 30, 2018

 

Three Months Ended
June 30, 2017

 

(Dollars in thousands)

 

Average recorded
investment

 

Interest income
recognized

 

Average recorded
investment

 

Interest income
recognized

 

Residential 1-4 family

 

$

4,584

 

$

54

 

$

4,742

 

$

69

 

Home equity loans & lines of credit

 

1,827

 

24

 

1,854

 

25

 

Commercial real estate

 

467

 

2

 

4,411

 

52

 

SBA

 

2,341

 

29

 

1,606

 

22

 

Consumer

 

103

 

1

 

24

 

 

Total

 

$

9,322

 

$

110

 

$

12,637

 

$

168

 

 

 

 

Six Months Ended
June 30, 2018

 

Six Months Ended
June 30, 2017

 

(Dollars in thousands)

 

Average recorded
investment

 

Interest income
recognized

 

Average recorded
investment

 

Interest income
recognized

 

Residential 1-4 family

 

$

4,795

 

$

126

 

$

5,115

 

$

122

 

Home equity loans & lines of credit

 

1,829

 

54

 

1,759

 

50

 

Commercial real estate

 

470

 

5

 

4,405

 

100

 

SBA

 

2,461

 

57

 

1,550

 

46

 

Consumer

 

82

 

1

 

19

 

 

Total

 

$

9,637

 

$

243

 

$

12,848

 

$

318

 

 

Troubled Debt Restructurings

 

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments, principal or interest, which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination.  All loans that are modified are reviewed by the Bank to identify if a TDR has occurred.  TDRs are included in the impaired loan category and as such, these loans are individually evaluated for impairment and a specific reserve is assigned for the amount of the estimated credit loss. Total TDR loans, included in impaired loans as of June 30, 2018 and December 31, 2017 were $7.4 million and $8.2 million, respectively.  No additional funds are committed to be advanced in connection with TDR loans.  TDR loans on accrual status amounted to $4.9 million and $5.4 million at June 30, 2018 and December 31, 2017, respectively.

 

Troubled debt restructuring agreements entered into during the period indicated are as follows:

 

 

 

Three Months Ended June 30, 2018

 

Six Months Ended June 30, 2018

 

(Dollars in thousands)

 

Number of
restructurings

 

Pre-modification
outstanding
recorded
investment

 

Post-modification
outstanding
recorded
investment

 

Number of
restructurings

 

Pre-modification
outstanding
recorded
investment

 

Post-modification
outstanding
recorded
investment

 

Residential 1-4 family

 

 

$

 

$

 

1

 

$

155

 

$

155

 

Home equity

 

1

 

67

 

56

 

2

 

83

 

72

 

Commercial real estate

 

 

 

 

 

 

 

SBA

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

Total

 

1

 

$

67

 

$

56

 

3

 

$

238

 

$

227

 

 

The troubled debt restructurings described above had a $11,000 impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2018.

 

12



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

There were no troubled debt restructurings that subsequently defaulted within 12 months of restructuring during the three and six months ended June 30, 2018.

 

Troubled debt restructuring agreements entered into during the period indicated are as follows:

 

 

 

Three Months Ended June 30, 2017

 

Six Months Ended June 30, 2017

 

(Dollars in thousands)

 

Number of TDRs
that defaulted

 

Pre and Post-
modification
outstanding
recorded

 

Number of TDRs
that defaulted

 

Pre and Post-
modification
outstanding
recorded

 

Residential 1-4 family

 

 

$

 

 

$

 

Home equity

 

2

 

255

 

6

 

654

 

Commercial real estate

 

1

 

259

 

1

 

259

 

SBA

 

1

 

250

 

1

 

250

 

Consumer

 

1

 

44

 

1

 

44

 

Total

 

5

 

$

808

 

9

 

$

 1,207

 

 

The troubled debt restructurings described above had no impact to the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2017.

 

Troubled debt restructurings that subsequently defaulted within 12 months of restructuring are as follows during the period indicated:

 

 

 

Three Months Ended June 30, 2017

 

Six Months Ended June 30, 2017

 

(Dollars in thousands)

 

Number of TDRs
that defaulted

 

Post-modification
outstanding
recorded
investment

 

Number of TDRs
that defaulted

 

Post-modification
outstanding
recorded
investment

 

Residential 1-4 family

 

1

 

$

71

 

1

 

$

71

 

Home equity

 

 

 

1

 

74

 

Commercial real estate

 

 

 

2

 

4,108

 

SBA

 

 

 

 

 

Total

 

1

 

$

71

 

4

 

$

4,253

 

 

The troubled debt restructurings described above resulted in no charge-offs and no specific reserves for the three and six months ended June 30, 2017.

 

13



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Allowance for loan loss activity

 

Changes in the allowance for loan losses by segment are presented below:

 

Three Months Ended June 30, 2018

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance at March 31, 2018

 

$

1,416

 

$

477

 

$

845

 

$

81

 

$

82

 

$

255

 

$

6

 

$

3,162

 

Provision (credit)

 

193

 

(14

)

52

 

(10

)

(10

)

(13

)

9

 

207

 

Loans charged-off

 

 

 

 

 

 

(15

)

 

(15

)

Recoveries

 

 

1

 

 

 

 

1

 

2

 

4

 

Allowance at June 30, 2018

 

$

1,609

 

$

464

 

$

897

 

$

71

 

$

72

 

$

228

 

$

17

 

$

3.358

 

 

Three Months Ended June 30, 2017

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance at March 31, 2017

 

$

1,033

 

$

533

 

$

629

 

$

64

 

$

61

 

$

231

 

$

8

 

$

2,559

 

Provision (credit)

 

54

 

(11

)

63

 

5

 

8

 

42

 

(8

)

153

 

Loans charged-off

 

(6

)

 

 

 

 

 

 

(6

)

Recoveries

 

6

 

1

 

 

 

 

 

7

 

14

 

Allowance at June 30, 2017

 

$

1,087

 

$

523

 

$

692

 

$

69

 

$

69

 

$

273

 

$

7

 

$

2,720

 

 

Six Months Ended June 30, 2018

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance at December 31, 2017

 

$

1,257

 

$

489

 

$

776

 

$

83

 

$

70

 

$

239

 

$

6

 

$

2,920

 

Provision (credit)

 

352

 

(28

)

121

 

(12

)

2

 

126

 

8

 

569

 

Loans charged-off

 

 

 

 

 

 

(143

)

 

(143

)

Recoveries

 

 

3

 

 

 

 

6

 

3

 

12

 

Allowance at June 30, 2018

 

$

1,609

 

$

464

 

$

897

 

$

71

 

$

72

 

$

228

 

$

17

 

$

3,358

 

 

Six Months Ended June 30, 2017

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance at December 31, 2016

 

$

1,009

 

$

541

 

$

596

 

$

60

 

$

51

 

$

228

 

$

8

 

$

2,493

 

Provision (credit)

 

78

 

(20

)

96

 

9

 

18

 

42

 

(10

)

213

 

Loans charged-off

 

(6

)

 

 

 

 

 

 

(6

)

Recoveries

 

6

 

2

 

 

 

 

3

 

9

 

20

 

Allowance at June 30, 2017

 

$

1,087

 

$

523

 

$

692

 

$

69

 

$

69

 

$

273

 

$

7

 

$

2,720

 

 

14



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

The allowance for loan losses and loan balances by impaired and non-impaired components are as follows at the dates indicated:

 

June 30, 2018

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance for impaired loans

 

$

5

 

$

6

 

$

 

$

 

$

 

$

 

$

13

 

$

24

 

Allowance for non-impaired loans

 

1,604

 

458

 

897

 

71

 

72

 

228

 

4

 

3,334

 

Total

 

$

1,609

 

$

464

 

$

897

 

$

71

 

$

72

 

$

228

 

$

17

 

$

3,358

 

Impaired loans

 

$

4,682

 

$

1,832

 

$

465

 

$

 

$

 

$

2,025

 

$

119

 

$

9,123

 

Non-impaired loans

 

390,503

 

66,729

 

173,513

 

13,984

 

13,262

 

38,508

 

1,096

 

697,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

395,185

 

$

68,561

 

$

173,978

 

$

13,984

 

$

13,262

 

$

40,533

 

$

1,215

 

$

706,718

 

 

December 31, 2017

 

(Dollars in thousands)

 

Residential
1-4 family

 

Home
Equity

 

Commercial
Real Estate

 

Commercial
Business

 

Commercial
Construction

 

SBA

 

Consumer

 

Total

 

Allowance for impaired loans

 

$

6

 

$

6

 

$

 

$

 

$

 

$

8

 

$

2

 

$

22

 

Allowance for non-impaired loans

 

1,251

 

483

 

776

 

83

 

70

 

231

 

4

 

2,898

 

Total

 

$

1,257

 

$

489

 

$

776

 

$

83

 

$

70

 

$

239

 

$

6

 

$

2,920

 

Impaired loans

 

$

5,125

 

$

1,845

 

$

476

 

$

 

$

 

$

2,640

 

$

55

 

$

10,141

 

Non-impaired loans

 

306,970

 

69,999

 

155,548

 

17,158

 

13,552

 

38,380

 

1,174

 

602,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

312,095

 

$

71,844

 

$

156,024

 

$

17,158

 

$

13,552

 

$

41,020

 

$

1,229

 

$

612,922

 

 

(3)         Employee Benefits

 

Deferred Compensation Supplemental Executive Plan

 

The Bank maintains a non-qualified deferred compensation supplemental executive retirement plan (“DCSERP”) with a senior executive.  The DCSERP allows the executive to invest all or a portion of the deferred compensation in Corporation Stock, provided that such stock will only be settled in Corporation Stock.  The assets invested in bonds, which are held in a Rabbi Trust, related to this Plan totaled $1.4 million at June 30, 2018 and at December 31, 2017, and are included in other assets at fair value in the consolidated balance sheet.  The liability for the benefit obligation reported in accrued expenses and other liabilities totaled $1.4 million at June 30, 2018 and at December 31, 2017. Additionally, the Rabbi Trust holds 8,900 shares of Corporation stock at June 30, 2018 and December 31, 2017 which is accounted for at its cost basis of $100,000, which is offset in stockholders’ equity by the benefit obligation of $100,000.  Rabbi trust shares are considered outstanding shares for both basic and diluted EPS.

 

Supplemental Retirement Agreements

 

The Bank has entered into supplemental retirement agreements (“SERP”) with certain executive officers, which provide for payments upon attaining the retirement age specified in the agreements, generally ages 65-67.  The present value of these future payments is accrued over the remaining service or vesting term.  Supplemental retirement benefits generally accrue as they are vested; however a termination of employment subsequent to a change in control will result in the vesting of all benefits that would have accrued to the officer’s normal retirement date.  During the three months ended June 30, 2018 and 2017, SERP expense totaled $211,000 and $241,000, respectively.  During the six months ended June 30, 2018 and 2017, SERP expense totaled $422,000 and $482,000, respectively.

 

Defined Benefit Pension Plan

 

Pension expense totaled $0 and $8,000 for the three months ended June 30, 2018 and 2017, respectively, and $0 and $16,000 for the six months ended June 30, 2018 and 2017, respectively.  The Bank expects to contribute $8,000 during the plan year ending December 31, 2018.

 

15



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Employee Benefits (continued)

 

Employee Stock Ownership Plan

 

The Corporation maintains an Employee Stock Ownership Plan (“ESOP”) to provide eligible employees the opportunity to own Corporation stock.  This plan is a tax-qualified retirement plan for the benefit of all Corporation employees.  Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits.

 

The Corporation granted a loan to the ESOP for the purchase of shares of the Corporation’s common stock in January 2014.  As of June 30, 2018, the ESOP holds 393,004 shares, or 9% of the common stock outstanding on that date.  The loan obtained by the ESOP from the Corporation to purchase common stock is payable annually over 25 years at the prime rate, as published in The Wall Street Journal at the beginning of its calendar year, which was 4.5% at January 1, 2018.  The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid.  Any cash dividends paid on allocated shares will, at the direction of the Corporation, be credited to the participant accounts and invested in the Investment Fund; be distributed to the participants in proportion with the participants’ stock fund account balance; be distributed to the participants within 90 days of the calendar year in which paid in proportion with the participants’ stock fund account balance; or be used to make payments on the outstanding debt of the ESOP.  Cash dividends paid on unallocated shares will be used to repay the outstanding debt of the ESOP then due.  If the amount of dividends exceeds the outstanding debt of the ESOP, then, in the sole discretion of the Corporation, cash dividends may be allocated to active participants on a non-discriminatory basis, or be deemed to be general earnings of the ESOP.  Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid.

 

Shares held by the ESOP include the following:

 

 

 

June 30,
2018

 

Allocated

 

63,349

 

Distributions

 

(2,930

)

Committed to be allocated

 

7,918

 

Unallocated

 

324,667

 

 

 

393,004

 

 

The fair value of unallocated shares was approximately $9.0 million at June 30, 2018.

 

Total expense recognized in connection with the ESOP for the three month periods ended June 30, 2018 and 2017 was $109,000 and $78,000, respectively, and $199,000 and $145,000 for the six months periods ended June 30, 2018 and 2017, respectively.

 

Termination Benefits

 

During the fourth quarter of 2017, the Corporation offered termination benefits of $253,000 to certain employees who were involuntarily terminated.  The expense related to the termination benefits were recorded as a component of salaries and employee benefits expense in accordance with FASB Accounting Standards Codification ASC Topic 420 Exit or disposal Cost Obligations.  The affected employees are not required to render any additional services to receive termination benefits.  The benefits are being paid weekly over varying periods up to 52 weeks.  At June 30, 2018, of the $253,000 of termination benefits recorded, $107,000 remains unpaid.

 

(4)         Other Stock-Based Compensation

 

On May 21, 2015, the Coastway Bancorp, Inc. stockholders approved the 2015 Equity Incentive Plan (“EIP”).  Types of awards permitted by the EIP include stock options, restricted stock awards, restricted stock units, and performance awards.  The number of shares available for issuance under the EIP was 692,885 at December 31, 2015.  Stock options under the EIP will generally expire ten years after the date of grant.  Unless otherwise determined by the Compensation Committee, awards under the EIP (other than Performance Awards) shall be granted with a vesting rate not exceeding twenty percent per year, with the first installment vesting no earlier than one year after the date of grant.  Upon an involuntary termination following a change in control, all stock options, restricted stock awards and units will become fully vested and performance awards will be deemed earned.

 

16



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Other Stock-Based Compensation (continued)

 

In February 2016, the Compensation Committee of the Board of Directors authorized the grant of 91,225 options at a strike price of $12.41 and 39,045 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $12.41 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $2.59 was estimated using the Black-Scholes Option-Pricing Model.

 

In February 2017, the Compensation Committee of the Board of Directors authorized the grant of 26,155 options at a strike price of $16.40 and 11,228 shares of restricted stock to directors and certain key senior executives.  The options and the restricted stock both vest over a five year period.  The $16.40 fair value of the restricted stock is based on the closing price of the Company’s common stock on the date of the grant.  The holders of restricted stock participate fully in rewards of stock ownership of the Company, including voting, and dividend rights when vested.  The grant-date fair value of stock options of $4.11 was estimated using the Black-Scholes Option-Pricing Model.

 

Restricted stock expense for the three month periods ended June 30, 2018 and 2017 was $30,000 and $33,000, respectively and restricted stock expense for the six month periods ended June 30, 2018 and 2017 was $60,000 and $62,000, respectively.  At June 30, 2018 and 2017, there was $353,000 and $522,000, respectively, of unrecognized salary and employee benefits cost related to restricted stock.  Executive officers forfeited 2,683 shares of restricted stock in February 2017 for tax withholding purposes with a fair value of $44,000.  An executive who retired, forfeited 3,016 shares of restricted stock at December 31, 2017, and had 380 vested shares returned for tax withholding purposes, with a fair value of $8,000.  Executive officers returned 2,694 shares of vested restricted stock in February 2018 for tax withholding purposes with a fair value of $59,000.

 

Stock option expense for the three months ended June 30, 2018 and 2017 was $16,000 and $17,000, respectively and stock option expense for the six months period ended June 30, 2018 and 2017 was $31,000 and $31,000, respectively.  At June 30, 2018 and 2017, there was $189,000 and $271,000, respectively, of unrecognized salary and employee benefits cost related to stock options.

 

The following presents the assumptions that were used in determining the grant-date fair value of stock options:

 

 

 

2017 Grant

 

Volatility

 

15.04

%

Forfeiture rate

 

00.00

 

Dividend yield

 

00.00

 

Expected term

 

8 years

 

Risk free interest rate

 

2.25

%

 

(5)         Earnings per Common Share

 

Basic earnings per share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.  Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

(Dollars in thousands)

 

2018

 

2017

 

2018

 

2017

 

Net income applicable to common stock

 

$

1,407

 

$

817

 

$

1,854

 

$

1,379

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

4,356,957

 

4,345,146

 

4,355,329

 

4,352,733

 

Less: Average unallocated ESOP shares

 

(326,651

)

(342,489

)

(328,614

)

(344,452

)

Weighted average number of common shares outstanding — basic

 

4,030,306

 

4,002,657

 

4,026,715

 

4,008,281

 

Dilutive impact of stock options

 

49,797

 

15,993

 

44,132

 

12,680

 

Dilutive impact of restricted stock

 

15,928

 

9,710

 

16,454

 

9,180

 

Weighted average number of common shares outstanding — diluted

 

4,096,031

 

4,028,360

 

4,087,301

 

4,030,141

 

 

 

 

 

 

 

 

 

 

 

Earnings per share — basic

 

$

0.35

 

$

0.20

 

$

0.46

 

$

0.34

 

Earnings per share — diluted

 

$

0.34

 

$

0.20

 

$

0.45

 

$

0.34

 

 

17



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Earnings per Common Share (continued)

 

In November 2016, the Corporation authorized a program to repurchase, from time to time and as business conditions warrant, up to 223,331 shares of the Corporation’s common stock.  The Corporation repurchased no shares under this third stock repurchase program during the six months ended June 30, 2018, with 101,548 shares remaining to be repurchased under this program at June 30, 2018. We do not anticipate any further repurchases during the pending period until the acquisition by HONE is complete.

 

(6)         Off-Balance Sheet Activities and Mortgage Banking

 

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

 

Loan Commitments

 

The Bank is a party to conditional commitments to lend funds in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit which include commercial lines of credit and home equity lines that involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  The Bank’s exposure to credit loss is represented by the contractual amount of those instruments.  The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

 

The following financial instruments were outstanding whose contract amounts represent credit risk:

 

 

 

June 30,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(In thousands)

 

Commitments to originate loans for portfolio

 

$

30,178

 

$

24,390

 

Commitments to originate loans to be sold

 

32,943

 

13,959

 

Commitments to purchase loans from third parties

 

684

 

8,986

 

Unfunded commitments under home equity lines of credit

 

57,872

 

58,282

 

Unfunded commitments under commercial lines of credit

 

20,358

 

16,478

 

Unfunded commitments under SBA lines of credit

 

4,695

 

4,829

 

Unfunded commitments under overdraft lines of credit

 

193

 

183

 

Unadvanced funds on construction loans

 

2,926

 

7,426

 

 

The commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The commitments for lines-of-credit may expire without being drawn upon.  Therefore, the total commitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon management’s credit evaluation of the counterparty.  Collateral held generally consists of real estate.

 

Mortgage Banking

 

At June 30, 2018, the Bank had $32.9 million of interest rate lock commitments to borrowers and loans held for sale of $16.2 million with $43.9 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open To Be Announced securities (“TBAs”) with a notional amount of $18.5 million, mandatory delivery contracts with a notional amount of $6.0 million, and best efforts contracts with a notional amount of $19.4 million.  The Bank has $6.3 million of closed hedge instruments that are not settled at June 30, 2018.

 

At December 31, 2017, the Bank had $14.0 million of interest rate lock commitments to borrowers and loans held for sale of $11.1 million with $22.5 million of forward commitments for the future delivery of residential mortgage loans.  Included in the forward commitments total are open TBAs with a notional amount of $9.5 million, mandatory delivery contracts with a notional amount of $3.4 million, and best efforts contracts with a notional amount of $9.6 million.  The Bank has $5.0 million of closed hedge instruments that are not settled at December 31, 2017.

 

18



Table of Contents

 

COASTWAY BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements (continued)

 

Off-Balance Sheet Activities and Mortgage Banking (continued)