Company Quick10K Filing
Quick10K
Heritage Nola Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$12.00 2 $20
10-Q 2019-06-30 Quarter: 2019-06-30
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
8-K 2019-08-30 Other Events, Exhibits
8-K 2019-05-16 Shareholder Vote, Exhibits
8-K 2019-05-09 Other Events, Exhibits
8-K 2019-02-15 Earnings, Exhibits
8-K 2018-08-20 Officers, Exhibits
8-K 2018-08-16 Shareholder Vote, Exhibits
8-K 2018-07-24 Other Events, Exhibits
8-K 2018-02-16 Earnings, Exhibits
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ATIM AmericaTowne Holdings 0
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HRGG 2019-06-30
Item 1.Consolidated 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 tv526819_ex31-1.htm
EX-31.2 tv526819_ex31-2.htm
EX-32 tv526819_ex32.htm

Heritage Nola Bancorp Earnings 2019-06-30

HRGG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526819_10q.htm FORM 10-Q

 

 

 

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 June 30, 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. 000-55817

 

Heritage NOLA Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland   82-0688069

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

205 North Columbia Street

Covington, Louisiana

  70433
(Address of Principal Executive Offices)   (Zip Code)

 

(985) 892-4565

(Registrant’s telephone number)

 

N/A

(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 ¨     NO x

 

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 ¨     NO x

 

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 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  ¨ Accelerated filer  ¨
Non-accelerated filer  x 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 Act). YES ¨     NO x

 

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

 

Title of class   Trading symbol   Name of exchange on which registered
None        

 

As of August 6, 2019, 1,618,165 shares of the Company’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

   

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Form 10-Q

 

Index

 

    Page
  Part I  
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Statements of Financial Condition as of June 30, 2019, (unaudited) and December 31, 2018 1
     
  Consolidated Statements of Income for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited) 2
     
  Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited) 3
     
  Consolidated Statements of Changes in Shareholder’s Equity for the Six Months Ended June 30, 2019 and 2018 (unaudited) 4
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited) 5
     
  Notes to Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
     
Item 4. Controls and Procedures 31
     
  Part II  
     
Item 1. Legal Proceedings 32
     
Item 1A. Risk Factors 32
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 3. Defaults upon Senior Securities 32
     
Item 4. Mine Safety Disclosures 32
     
Item 5. Other Information 33
     
Item 6. Exhibits 33
     
  Signature Pages 34

 

   

 

 

Item 1.Consolidated Financial Statements

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

June 30, 2019 (Unaudited) and December 31, 2018

(In Thousands)

 

   June 30,   December 31, 
   2019   2018 
ASSETS          
Cash and Due from Banks  $914   $529 
Interest Earning Deposits in Banks   2,817    3,886 
Total Cash and Cash Equivalents   3,731    4,415 
Interest Earning Time Deposits in Banks   5,080    3,586 
Securities Available for Sale, at Fair Value   3,769    4,221 
Securities Held to Maturity   458    518 
Mortgage Loans Held for Sale   681    580 
Loans Receivable, Net of Unearned Income   100,088    97,721 
Allowance for Loan Losses   (772)   (768)
Total Loans, Net   99,997    97,533 
Premises and Equipment   5,179    5,137 
Federal Home Loan Bank Stock   814    802 
Bank Owned Life Insurance   2,128    2,102 
Foreclosed Real Estate   -    - 
Prepaid Expenses and Other Assets   1,184    1,107 
Total Assets  $122,340   $119,421 
           
LIABILITIES AND EQUITY          
Interest Bearing Deposits  $72,296   $72,953 
Noninterest Bearing Deposits   5,580    4,344 
Total Deposits   77,876    77,297 
           
Borrowed Funds   18,961    16,822 
Advances from Borrowers for Taxes and Insurance   517    282 
Accrued Expenses and Other Liabilities   1,113    903 
Total Liabilities   98,467    95,304 
           
Shareholders' Equity          
Preferred Stock, $0.01 Par Value, 1,000,000 Shares Authorized, None Issued   -    - 
Common Stock, $0.01 Par Value, 9,000,000 Shares Authorized, 1,633,165 Shares Issued and Outstanding on June 30, 2019   16    17 
Additional Paid-in Capital   14,558    14,953 
Unallocated common stock held by:          
Employee Stock Ownership Plan (ESOP)   (1,217)   (1,217)
Retained Earnings   10,494    10,395 
Accumulated Other Comprehensive Income (Loss)   22    (31)
Total Shareholders' Equity   23,873    24,117 
Total Liabilities and Shareholders' Equity  $122,340   $119,421 

 

The accompanying notes are an integral part of these financial statements.

 

 1 

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

(In Thousands, except for Earnings Per Share)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
                 
Interest Income                    
Loans, including Fees  $1,292   $1,175   $2,525   $2,295 
Investment Securities   30    32    60    65 
Other Interest Earning Assets   65    42    130    78 
Total Interest Income   1,387    1,249    2,715    2,438 
                     
Interest Expense                    
Deposits   285    228    565    427 
Borrowed Funds   114    56    219    113 
Total Interest Expense   399    284    784    540 
                     
Net Interest Income   988    965    1,931    1,898 
                     
Provision for Loan Losses   -    -    -    5 
Net Interest Income after Provision for Loan Losses   988    965    1,931    1,893 
                     
Noninterest Income                    
Gain on Sale of Loans Originated for Sale   21    16    40    16 
Loan Servicing Income   51    44    102    77 
Other Income   32    28    61    52 
Total Noninterest Income   104    88    203    145 
                     
Noninterest Expense                    
Salaries and Employee Benefits   603    499    1,180    956 
Occupancy and Equipment   109    102    217    194 
Data Processing   43    54    89    104 
FDIC Insurance and Examination Fees   20    23    41    46 
Director Compensation   17    17    36    36 
Legal, Accounting and Professional Fees   81    66    146    116 
Advertising   31    31    56    49 
Telephone and Communications   17    16    34    29 
Other   128    99    218    208 
Total Noninterest Expense   1,049    907    2,017    1,738 
                     
Income Before Income Tax Expense   43    146    117    300 
Income Tax Expense   1    28    18    58 
Net Income  $42   $118   $99   $242 
                     
Earnings per share:  Basic  $0.03   $0.08   $0.06   $0.16 
    Diluted  $0.03    N/A   $0.06    N/A 

 

The accompanying notes are an integral part of these financial statements.

 

 2 

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

For the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

(In Thousands)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2019   2018   2019   2018 
                 
Net Income  $42   $118   $99   $242 
                     
Other Comprehensive Income (Loss):                    
Unrealized Holding Gains (Losses) on Securities Available for Sale   42    (14)   67    (85)
Income Tax Effect   (9)   3    (14)   18 
                     
Total Other Comprehensive Income (Loss)   33    (11)   53    (67)
                     
Comprehensive Income  $75   $107   $152   $175 

 

The accompanying notes are an integral part of these financial statements.

 

 3 

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

(In Thousands)

 

                   Accumulated     
       Additional   Unallocated       Other     
   Common   Paid In   ESOP   Retained   Comprehensive     
   Stock   Capital   Shares   Earnings   Income (Loss)   Total 
                         
Balance at January 1, 2018  $17   $15,440   $(1,270)  $9,977   $7   $24,171 
                               
Net Income   -    -    -    242    -    242 
                               
Other Comprehensive Income (Loss)   -    -    -    -    (67)   (67)
                               
Balance at June 30, 2018  $17   $15,440   $(1,270)  $10,219   $(60)  $24,346 
                               
Balance at January 1, 2019  $17   $14,953   $(1,217)  $10,395   $(31)  $24,117 
                               
Compensation Expense related to restricted shares   -    77    -    -    -    77 
                               
Compensation Expense related to stock options   -    52    -    -    -    52 
                               
Stock Shares Repurchased   (1)   (524)   -    -    -    (525)
                               
Net Income   -    -    -    99    -    99 
                               
Other Comprehensive Income (Loss)   -    -    -    -    53    53 
                               
Balance at June 30, 2019  $16   $14,558   $(1,217)  $10,494   $22   $23,873 

 

The accompanying notes are an integral part of these financial statements.

 

 4 

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2019 and 2018 (Unaudited)

(In Thousands)

 

   Six Months Ended June 30, 
   2019   2018 
         
Cash Flows from Operating Activities          
Net Income  $99   $242 
Adjustments to Reconcile Net Income (Loss) to Net Cash from Operating Activities          
Provision for Loan Losses   -    5 
Provision for Depreciation   111    92 
Deferred Income Tax Expense (Benefit)   (37)   (9)
Change in Mortgage Servicing Rights   (24)   (3)
(Accretion) Amortization of Premiums and Discounts on Securities   12    17 
(Accretion) Amortization of Deferred Loan Origination Fees   14    8 
Gain on Sale of Loans Originated for Sale   (40)   (16)
Originations of Loans Held for Sale   (2,556)   (851)
Loss on disposal of Premise and Equipment   -    5 
Stock dividends on FHLB Stock   (12)   (8)
Compensation expense related to stock benefit plans   129    - 
Proceeds from Loans Held for Sale   2,495    867 
Gain or Loss on Sale of Foreclosed Real Estate   -    (1)
(Increase) Decrease in Accrued Interest Receivable   (9)   3 
(Increase) Decrease in Bank Owned Life Insurance   (26)   (25)
(Increase) Decrease in Prepaid Expenses and Other Assets   (21)   49 
Increase (Decrease) in Accrued Expenses and Other Liabilities   210    139 
           
Net Cash provided by (used in) Operating Activities   345    514 
           
Cash Flows from Investing Activities          
Principal Collected on Securities Available for Sale   510    609 
Principal Collected on Securities Held to Maturity   57    62 
Net Change in Interest-earning Time Deposits at Banks   (1,494)   249 
Net (Increase) Decrease in Loans   (2,377)   (5,303)
Purchases of Premises and Equipment   (153)   (381)
Proceeds from Sales of Foreclosed Real Estate   -    85 
           
Net Cash provided by (used in) Investing Activities   (3,457)   (4,679)
           
Cash Flows from Financing Activities          
Net Increase (Decrease) in Deposits   579    5,453 
Shares Repurchased   (525)   - 
Advances from Borrowers for Taxes and Insurance   235    248 
Borrowed Funds   7,500    6,450 
Repayments of Borrowed Funds   (5,361)   (7,208)
           
Net Cash provided by (used in) Financing Activities   2,428    4,943 
           
Net Change in Cash and Cash Equivalents   (684)   778 
           
Cash and Cash Equivalents - Beginning of Period   4,415    4,038 
           
Cash and Cash Equivalents - End of Period  $3,731   $4,816 
           
Supplemental Disclosure of Cash Flow Information          
Cash paid during the period for:          
Interest Paid on Deposits  $558   $426 
Interest Paid on Borrowed Funds  $215   $111 
Income Taxes Paid  $18   $58 

 

The accompanying notes are an integral part of these financial statements.

 

 5 

 

 

Heritage NOLA Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

 

Note A – Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Heritage NOLA Bancorp, Inc. and Subsidiary (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

 

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three and six month periods ended June 30, 2019 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”). Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Annual Report.

 

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

 

The consolidated financial statements include Heritage NOLA Bancorp, Inc. and its wholly-owned subsidiary, Heritage Bank of St. Tammany (the “Bank”), together referred to as the Company. Intercompany transactions and balances have been eliminated in consolidation.

 

Certain reclassifications have been made to the 2018 financial information in order to conform to the 2019 financial statement presentation. Such reclassifications had no effect on previously reported net income.

 

Subsequent Events

 

On July 1, 2019, the Bank received $10.5 million in deposits from a municipal recreation district. This will significantly impact asset size, deposits, interest expense and interest income. These are primarily bond funds to be used for various projects and we expect a large portion of the deposits to be used within a year.

 

Note B – Recent Accounting Pronouncements

 

Emerging Growth Company Status

 

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

 

 6 

 

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The provisions of the update requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March, 2016 the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also provides a practical expedient for contract modifications. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825- 10), Recognition and Measurement of Financial Assets and Financial Liabilities. The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-01 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.

 

 7 

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit losses relating to available for sale debt securities should be recorded through an allowance for credit losses. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact this guidance will have on our Consolidated Financial Statements.

 

In August 2016, FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The amendments in this ASU clarify the proper classification for certain cash receipts and cash payments, including clarification on debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, among others. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years beginning after December 15, 2019. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.

 

In June 2018, FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment”. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.

 

In August 2018, FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this ASU modify the disclosure requirements related to fair value. Certain provisions under ASU 2018-13 require prospective application, while other provisions require retrospective application to all period presented in the consolidated financial statements upon adoption. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.

 

 8 

 

 

Note C – Investment Securities

 

The amortized costs and estimated fair values of investment securities classified as available for sale and held to maturity as of June 30, 2019 and December 31, 2018 is as follows:

 

   June 30, 2019 
(in thousands)      Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   (Losses)   Value 
Available for Sale:                    
Mortgage-Backed Securities  $3,741   $46   $(18)  $3,769 
                     
Held to Maturity:                    
Mortgage-Backed Securities  $458   $1   $(4)  $455 

 

   December 31, 2018 
(in thousands)      Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   (Losses)   Value 
Available for Sale:                    
Mortgage-Backed Securities  $4,260   $38   $(77)  $4,221 
                     
Held to Maturity:                    
Mortgage-Backed Securities  $518   $1   $(12)  $507 

 

There were no securities sold in 2019 or 2018.

 

All mortgage-backed securities held on June 30, 2019 and December 31, 2018 were government-sponsored mortgage-backed securities.

 

The amortized cost and fair value of investment securities at June 30, 2019 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

  Amortized   Fair 
(in thousands)  Cost   Value 
Available for Sale:          
Within One Year  $-   $- 
After One Year Through Five Years   145    145 
After Five Years Through Ten Years   1,570    1,573 
After Ten Years   2,026    2,051 
   $3,741   $3,769 
           
Held to Maturity:          
After Five Years Through Ten Years  $256   $255 
After Ten Years   202    200 
   $458   $455 

 

 9 

 

 

The following tables reflect gross unrealized losses, fair values, and length of time in a continued unrealized loss position for all securities with fair values below amortized cost at June 30, 2019 and December 31, 2018:

 

   June 30, 2019 
(in thousands)  Less Than 12 Months   12 Months or Longer   Total 
   Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

 
Available for Sale:                              
Mortgage-Backed Securities  $45   $1   $1,345   $17   $1,390   $18 
                               
Held to Maturity:                              
Mortgage-Backed Securities  $-   $-   $376   $4   $376   $4 

 

   December 31, 2018 
(in thousands)  Less Than 12 Months   12 Months or Longer   Total 
   Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

   Fair Value  

Unrealized

Loss

 
Available for Sale:                              
Mortgage-Backed Securities  $549   $3   $2,526   $74   $3,075   $77 
                               
Held to Maturity:                              
Mortgage-Backed Securities  $-   $-   $418   $12   $418   $12 

 

On a quarterly basis (and more frequently when economic or market conditions warrant), management evaluates the investment securities portfolio on an individual security basis for other-than- temporary impairment (“OTTI”). If a security is in a loss position, management will determine if OTTI exists and will consider the following. First, if it is probable that the issuer of the security will be unable to pay all amounts due according to the contractual terms of the debt security, OTTI will be recognized. Second, if management intends to sell the security and does not expect to recover the loss before the anticipated sale date, OTTI will be recognized. In both instances, OTTI will be recognized for the affected security equal to the difference between the fair value and amortized cost through a charge to earnings. Third, if a security does not meet either of the criteria above and is both in a loss position for greater than one year and at a current loss of 10% or more, management will evaluate its ability and intent to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.

 

Declines in the fair value of individual held to maturity and available for sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. No declines at June 30, 2019 and December 31, 2018, were deemed to be other-than-temporary. The unrealized losses on the securities available for sale generally result from changes in market interest rates and not credit quality. The Company does not intend to sell any such investments before recovery of their amortized cost bases, which may be at maturity.

 

 10 

 

 

Note D – Loans Receivable and Allowance for Loan Losses

 

A selection of the loan and allowance for loan losses policies are as follows:

 

Loans Receivable

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan fees or costs on originated loans.

 

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of direct loan origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.

 

The accrual of interest on the loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans are typically charged off not later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off 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 nonaccrual or charged off 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 and future payments are reasonably assured.

 

The performing one-to-four family residential, commercial real estate, and commercial loans are pledged, under a blanket lien, as collateral securing advances from the Federal Home Loan Bank of Dallas, (“FHLB”) at June 30, 2019 and December 31, 2018.

 

Loans receivable at June 30, 2019 and December 31, 2018 are summarized as follows:

 

 11 

 

 

 

(in thousands)  June 30, 2019   December 31, 2018 
         
Real Estate:          
Secured by one-to four family residential properties          
Owner-occupied  $52,553   $52,956 
Non-owner-occupied   14,575    13,485 
Home Equity Lines of Credit   3,031    2,973 
Commercial (Nonresidential) Properties   22,975    21,868 
Land   2,092    2,211 
Construction   3,137    2,947 
Multi-family   1,482    1,524 
Commercial   2,266    1,964 
Consumer Loans   274    354 
Total Loans   102,385    100,282 
           
Less:   Net Deferred Loan Fees   (366)   (380)
Loans in Process   (1,250)   (1,601)
Allowance for Loan Losses   (772)   (768)
Net Loans  $99,997   $97,533 

 

Allowance for Loan Losses

 

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 uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience. Other adjustments may be made to the allowance for pools of loans after an assessment of internal and external influence on credit quality that are not fully reflected in the historical loss or risk rating data.

 

A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and 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 are considered 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. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

 12 

 

 

The tables below provide a summary of activity in the allowance for loan losses by loan type as of and for the six months ended June 30, 2019 and the year ended December 31, 2018. The allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories.

 

Allowance for Credit Losses and Recorded Investment in Loans Receivable

For the Period Ended June 30, 2019

(in thousands) 

   Real Estate             
   Commercial   Land  

One-to-Four

Family

   Construction   Multi-Family   Consumer   Commercial   Total 
                                 
Allowance for Credit Losses:                                
Beginning Balance  $113   $23   $519   $16   $5   $9   $83   $768 
Charge-offs   -    -    -    -    -    (2)   -    (2)
Recoveries   5    -    -    -    -    1    -    6 
Provision   (10)   (4)   7    -    -    1    6    - 
Ending Balance  $108   $19   $526   $16   $5   $9   $89   $772 
                                         
Ending Balance:                                        
Individually Evaluated for Impairment  $-   $-   $71   $-   $-   $-   $-   $71 
                                         
Ending Balance:                                        
Collectively Evaluated for Impairment  $108   $19   $455   $16   $5   $9   $89   $701 
                                         
Loans Receivable:                                        
Ending Balance  $22,975   $2,092   $70,159   $3,137   $1,482   $274   $2,266   $102,385 
                                         
Ending Balance:                                        
Individually Evaluated for Impairment  $-   $-   $697   $-   $-   $-   $-   $697 
                                         
Ending Balance:                                        
Collectively Evaluated for Impairment  $22,975   $2,092   $69,462   $3,137   $1,482   $274   $2,266   $101,688 

 

 13 

 

 

Allowance for Credit Losses and Recorded Investment in Loans Receivable

For the Year Ended December 31, 2018

(in thousands) 

   Real Estate             
   Commercial   Land  

One-to-Four

Family

   Construction   Multi-Family   Consumer   Commercial   Total 
                                 
Allowance for Credit Losses:                                        
Beginning Balance  $94   $56   $545   $8   $4   $1   $48   $756 
Charge-offs   (1)   -    -    -    -    (8)   -    (9)
Recoveries   3    -    13    -    -    -    -    16 
Provision   17    (33)   (39)   8    1    16    35    5 
Ending Balance  $113   $23   $519   $16   $5   $9   $83   $768 
                                         
Ending Balance:                                        
Individually Evaluated for Impairment  $-   $-   $10   $-   $-   $-   $-   $10 
                                         
Ending Balance:                                        
Collectively Evaluated for Impairment  $113   $23   $509   $16   $5   $9   $83   $758 
                                         
Loans Receivable:                                        
Ending Balance  $21,868   $2,211   $69,414   $2,947   $1,524   $354   $1,964   $100,282 
                                         
Ending Balance:                                        
Individually Evaluated for Impairment  $-   $-   $100   $-   $-   $-   $-   $100 
                                         
Ending Balance:                                        
Collectively Evaluated for Impairment  $21,868   $2,211   $69,314   $2,947   $1,524   $354   $1,964   $100,182 

 

Credit quality indicators as of June 30, 2019 and December 31, 2018:

 

Pass - A pass asset is properly approved, documented, collateralized, and performing. It does not reflect an abnormal amount of risk.

 

Special mention - A special mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Company's credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

 

Substandard - An asset classified as substandard has a well-defined weakness or weaknesses. A substandard asset is inadequately protected by the current net worth or paying capacity of the obligor or pledged collateral, if any. It is characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful - Assets classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions, and values.

 

Loss - Assets classified as loss are considered uncollectible or of such little value that the continuance of the loan or other asset on the books of the Company is not warranted. Some recovery of funds could be possible in the future, but the amount and probability of this recovery are not determinable thus providing little justification for the assets to remain on the books.

 

 14 

 

 

The following tables represent the Company's credit exposure by credit quality indicator as of June 30, 2019 and December 31, 2018:

 

Credit Risk Profile by Internally Assigned Grade

(in thousands)

June 30, 2019

 

   Real Estate             
  

Commercial

Real Estate

   Land  

One-to-Four

Family

   Construction   Multi-Family   Consumer   Commercial   Total 
Pass  $22,975   $2,074   $68,815   $3,137   $1,482   $274   $2,266   $101,023 
Special Mention   -    -    404    -    -    -    -    404 
Substandard   -    18    940    -    -    -    -    958 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
   $22,975   $2,092   $70,159   $3,137   $1,482   $274   $2,266   $102,385 

 

December 31, 2018

 

   Real Estate             
  

Commercial

Real Estate

   Land  

One-to-Four

Family

   Construction   Multi-Family   Consumer   Commercial   Total 
Pass  $21,868   $2,189   $68,774   $2,947   $1,524   $354   $1,964   $99,620 
Special Mention   -    -    -    -    -    -    -    - 
Substandard   -    22    640    -    -    -    -    662 
Doubtful   -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    - 
   $21,868   $2,211   $69,414   $2,947   $1,524   $354   $1,964   $100,282 

 

The following tables are an aging analysis of loans as of June 30, 2019 and December 31, 2018:

 

Aged Analysis of Past Due Loans Receivable

(in thousands)

June 30, 2019

 

   Accruing         
   30-89   90 Days               Total 
   Days   and Over   Total       Nonaccrual   Loans 
   Past Due   Past Due   Past Due   Current   Status   Receivable 
                         
Real Estate:                              
Commercial  $219   $-   $219   $22,756   $-   $22,975 
Land   55    -    55    2,037    -    2,092 
Residential   1,697    121    1,818    67,644    697    70,159 
Construction   -    -    -    3,137    -    3,137 
Multi-family   -    -    -    1,482    -    1,482 
Consumer   47    -    47    227    -    274 
Commercial   -    -    -    2,266    -    2,266 
   $2,018   $121   $2,139   $99,549   $697   $102,385 

 

 15 

 

 

Aged Analysis of Past Due Loans Receivable

(in thousands)

December 31, 2018

 

   Accruing         
   30-89   90 Days               Total 
   Days   and Over   Total       Nonaccrual   Loans 
   Past Due   Past Due   Past Due   Current   Status   Receivable 
Real Estate:                              
Commercial  $222   $-   $222   $21,646   $-   $21,868 
Land   15    -    15    2,196    -    2,211 
Residential   2,116    -    2,116    67,198    100    69,414 
Construction   -    -    -    2,947    -    2,947 
Multi-family   -    -    -    1,524    -    1,524 
Consumer   66    -    66    288    -    354 
Commercial   -    -    -    1,964    -    1,964 
   $2,419   $-   $2,419   $97,763   $100   $100,282 

 

The following tables below present impaired loans disaggregated by class as of and for the six months ended June 30, 2019 and the year ended December 31, 2018:

 

Impaired Loans

(in thousands) 

   As Of And For The Three Months Ended June 30, 2019 
       Unpaid  

Allowance

for Loan

   Average   Interest 
  

Recorded

Investment

  

Principal

Balance

  

Losses

Allocated

  

Recorded

Investment

  

Income

Recognized

 
Loans with an allowance recorded:                         
Real estate                         
Commercial  $-   $-   $-   $-   $- 
Land   -    -    -    -    - 
1-4 family residential   697    697    71    706    - 
Multi-Family   -    -    -    -    - 
Construction   -    -    -    -    - 
Consumer and Commercial   -    -    -    -    - 
                          
Loans with no allowance recorded:                         
Real estate                         
Commercial   -    -    -    -    - 
Land   -    -    -    -    - 
1-4 family residential   -    -    -    -    - 
Multi-Family   -    -    -    -    - 
Construction   -    -    -    -    - 
Consumer and Commercial   -    -    -    -    - 
                          
Totals  $697   $697   $71   $706   $- 

 

 16 

 

 

Impaired Loans

(in thousands) 

   As Of And For The Year Ended December 31, 2018 
       Unpaid  

Allowance

for Loan

   Average   Interest 
  

Recorded

Investment

  

Principal

Balance

  

Losses

Allocated

  

Recorded

Investment

  

Income

Recognized

 
Loans with an allowance recorded:                         
Real estate                         
Commercial  $-   $-   $-  $-   $- 
Land   -    -    -   -    - 
1-4 family residential   100    100    10    99    - 
Multi-Family   -    -    -    -    - 
Construction   -    -    -    -    - 
Consumer and Commercial   -    -    -    -    - 
                          
Loans with no allowance recorded:                         
Real estate                         
Commercial   -    -    -    -    - 
Land   -    -    -    -    - 
1-4 family residential   -    -    -    -    - 
Multi-Family   -    -    -    -    - 
Construction   -    -    -    -    - 
Consumer and Commercial   -    -    -    -    - 
                          
Totals  $100   $100   $10   $99   $- 

 

Troubled Debt Restructuring

 

The Company's troubled debt restructurings are generally due to a modification of terms allowing the customer to make interest-only payments for an amount of time, an extension of the loan term, and/or a reduction in interest rate to obtain a lower payment for the customer. The Company is not committed to lend additional funds to debtors whose loans have been modified.

 

Troubled Debt Restructuring

(in thousands) 

       Pre-   Post- 
  

Number of

Loans

  

Modification

Outstanding

Recorded

Investment

  

Modification

Outstanding

Recorded

Investment

 
Modifications as of June 30, 2019:               
                
Residential - modified amortization   2   $697   $697 
                
Modifications as of December 31, 2018:               
                
Residential - modified amortization   0   $-   $- 

 

 17 

 

 

Prior loan modifications have been performing in compliance with their modified terms.

 

Note E - Fair Value of Financial Statements

 

Fair Value Disclosures

The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

·Level 1 - Includes the most reliable sources, and includes quoted prices in active markets for identical assets or liabilities.

 

·Level 2 - Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

 

·Level 3 - Includes unobservable inputs and should be used only when observable inputs are unavailable.

 

Recurring Basis

 

Fair values of investment securities available for sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.

 

The following tables present the balance of assets and liabilities measured on a recurring basis as of June 30, 2019 and December 31, 2018. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.

 

(In thousands)      Fair Value Measurement Using 
Description 

Fair

Value

  

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable Inputs

(Level 3)

 
                 
June 30, 2019                    
                     
Mortgage-Backed Securities  $3,769   $-   $3,769   $- 
                     
December 31, 2018                    
                     
Mortgage-Backed Securities  $4,221   $-   $4,221   $- 

 

 18 

 

 

Nonrecurring Basis

 

The Company has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a non-recurring basis.

 

The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level 2 assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Company records repossessed assets as Level 2.

 

       Fair Value Measurement Using 
(In thousands) 

Fair

Value

  

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
                 
June 30, 2019                    
                     
Assets                    
Impaired Loans  $626   $-   $626   $- 
Repossessed Assets   -    -    -    - 
Total  $626   $-   $626   $- 
                     
December 31, 2018                    
                     
Assets                    
Impaired Loans  $90   $-   $90   $- 
Repossessed Assets   -    -    -    - 
Total  $90   $-   $90   $- 

 

Fair values of financial instruments

 

In cases where quoted market prices of financial instruments are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. The fair values of certain financial instruments and all non-financial instruments are not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

 

Cash, due from banks, federal funds sold and interest-earning deposits with banks - The carrying amount is a reasonable estimate of fair value.

 

Securities - Fair value is based on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

 19 

 

 

Loans Receivable - Fair value is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

Cash Value of Life Insurance - The carrying amount approximates its fair value.

 

Deposits - The fair value of demand, savings, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

 

Borrowings - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values. Fair values of other borrowings are estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.

 

Commitments to extend credit and standby letters of credit - The fair values of commitments to extend credit and standby letters of credit do not differ significantly from the commitment amount and are therefore omitted from this disclosure.

 

The carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2019 and December 31, 2018, are as follows:

 

           Fair Value Measurement Using 
(In thousands) 

Carrying

Amount

  

Fair

Value

  

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
                     
June 30, 2019                         
Financial Assets:                         
Cash, Short-Term Investments and Federal Funds Sold  $8,811   $8,811   $8,811   $-   $- 
Securities-Available for Sale   3,769    3,769    -    3,769    - 
Securities-Held to Maturity   458    455    -    455    - 
Other Equity Securities   814    814    -    -    814 
Cash Value of Life Insurance   2,128    2,128    -    2,128    - 
Loans Held for Sale   681    681    -    681    - 
Loans Held -Net   99,316    99,785    -    -    99,785 
   $115,977   $116,443   $8,811  $7,033   $100,599 
                          
Financial Liabilities:                         
Deposits  $77,876   $77,928   $-   $-   $77,928 
Borrowed Funds   18,961    19,008    -    19,008    - 
   $96,837  $96,936  $-  $19,008  $77,928 

 

 20 

 

 

           Fair Value Measurement Using 
(In thousands) 

Carrying

Amount

   Fair Value  

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

  

Significant Other

Observable Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
                     
December 31, 2018                         
Financial Assets:                         
Cash, Short-Term Investments and Federal Funds Sold  $8,001   $8,001   $8,001   $-   $- 
Securities-Available for Sale   4,221    4,221    -    4,221    - 
Securities-Held to Maturity   518    507    -    507    - 
Other Equity Securities   802    802    -    -    802 
Cash Value of Life Insurance   2,102    2,102    -    2,102    - 
Loans Held for Sale   580    580    -    580    - 
Loans-Net   97,533    98,841    -    -    98,841 
   $113,757   $115,054   $8,001   $7,410   $99,643 
                          
Financial Liabilities:                         
Deposits  $77,297   $76,754   $-   $-   $76,754 
Borrowed Funds   16,822    16,677    -    16,677    - 
   $94,119   $93,431   $-   $16,677   $76,754 

 

NOTE F – Change in Corporate Form

 

On July 12, 2017, Heritage Bank of St. Tammany (“the Bank”) converted to the stock form of ownership, and issued all of its stock to Heritage NOLA Bancorp, Inc. The Bank became the wholly owned subsidiary of the Company, and the Company issued and sold shares of its capital stock pursuant to an independent valuation appraisal of the Bank and the Company. The stock was priced at $10.00 per share. In addition, the Bank’s board of directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering. The Conversion was completed on July 12, 2017 and resulted in the issuance of 1,653,125 common shares by the Company. The cost of the Conversion and stock offering totaled $1.1 million and was deducted from the proceeds of the offering.

 

In accordance with OCC regulations, at the time of the Conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation by the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

 

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.

 

 21 

 

 

NOTE G – Earnings Per Share

 

Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

 

Earnings per common share were computed as follows:

 

  

Three Months Ended

June 30,

  

Six Months Ended

June 30,

 
(in thousands, except per share data)  2019   2019 
         
Numerator:          
Net income available to common shareholders  $42    99 
           
Denominator:          
Weighted average common shares outstanding   1,643,650    1,652,991 
Less: Average unallocated ESOP shares   121,670    121,670 
Weighted average shares   1,521,980    1,531,321 
           
Effect of dilutive securities:          
Restrictive Stock   9,958    8,624 
Stock Options   -    - 
Weighted average common shares outstanding - assuming dilution   1,531,938    1,539,945 
           
Basic earnings per common share  $0.03   $0.06 
Diluted earnings per common share  $0.03   $0.06 

 

NOTE H – Employee Stock Ownership Plan

 

As part of the Company’s stock conversion, shares were purchased by the ESOP with a loan from Heritage NOLA Bancorp, Inc. All employees of the Bank meeting certain requirements are entitled to participate in the ESOP. Compensation expense related to the ESOP for the three and six month periods ended June 30, 2019 was $22,000 and $43,000, respectively.

 

NOTE I – Equity Incentive Plan

 

In August 2018, the Company's stockholders authorized the adoption of the 2018 Heritage NOLA Bancorp, Inc. Equity Incentive Plan (the “Plan”). No more than 231,437 shares of the Company's common stock may be issued under the Plan, of which a maximum of 165,312 may be issued pursuant to the exercise of stock options and 66,125 may be issued pursuant to restricted stock awards, restricted stock units and unrestricted share awards. Stock options awarded to employees may be incentive stock options or non-qualified stock options. The shares that may be issued may be authorized but unissued shares or treasury shares. The Plan permits the grant of incentive awards in the form of options, stock appreciation rights, restricted share and share unit awards, and performance share awards. The Plan contains limits on certain types of awards to individual participants.

 

 22 

 

 

Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award.  Stock options and restricted stock awards provide for accelerated vesting upon death, disability or if there is an involuntary termination of service following a change in control (as defined in the Plan).

 

On August 16, 2018, the Company made grants of restricted shares and stock options for 16,530 and 41,325 shares, respectively, to non-employee members of the Board of Directors. The awards vest over a five-year period and the stock options have a ten-year period to expiration.  Each option has an exercise price of $12.48, as determined on the grant date.

 

On September 18, 2018, the Company made grants of restricted shares and stock options for 49,581 and 104,500 shares, respectively, to certain members of management and staff. The awards vest over either a five- or seven-year period and the stock options have a ten-year period to expiration. Each option has an exercise price of $12.45, as determined on the grant date.

 

Stock Options

 

The table below represents the stock option activity for the period shown:

 

       Weighted 
       Average 
   Options   Exercise Price 
         
Options outstanding at January 1, 2019   145,825   $12.46 
Granted   0    - 
Exercised   0    - 
Forfeited   0    - 
Expired   0    - 
           
Options outstanding at June 30, 2019   145,825   $12.46 

 

As of June 30, 2019, the Company had $461,000 of unrecognized compensation expense related to stock options, having recognized $51,000 of compensation expense for the six month period ended June 30, 2019.  The cost of stock options will be amortized in monthly installments over the five-year and seven-year vesting periods.  The aggregate grant date fair value of the stock options granted in 2018 was $544,000.  The options outstanding at June 30, 2019, were granted on August 16, 2018 and September 18, 2018.  Accordingly, there are no options currently exercisable. 

 

The fair value of the Company's stock options granted in 2018 were $3.69 and $3.75 for the options granted on August 16, 2018 and September 18, 2018, respectively, and they were determined using the Black-Scholes option pricing formula.   The following assumptions were used in the formula:

 

 23 

 

 

   Stock Options   Stock Options 
   Granted   Granted 
   August 16, 2018   September 18, 2018 
         
Expected volatility   12.44%   11.94%
Risk-free interest rate   2.87%   3.05%
Expected dividend yield   0%   0%
Expected life (in years)   10    10 
Exercise price for the stock options  $12.48   $12.45 

 

Expected volatility - Based on the historical volatility of share price for the Company.

Risk-free interest rate - Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.

Dividend yield – Heritage NOLA Bancorp, Inc. does not anticipate a quarterly dividend per share.

Expected life - Based on the average of the vesting period and the ten year contractual term of the stock option plan.

Exercise price for the stock options - Based on the closing price of the Company's stock on the date of grant.

 

Restricted Shares

 

Restricted shares are accounted for as fixed grants using the fair value of the Company's stock at the time of the grant.  Unvested restricted shares may not be disposed of or transferred during the vesting period.

 

The table below presents the restricted stock award activity for the period shown:

 

       Weighted Average 
   Restricted   Fair Value at 
   Stock Awards   Grant Date 
         
Non-vested at January 1, 2019   66,111   $12.46 
           
Granted   0    - 
Vested   0    - 
Forfeited   0    - 
           
Non-vested at June 30, 2019   66,111   $12.46 

 

As of June 30, 2019, the Company had $698,000 of unrecognized compensation expense related to restricted shares, having recognized $77,000 of compensation expense for the six month period ending June 30, 2019.  The cost of the restricted shares will be amortized in monthly installments over the five and seven-year vesting periods. 

 

 24 

 

 

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

 

General

 

Management’s discussion and analysis of the financial condition at June 30, 2019 and results of operations for the three and six months ended June 30, 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 financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” 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 quality of our loan and investment portfolios; and

 

·estimates of our risks and future costs and benefits.

 

These forward-looking statements are based on current beliefs and expectations of our management 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.

 

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:

 

·our ability to manage our operations under the economic conditions in our market area;

 

·adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

 

·significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

 

·credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

 

·the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;

 

·competition among depository and other financial institutions;

 

·our success in increasing our one- to four-family residential real estate lending and commercial real estate lending;
 25 

 

 

·our ability to attract and maintain deposits and to grow our core deposits, and our success in introducing new financial products;

 

·our ability to maintain our asset quality even as we continue to grow our commercial real estate and commercial business loan portfolios;

 

·changes in interest rates generally, including changes in the relative differences between short-term and long-term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

 

·fluctuations in the demand for loans;

 

·changes in consumer spending, borrowing and savings habits;

 

·declines in the yield on our assets resulting from the current low interest rate environment;

 

·risks related to a high concentration of loans secured by real estate located in our market area;

 

·the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

 

·changes in the level of government support of housing finance;

 

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

 

·changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address such changes;

 

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

 

·changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

 

·loan delinquencies and changes in the underlying cash flows of our borrowers;

 

·our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

 

·the failure or security breaches of computer systems on which we depend;

 

·the ability of key third-party service providers to perform their obligations to us;

 

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

 

 26 

 

 

·other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

 

Critical Accounting Policies

 

There are no material changes to the critical accounting policies disclosed in Heritage NOLA Bancorp, Inc.’s Annual Report in Form 10-K as filed with the Securities and Exchange Commission on March 29, 2019.

 

Comparison of Financial Condition at June 30, 2019 and December 31, 2018

 

Total Assets. Total assets were $122.3 million at June 30, 2019, an increase of $2.9 million, or 2.4%, compared to $119.4 million at December 31, 2018. The increase was due primarily to an increase of $2.5 million in total loans, net.

 

Loans, net. Loans, net increased $2.5 million, or 2.6%, to $100.0 million at June 30, 2019 from $97.5 million at December 31, 2018.  Commercial real estate loans increased $1.1 million, or 5.0%, to $23.0 million at June 30, 2019 from $21.9 million at December 31, 2018. Non-owner-occupied one- to four-family residential real estate loans increased $1.1 million, or 8.1%, to $14.6 million and commercial loans increased $300,000, or 15.3% to $2.3 million, while owner-occupied one- to four-family residential real estate loans decreased $400,000, or 0.8%, to $52.6 million.

 

Changes in loan balances reflect our strategy to maximize our income by growing and diversifying our loan portfolio, with an emphasis on increasing our commercial real estate and commercial business loans, and continually reviewing our existing portfolio for income, liquidity and interest rate risk mitigation opportunities consistent with our strategic objectives. Recent loan originations have been achieved amid strong competition for commercial real estate and residential real estate loans in our market area in the current low interest rate environment. Most recent loan purchases have been related to the opportunity to find quality loans in our local market area. We will continue to look for quality loan purchase opportunities to augment our portfolio of loans.

 

Securities. Securities were $4.2 million at June 30, 2019, a decrease of $500,000, or 10.6%, from $4.7 million at December 31, 2018. This decrease reflects normal repayments and maturities of the mortgage backed securities.

 

Deposits. Deposits increased $600,000, or 0.8%, to $77.9 million at June 30, 2019 from $77.3 million at December 31, 2018. Checking accounts increased by $2.4 million or 28.9%, and savings and certificates of deposit decreased $1.8 million, or 2.6%. Subsequent to June 30, 2019, on July 1, deposits increased $10.5 million due to the receipt of one municipal entity’s deposits.

 

Borrowings. Borrowings, consisting of Federal Home Loan Bank advances, increased $1.2 million, or 1.8%, to $19.0 million at June 30, 2019 from $16.8 million at December 31, 2018. Advances are utilized to help fund loan growth.

 

Total Shareholders’ Equity. Total shareholders’ equity decreased $244,000, or 1.0%, to $23.9 million at June 30, 2019. The decrease was primarily the result of stock repurchases totaling $525,000, offset by net income of $99,000, and an increase of $130,000 in additional paid-in capital for the equity incentive plans, and an increase in accumulated other comprehensive income of $53,000 for the six months ended June 30, 2019.

 

 27 

 

 

Comparison of Operating Results for the Three Months Ended June 30, 2019 and 2018

 

General. Net income for the three months ended June 30, 2019 was $42,000, compared to $118,000 for the three months ended June 30, 2018, a decrease of $76,000.

 

Interest Income. Interest income increased $138,000, or 11.1%, for the three months ended June 30, 2019 from the three months ended June 30, 2018. The increase was primarily attributable to a $117,000 increase in interest on loans receivable, and a $23,000 increase in interest on other interest-earning assets. The average balance of loans during the three months ended June 30, 2019 increased $8.5 million, or 9.5%, to $98.4 million from $89.9 million for the three months ended June 30, 2018, while the average yield on loans increased two basis points to 5.25% for the three months ended June 30, 2019. The average balance of investment securities decreased $1.2 million to $4.4 million from $5.6 million, while other interest-earning assets increased $800,000 to $9.8 million for the three months ended June 30, 2019 from $8.9 million for the three months ended June 30, 2018. The average yield on investment securities increased 48 basis points and the average yield on other interest-earning assets increased 78 basis points for the three months ended June 30, 2019 compared to the same period ended June 30, 2018. The increase in yield on other earning assets is due primarily to increased interest rates on deposits we have in other financial institutions.

 

Interest Expense. Total interest expense increased $115,000, or 40.5%, to $399,000 for the three months ended June 30, 2019 from $284,000 for the three months ended June 30, 2018. Interest expense on deposits increased $57,000, or 25.0%, to $285,000 for the three months ended June 30, 2019 from $228,000 for the three months ended June 30, 2018, and interest expense on borrowed funds increased $58,000, or 103.6%, to $114,000 for the three months ended June 30, 2019. The increase in interest expense on deposits was due to higher average interest rates offered reflecting the increasing market rate environment. The average balance of interest-bearing deposits increased $1.3 million to $72.3 million for the three months ended June 30, 2019 compared to $71.0 million for the three months ended June 30, 2018, while the average cost of these deposits increased 30 basis points to 1.58% from 1.28%. The average balance of FHLB advances increased $6 million for the three months ended June 30, 2019 compared to the same period ended June 30, 2018, while the average cost increased 66 basis points due to increased rates for new or renewed advances.

 

Net Interest Income. Net interest income increased $23,000, or 2.4%, to $988,000 for the three months ended June 30, 2019 compared to $965,000 for the three months ended June 30, 2018. This increase reflects the increase in the average balances of our loans of $8.5 million, offset by the increase in the average balances of interest-bearing liabilities of $7.4 million and an increase in the average cost of those liabilities of 40 basis points for the 2019 quarter compared to the 2018 quarter.

 

Our net interest margin decreased to 3.51% for the three months ended June 30, 2019 from 3.69% for the three months ended June 30, 2018. Net interest rate spread decreased to 3.16% for the 2019 quarter compared to 3.41% for the 2018 quarter reflecting the increase in cost of funds.

 

Provision for Loan Losses. There was no provision for loan losses for the three months ended June 30, 2019 or for the three months ended June 30, 2018. The allowance for loan losses increased to $772,000, or 0.77% of total loans, at June 30, 2019, compared to $768,000, or 0.78% of total loans, at December 31, 2018. Total nonperforming loans were $818,000 at June 30, 2019, compared to $100,000 at December 31, 2018. Classified (substandard, doubtful and loss) loans were $958,000 at June 30, 2019, and $662,000 at December 31, 2018.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at the applicable balance sheet date. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

 28 

 

 

Noninterest Income. Noninterest income increased $16,000, or 18.2%, to $104,000 for the three months ended June 30, 2019 from $88,000 for the three months ended June 30, 2018. The increase was primarily due to an increase of $7,000 in loan servicing income, and an increase in gain on sale of loans and of $5,000 for the three months ended June 30, 2019, compared to the same three month period in 2018.

 

Noninterest Expense. Noninterest expense increased $142,000, or 15.7%, to $1.0 million for the three months ended June 30, 2019 compared to $907,000 for the three months ended June 30, 2018. The increase was due primarily to a $104,000 increase in salaries and employee benefits, and a $29,000 increase in other noninterest income. The increase in salaries and employee benefits is due to an increase in the number of employees, and the implementation of our 2018 equity incentive plan, which was approved by our stockholders. The increase in other noninterest expense is due to increased expenses of $8,000 for education, training and other personnel, and an increase in other general and administrative expenses related to having our annual shareholder’s meeting in the 2nd quarter of this year.

 

Income Tax Expense. We recorded a net income tax expense of $1,000 for the three months ended June 30, 2019 compared to $28,000 for the three months ended June 30, 2018. The decrease was due to the decrease in income before taxes for the period. The effective tax rate was 23.3% for the quarter ended June 30, 2019 compared to 19.2% for the same quarter in 2018.

 

Comparison of Operating Results for the Six Months Ended June 30, 2019 and 2018

 

General. Net income for the six months ended June 30, 2019 was $99,000, compared to $242,000 for the six months ended June 30, 2018, a decrease of $143,000. The decrease in net income was due to a $33,000 increase in net interest income, and increase in noninterest income of $58,000, and a decrease in provision for income taxes of $40,000. These were offset in part by an increase in noninterest expense of $279,000 for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

 

Interest Income. Interest income increased $277,000, or 11.5%, to $2.7 million for the six months ended June 30, 2019 from $2.4 million for the six months ended June 30, 2018. The increase was primarily attributable to a $230,000 increase in interest on loans receivable, and a $52,000 increase in interest on other interest-earning assets. The average balance of loans during the six months ended June 30, 2019 increased $8.4 million, or 9.4%, to $97.5 million from $89.1 million for the six months ended June 30, 2018, while the average yield on loans remained nearly unchanged at 5.18% for the six months ended June 30, 2019 from 5.16% for the six months ended June 30, 2018. The average balance of investment securities decreased $1.3 million while the average yield increased 43 basis points, and other interest-earning assets increased $1.3 million, while the average yield increased by a total of 81 basis points for the six months ended June 30, 2019 from the six months ended June 30, 2018.

 

Interest Expense. Total interest expense increased $244,000, or 45.2%, to $784,000 for the six months ended June 30, 2019 from $540,000 for the six months ended June 30, 2018. Interest expense on deposit accounts increased $138,000, or 31.6%, to $565,000 for the six months ended June 30, 2019 from $427,000 for the six months ended June 30, 2018. Interest expense on borrowings increased $106,000, or 93.8%, to $219,000 for the six months ended June 30, 2019 from $113,000 for the six months ended June 30, 2018. The average balance of FHLB advances increased $4.7 million to $17.8 million for the six months ended June 30, 2019 compared to $13.1 million for the six months ended June 30, 2018, while the average cost of these advances increased 74 basis points to 2.47% from 1.73%.

 

Net Interest Income. Net interest income increased $33,000, or 1.74%, to $1.9 million for the six months ended June 30, 2019 compared to $1.9 million for the six months ended June 30, 2018. The increase reflects an increase in our loan portfolio, offset by an increase in deposits and the cost of those funds period to period.

 

 29 

 

 

Our net interest margin decreased to 3.45% for the six months ended June 30, 2019 from 3.66% for the six months ended June 30, 2018 reflecting the increase in average loans. Net interest rate spread decreased to 3.12% for the six months ended June 30, 2019 compared to 3.39% for the same period in 2018.

 

Provision for Loan Losses. The provision for loan losses for the six months ended June 30, 2019 decreased $5,000 for the six months ended June 30, 2018 compared to the same period ended June 30, 2018. The allowance for loan losses increased to $772,000, or 0.77% of total loans, at June 30, 2019, compared to $768,000, or 0.78% of total loans, at December 31, 2018. Total nonperforming loans were $818,000 at June 30, 2019, compared to $100,000 at December 31, 2018. Classified (substandard, doubtful and loss) loans were $958,000 at June 30, 2019, and $662,000 at December 31, 2018. There were $2,000 in charge-offs and $6,000 in recoveries in the six months ending June 30, 2019. As a percentage of nonperforming loans, the allowance for loan losses was 94.4% at June 30, 2019, compared to 768.0% at December 31, 2018.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at the applicable balance sheet date. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

Noninterest Income. Noninterest income increased $58,000, or 40.0%, to $203,000 for the six months ended June 30, 2019 from $145,000 for the six months ended June 30, 2018. The increase was primarily due to an increase in loan servicing income of $25,000 and an increase in the gain on sale of loans originated for sale of $24,000.

 

Noninterest Expense. Noninterest expense increased $279,000, or 16.4%, to $2.0 million for the six months ended June 30, 2019 compared to $1.7 million for the six months ended June 30, 2018. The increase was attributable to a $224,000 increase in salaries and employee benefits, an increase in legal, accounting and professional fees of $30,000, and an increase in occupancy and equipment expenses of $23,000. The increase in salaries and employee benefits is due to an increase in employees, and the implementation of our 2018 equity incentive plan, which was approved by our stockholders. The increase in legal, accounting and professional fees is due to an increase in professional services expenses related to being a public company as well as legal expenses incurred relating to an environmental quality issue on property previously owned by the Bank, and the increase in occupancy and equipment reflects the new branch opened in June, 2018.

 

Income Tax Expense. We recorded an income tax expense of $18,000 for the six months ended June 30, 2019 compared to $58,000 for the six months ended June 30, 2018. The decrease was due to the decrease in income before taxes for the period, and taxes were over accrued in the first quarter of 2018. The effective tax rate was 15.4% for the six month ended June 30, 2019 compared to 19.3% for the same period in 2018. The low tax rate is due to having non-taxable income.

 

Liquidity and Capital Resources. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and borrowings. We have the ability to borrow from the FHLB-Dallas. At June 30, 2019, we had $19.0 million outstanding in advances from the FHLB-Dallas, and had the capacity to borrow approximately an additional $25.7 million more from the FHLB-Dallas, and an additional $3.0 million on a line of credit with First National Bankers’ Bank, Baton Rouge, Louisiana at this date.

 

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While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $345,000 and $514,000 for the six months ended June 30, 2019 and 2018, respectively. Net cash resulting from investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was ($3.5 million) and ($4.7 million) for the six months ended June 30, 2019 and 2018, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and Federal Home Loan Bank advances, was $2.4 million and $4.9 million for the six months ended June 30, 2019 and 2018, respectively.

 

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

 

At June 30, 2019, Heritage Bank of St. Tammany exceeded all regulatory capital requirements with a Tier 1 leverage capital level of $18.6 million, or 15.28% of adjusted average total assets, which is above the well-capitalized required level of $6.1 million, or 5.0%; and total risk-based capital of $19.4 million, or 25.72% of risk-weighted assets, which is above the well-capitalized required level of $7.5 million, or 10.0%; and common equity Tier 1 capital of $18.6 million or 24.7% of risk weighted assets, which is above the well-capitalized required level of $4.9 million, or 6.5% of risk weighted assets. Accordingly, Heritage Bank of St. Tammany was categorized as well capitalized at June 30, 2019. Management is not aware of any conditions or events since the most recent notification that would change our category.

 

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 Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’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 June 30, 2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended June 30, 2019, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II – Other Information

 

Item 1.Legal Proceedings

 

We are 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 Bank’s or the Company’s financial condition or results of operations.

 

Item 1A.Risk Factors

 

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

 

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

 

(a)There were no sales of unregistered securities during the period covered by this Report.

 

(b)Not applicable.

 

(c)The Company’s purchases of its common stock made during the quarter consisted of stock repurchases under the Company’s approved plans and are set forth in the following table.

 

Period 

Total

Number of

Shares

Purchased

  

Average Price

Paid Per

Share

  

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

  

Maximum Number

of Shares that May

Yet be Purchased

Under the Plan or

Programs (1)

 
                 
January 1 - January 31, 2019   12,000   $12.76    12,000    25,486 
February 1 - February 28, 2019   -    -    -    25,486 
March 1 - March 31, 2019   6,000    12.88    6,000    19,486 
April 1 - April 30, 2019   6,500    12.84    6,500    12,986 
May 1 - May 31, 2019   8,671    12.89    8,671    54,315 
June 1 - June 30, 2019   7,700    12.87    7,700    46,615 
                     
Total   40,871   $12.84    40,871    46,615 

 

(1)On July 24, 2018, the Board of Directors of the Company authorized a stock repurchase program under which it may repurchase up to 82,656 shares, or 5.0%, of the Company’s outstanding common stock. On May 9, 2019 the Board of Directors of the Company authorized the repurchase of an additional 50,000 shares. These repurchase programs will continue until they are completed or terminated by the Company’s Board of Directors.

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

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Item 5.Other Information

 

None.

 

Item 6.Exhibits

 

  31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
  31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
  32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 101.INSXBRL Instance Document
   
 101.SCHXBRL Taxonomy Extension Schema Document
   
 101.CALXBRL Taxonomy Extension Calculation Linkbase Document
   
 101.DEFXBRL Taxonomy Extension Definition Linkbase Document
   
 101.LABXBRL Taxonomy Extension Labels Linkbase Document
   
 101.PREXBRL Taxonomy Extension Presentation Linkbase Document

 

 33 

 

 

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.

 

    HERITAGE NOLA BANCORP, INC.
     
Date:  August 13, 2019   /s/W. David Crumhorn
    W. David Crumhorn
    President and Chief Executive Officer
     
Date:  August 13, 2019   /s/Lisa B. Hughes
    Lisa B. Hughes
    Senior Vice President/Chief Financial Officer

 

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