Company Quick10K Filing
PB Bancorp
Price11.50 EPS1
Shares7 P/E22
MCap86 P/FCF21
Net Debt-44 EBIT9
TEV41 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-12-31 Filed 2020-02-12
10-Q 2019-09-30 Filed 2019-11-12
10-K 2019-06-30 Filed 2019-09-26
10-Q 2019-03-31 Filed 2019-05-14
10-Q 2018-12-31 Filed 2019-02-12
10-Q 2018-09-30 Filed 2018-11-13
10-K 2018-06-30 Filed 2018-09-21
10-Q 2018-03-31 Filed 2018-05-14
10-Q 2017-12-31 Filed 2018-02-12
10-Q 2017-09-30 Filed 2017-11-13
10-K 2017-06-30 Filed 2017-09-25
10-Q 2017-03-31 Filed 2017-05-12
10-Q 2016-12-31 Filed 2017-02-13
10-Q 2016-09-30 Filed 2016-11-14
10-K 2016-06-30 Filed 2016-09-26
10-Q 2016-03-31 Filed 2016-05-13
10-Q 2015-12-31 Filed 2016-02-12
10-Q 2015-09-30 Filed 2015-12-02
8-K 2020-05-01
8-K 2020-04-27
8-K 2020-02-07
8-K 2020-01-02
8-K 2019-10-22
8-K 2019-10-22
8-K 2019-10-02
8-K 2019-07-03
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8-K 2019-01-02
8-K 2018-12-31
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8-K 2018-10-17
8-K 2018-10-03
8-K 2018-07-11
8-K 2018-04-18
8-K 2018-04-04
8-K 2018-01-03

PBBI 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1 - Organization
Note 2 - Basis of Presentation
Note 3 - Recent Accounting Pronouncements
Note 4 - Critical Accounting Policies
Note 5 - Earnings per Share (Eps)
Note 6 - Investment Securities
Note 7 - Loans
Note 8 - Non - Performing Assets, Past Due and Impaired Loans
Note 9 - Allowance for Loan Losses
Note 10 - Stock - Based Incentive Plan
Note 11 - Accumulated Other Comprehensive Loss
Note 12 - Fair Value Measurements
Note 13 - Subsequent Events
Note 14 - Commitments To Extend Credit
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 - Not Applicable Item 1A.Risk Factors - Not Applicable To Smaller Reporting Companies
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities - Not Applicable
Item 4.Mine Safety Disclosures - Not Applicable
Item 5.Other Information - Not Applicable
Item 6.Exhibits
EX-31.1 tm206546d1_ex31-1.htm
EX-31.2 tm206546d1_ex31-2.htm
EX-32.1 tm206546d1_ex32-1.htm
EX-32.2 tm206546d1_ex32-2.htm

PB Bancorp Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

10-Q 1 tm206546-1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended December 31, 2019

 

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

 

For the transition period from ______________ to _____________

 

Commission file number    001-37676

 

PB Bancorp, Inc.  

(Exact name of registrant as specified in its charter)

 

Maryland 47-5150586
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

40 Main Street, Putnam, Connecticut 06260

(Address of principal executive offices)

(Zip Code)

 

(860) 928-6501

(Issuer’s telephone number)

 

N/A

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

 

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

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, par value $0.01 per share   PBBI   The NASDAQ Stock Market, LLC

  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x YES¨ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x YES¨ NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” 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 ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

¨ YES x NO

 

As of February 1, 2020, there were 7,447,204 shares of the registrant’s common stock outstanding.

 

 

 

 

  

PB Bancorp, Inc.

 

Table of Contents

 

    Page No.
     
Part I. FINANCIAL INFORMATION  
     
Item 1.  Financial Statements (Unaudited)  
     
  Consolidated Balance Sheets at December 31, 2019 and June 30, 2019 1
     
  Consolidated Statements of Net Income for the three and six months ended December 31, 2019 and 2018 2
     
  Consolidated Statements of Comprehensive Income for the three and six months ended December 31, 2019 and 2018 3
     
  Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended December 31, 2019 and 2018 4
     
  Consolidated Statements of Cash Flows for the six months ended December 31, 2019 and 2018 5
     
  Notes to Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
     
Item 4. Controls and Procedures 43
     
Part II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 43
     
Item 1A. Risk Factors 43
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
     
Item 3. Defaults Upon Senior Securities 43
     
Item 4.  Mine Safety Disclosures 43
     
Item 5. Other Information 43
     
Item 6. Exhibits 43
     
SIGNATURES 44

  

 

 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

 

 

 

PB Bancorp, Inc.

 

Consolidated Balance Sheets

(Unaudited)

 

   December 31,   June 30, 
   2019   2019 
   (in thousands except share data) 
ASSETS        
Cash and due from depository institutions  $2,401   $2,173 
Interest-bearing demand deposits with other banks   36,249    23,499 
Total cash and cash equivalents   38,650    25,672 
Securities available-for-sale, at fair value   35,223    38,919 
Securities held-to-maturity (fair value of $53,628 as of December 31, 2019 and $63,858 as of June 30, 2019)   53,248    63,480 
Federal Home Loan Bank stock, at cost   3,044    3,464 
Loans held for sale   97    - 
Loans   373,833    381,080 
Less: Allowance for loan losses   (3,200)   (3,063)
Net loans   370,633    378,017 
Premises and equipment, net   3,054    3,062 
Accrued interest receivable   1,521    1,559 
Other real estate owned   1,009    1,271 
Goodwill   6,912    6,912 
Bank-owned life insurance   13,443    13,267 
Net deferred tax asset   794    443 
Other assets   1,833    1,964 
           
Total assets  $529,461   $538,030 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities          
Deposits          
Non-interest-bearing  $72,723   $73,764 
Interest-bearing   309,757    310,095 
Total deposits   382,480    383,859 
Mortgagors' escrow accounts   3,095    3,371 
Federal Home Loan Bank advances   52,618    62,145 
Securities sold under agreements to repurchase   2,137    804 
Other liabilities   2,728    2,779 
Total liabilities   443,058    452,958 
           
Stockholders' Equity          
        
Preferred stock,50,000,000 shares authorized,  $0.01 par value, no shares issued and outstanding   -    - 
Common stock, 100,000,000 shares authorized, $0.01 par value, 7,447,204 shares issued and outstanding at December 31, 2019 and June 30, 2019.   74    74 
Additional paid-in capital   58,713    58,598 
Retained earnings   31,465    30,638 
Accumulated other comprehensive loss   (103)   (269)
Unearned ESOP shares   (3,073)   (3,146)
Unearned stock awards   (673)   (823)
Total stockholders' equity   86,403    85,072 
           
Total liabilities and stockholders' equity  $529,461   $538,030 

 

See accompanying notes to consolidated financial statements.

 

1

 

 

PB Bancorp, Inc.

 

Consolidated Statements of Net Income

(Unaudited)

 

   Three months ended   Six months ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (in thousands, except per share data) 
Interest and dividend income:                    
Interest and fees on loans  $3,935   $3,731   $7,920   $7,306 
Interest and dividends on investments   673    816    1,385    1,681 
Other   178    70    348    114 
Total interest and dividend income   4,786    4,617    9,653    9,101 
                     
Interest expense:                    
Deposits and escrow   783    577    1,587    1,134 
Borrowed funds   270    304    566    608 
Total interest expense   1,053    881    2,153    1,742 
Net interest and dividend income   3,733    3,736    7,500    7,359 
                     
Provision (credit) for loan losses   -    -    150    (600)
Net interest and dividend income after provision (credit) for loan losses   3,733    3,736    7,350    7,959 
                     
Non-interest income:                    
Total other-than-temporary impairment losses on debt securities   (17)   (135)   (216)   (135)
Portion of (gains) losses recognized in other comprehensive income   (17)   131    135    131 
Net impairment losses recognized in earnings   (34)   (4)   (81)   (4)
Fees for services   469    488    959    958 
Mortgage banking activities   20    7    30    12 
Net commissions from brokerage services   36    21    85    45 
Income from bank-owned life insurance   88    90    176    179 
Gain on sales of other real estate owned, net   69    86    166    107 
Other income   21    47    68    107 
Total non-interest income   669    735    1,403    1,404 
                     
Non-interest expense:                    
Compensation and benefits   1,760    1,946    3,823    3,874 
Occupancy and equipment   292    290    603    600 
Data processing   298    293    598    590 
LAN/WAN network   23    22    45    46 
Advertising and marketing   36    46    77    80 
Merger related expenses   491    -    491    - 
Other real estate owned   70    21    100    85 
Write-down of other real estate owned   -    -    -    91 
Other   345    555    790    1,012 
Total non-interest expense   3,315    3,173    6,527    6,378 
Income before income tax expense   1,087    1,298    2,226    2,985 
                     
Income tax expense   174    208    357    504 
NET INCOME  $913   $1,090   $1,869   $2,481 
                     
Earnings per common share:                    
Basic  $0.13   $0.15   $0.26   $0.34 
Diluted  $0.13   $0.15   $0.26   $0.34 

 

See accompanying notes to consolidated financial statements.

 

2

 

 

PB Bancorp, Inc.

 

Consolidated Statements of Comprehensive Income

(Unaudited)

 

   Three months ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
   (in thousands) 
Net income  $913   $1,090   $1,869   $2,481 
Other comprehensive income (loss):                    
Net unrealized holding gains (losses) on available-for-sale securities   14    (292)    265    (428) 
Reclassification adjustment for losses onavailable-for-sale securities realized in income on  (1)   34    4    81    4 
Non-credit portion of other-than-temporary gains (losses) on available-for-sale securities   17    (131)   (135)   (131)
                     
Other comprehensive income (loss) before tax   65    (419)   211    (555)
Income tax (loss) benefit related to other comprehensive income (loss)   (13)   85    (45)   114 
Other comprehensive income (loss) net of tax   52    (334)   166    (441)
Total comprehensive income  $965   $756   $2,035   $2,040 

 

(1)   Reported in net impairment losses recognized in earnings, included in non-interest income on the consolidated statements of net income. There were no income tax benefits associated with the reclassification adjustments.

 

See accompanying notes to consolidated financial statements.

 

3

 

 

PB Bancorp, Inc.

 

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

   Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Loss
   Unearned
ESOP
Shares
   Unearned
Stock
Awards
   Total
Stockholders'
Equity
 
   (dollars in thousands, except per share data) 
Balances at June 30, 2018  $76   $60,329   $28,822   $(522)  $(3,293)  $(1,123)  $84,289 
                                    
                                    
Comprehensive income   -    -    1,391    (107)   -    -    1,284 
Cash dividends declared and paid ($0.06 per share)   -    -    (458)   -    -    -    (458)
ESOP shares committed to be released (4,504 shares)   -    16    -    -    37    -    53 
Common stock repurchased (1,000 shares)   -    (11)   -    -    -    -    (11)
Share-based compensation expense   -    43    -    -    -    75    118 
                                    
Balances at September 30, 2018  $76   $60,377   $29,755   $(629)  $(3,256)  $(1,048)  $85,275 
                                    
                                    
Comprehensive income   -    -    1,090    (334)   -    -    756 
Cash dividends declared and paid ($0.13 per share)   -    -    (991)   -    -    -    (991)
ESOP shares committed to be released (4,505 shares)   -    14    -    -    37    -    51 
Common stock repurchased (174,983 shares)   (2)   (1,914)   -    -    -    -    (1,916)
Share-based compensation expense   -    36    -    -    -    75    111 
                                    
Balances at December 31, 2018  $74   $58,513   $29,854   $(963)  $(3,219)  $(973)  $83,286 

 

   Common
Stock
   Additional
Paid-in
Capital
   Retained
Earnings
   Accumulated
Other
Comprehensive
Loss
   Unearned
ESOP
Shares
   Unearned
Stock
Awards
   Total
Stockholders'
Equity
 
   (dollars in thousands, except per share data) 
Balances at June 30, 2019  $74   $58,598   $30,638   $(269)  $(3,146)  $(823)  $85,072 
                                    
Comprehensive income   -    -    956    114    -    -    1,070 
Cash dividends declared and paid ($0.07 per share)   -    -    (521)   -    -    -    (521)
ESOP shares committed to be released (4,505 shares)   -    15    -    -    37    -    52 
Share-based compensation expense   -    36    -    -    -    75    111 
                                    
Balances at September 30, 2019  $74   $58,649   $31,073   $(155)  $(3,109)  $(748)  $85,784 
                                    
Comprehensive income   -    -    913    52    -    -    965 
Cash dividends declared and paid ($0.07 per share)   -    -    (521)   -    -    -    (521)
ESOP shares committed to be released (4,505 shares)   -    28    -    -    36    -    64 
Share-based compensation expense   -    36    -    -    -    75    111 
Balances at December 31, 2019  $74   $58,713   $31,465   $(103)  $(3,073)  $(673)  $86,403 

 

See accompanying notes to consolidated financial statements.

 

4

 

 

PB Bancorp, Inc.

 

Consolidated Statements of Cash Flows

(Unaudited)

 

   For the six months 
   ended December 31, 
   2019   2018 
   (in thousands) 
Cash flows from operating activities          
Net income  $1,869   $2,481 
Adjustments to reconcile net income to net cash provided by operating activities:          
Amortization of securities premiums, net   184    234 
Impairment losses on securities   81    4 
Net increase in loans held for sale   (97)   - 
Amortization of deferred loan costs, net   138    135 
Provision (credit) for loan losses   150    (600)
Gain on sale of other real estate owned, net   (166)   (107)
Write-down of other real estate owned   -    91 
Loss on sale of premises and equipment   -    1 
Depreciation and amortization - premises and equipment   159    166 
Amortization - software   3    4 
Net decrease (increase) in accrued interest receivable and other assets   166    (842)
Income from bank-owned life insurance   (176)   (179)
(Decrease) increase in other liabilities   (51)   94 
Share-based compensation expense   222    229 
Deferred tax expense   (396)   1,324 
ESOP expense   116    104 
Net cash provided by operating activities   2,202    3,139 
           
Cash flows from investing activities          
Proceeds from calls, pay downs and maturities of available-for-sale securities   3,749    4,609 
Proceeds from calls, pay downs and maturities of held-to-maturity securities   10,125    10,761 
Redemption of Federal Home Loan stock   420    - 
Net loan principal repayments   8,780    (16,787)
Loan purchases   (1,955)   - 
Recoveries of loans previously charged off   14    582 
Proceeds from sale of other real estate owned   685    422 
Capital expenditures - premises and equipment   (151)   (28)
Net cash provided by (used in) investing activities   21,667    (441)
           
Cash flows from financing activities          
Net decrease in deposit accounts   (1,379)   (5,650)
Net decrease in mortgagors' escrow accounts   (276)   (61)
Repayment of long-term Federal Home Loan Bank advances   (9,527)   (1,027)
Net increase in securities sold under agreements to repurchase   1,333    2,646 
Cash dividends paid on common stock   (1,042)   (1,449)
Common stock repurchased   -    (1,927)
Net cash used in financing activities   (10,891)   (7,468)
           
Net increase (decrease) in cash and cash equivalents   12,978    (4,770)
Cash and cash equivalents at beginning of year   25,672    10,102 
Cash and cash equivalents at end of period  $38,650   $5,332 
Supplemental disclosures          
Cash paid during the period for:          
Interest  $2,049   $1,700 
Income taxes paid   351    1 
Loans transferred to other real estate owned   257    322 

 

See accompanying notes to consolidated financial statements.

 

5

 

 

PB Bancorp, Inc.

 

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – Organization

 

PB Bancorp, Inc. (the “Company”) is a Maryland corporation incorporated in 2015 to be the successor to PSB Holdings, Inc. upon completion of the second-step mutual-to-stock conversion (the “Conversion”) of Putnam Bancorp, MHC (the “MHC”), the top tier mutual holding company of PSB Holdings, Inc.   PSB Holdings, Inc. was the former mid-tier holding company for Putnam Bank (the “Bank”).  Prior to completion of the Conversion, a majority of the shares of common stock of PSB Holdings, Inc. were owned by the MHC.  In conjunction with the Conversion, the MHC and PSB Holdings, Inc. merged into the Company and the Company became PSB Holdings, Inc.’s successor.  The Conversion was completed on January 7, 2016.  The Company raised gross proceeds of $33.7 million in the related stock offering.  Concurrent with the completion of the stock offering, each share of PSB Holdings, Inc. stock owned by public stockholders (stockholders other than the MHC) was exchanged for 1.1907 shares of Company common stock.  The Conversion was accounted for as a capital raising transaction by entities under common control.  The historical financial results of the MHC were immaterial to the results of the Company and therefore the net assets of the MHC were reflected as an increase to stockholders’ equity.  

 

Acquisition

 

On October 22, 2019, the Company, Putnam Bank and Centreville Bank announced they had entered into a definitive agreement under which Centreville Bank will acquire the Company and Putnam Bank in an all cash transaction valued at approximately $115.5 million.  The Company’s stockholders will receive $15.25 for each share of Company common stock that they own.  The transaction is expected to close in the first or second quarter of calendar 2020 and is subject to customary closing conditions, including the approval of the Company’s stockholders and required regulatory approvals.  However, it is possible that factors outside the control of both companies, including whether or when the required regulatory approvals will be received, could result in the merger being completed at a different time or not at all.  In connection with the acquisition, the Company had incurred $491,000 of merger expenses for the six months ended December 31, 2019, primarily legal and investment banker costs, which are included in the consolidated Statement of Net Income.

 

NOTE 2 – Basis of Presentation

 

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and the instructions to Form 10-Q, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments necessary, consisting of only normal recurring accruals and the elimination of all significant intercompany accounts, to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the operating results to be expected for future periods, including the fiscal year ending June 30, 2020. These financial statements should be read in conjunction with the 2019 consolidated financial statements and notes thereto included in PB Bancorp, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (’’SEC’’) on September 26, 2019, as amended on October 5, 2019.

 

6

 

 

NOTE 3 – Recent Accounting Pronouncements

 

Effective July 1, 2019 the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which supersedes the requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Based on the current level of long-term leases in place, adoption of this guideline was not material to the Company’s results of operations or financial position.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for certain financial assets (such as loans and held-to-maturity securities) held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.  Entities will now use forward-looking information to better form their credit loss estimates.  The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The amendments in this Update, and related guidance, are effective for companies that qualify as “smaller reporting companies” under SEC regulations, like the Company, fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Management is currently working to implement these requirements to determine the potential impact on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  The amendments in this update simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  Instead, an entity will be required to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized will not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity will consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  For public business entities, the amendments are effective for annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  Early adoption is permitted.  We do not expect the application of this guidance to have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which amends the disclosure requirements by adding, changing, or removing certain disclosures about recurring or non-recurring fair value measurements. This ASU will be effective for public business entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this update will not have a significant impact on the consolidated financial statements.

 

Note 4 - Critical Accounting Policies

 

Critical accounting policies are those that involve significant judgments and assumptions by management that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to the allowance for loan losses, realizability of deferred income taxes, valuation of goodwill and the impairment of securities.

 

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.

 

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

 

 

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General component

 

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, commercial real estate, residential construction, commercial and consumer/other. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in terms and amount of loans; concentrations; changes in lending policies and procedures; experience/ability/depth of lending management and staff; loan rating migration; the effect of other external factors; changes in the value of underlying collateral; changes in the loan review system; and national and local economic trends and conditions. The Company calculates historical losses using a five-year rolling average, which is considered indicative of the risk in the Company’s current loan portfolio. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses through December 31, 2019.

 

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

 

Residential real estate - The Company does not originate loans with a loan-to-value ratio greater than 100% and does not originate subprime loans. Loans originated with a loan-to-value ratio greater than 80% generally require private mortgage insurance. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

 

Commercial real estate - Loans in this segment are primarily income-producing properties throughout New England. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, would have an effect on the credit quality in this segment. Management obtains rent rolls annually and continually monitors the cash flows of these loans.

 

Residential construction - Loans in this segment include speculative real estate development loans for which payment is derived from sale of the property. Credit risk is affected by the accuracy of estimated costs to complete the project, cost overruns, time to sell at an adequate price, and market conditions.

 

Commercial - Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

 

Consumer/other - Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

 

Specific component

 

The specific component relates to loans that are classified as impaired. 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 or the fair value of the collateral if the loan is collateral dependent or foreclosure is probable. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer/other and residential real estate loans for impairment disclosures, unless such loans are non-accrual or subject to a troubled debt restructuring (“TDR”) agreement.

 

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

 

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a TDR. All TDRs are classified as impaired.

 

Unallocated component

 

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general reserves in the portfolio.

 

Goodwill. Goodwill is measured as the excess of the cost of a business acquisition over the sum of the amounts assigned to identifiable tangible and intangible assets acquired less liabilities assumed. Goodwill is not amortized but is subject to a review of qualitative factors annually or more frequently if circumstances warrant, to determine if an impairment test is required. If required, the Company uses the following two-step approach for reviewing goodwill for impairment:

 

The first step (“Step 1”) is used to identify potential impairment, and involves comparing the reporting unit’s (the consolidated Company) estimated fair value to its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill is not deemed to be impaired. Should the carrying amount of the reporting unit exceed its estimated fair value, an indicator of impairment is deemed to exist and a second step is performed to measure the amount of such impairment, if any. The second step (“Step 2”) involves calculating the implied fair value of goodwill. The implied fair value of goodwill is determined in a manner similar to how the amount of goodwill is determined in a business combination (i.e. by measuring the excess of the estimated fair value, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles as of the impairment testing date). If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting unit, no impairment exists. If the carrying amount of goodwill exceeds the implied fair value of the goodwill, an impairment loss is recorded in an amount equal to such excess. An impairment loss cannot exceed the carrying amount of goodwill, and the loss (write-down) establishes a new carrying amount for the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which are dependent on internal forecasts, estimation of the long-term rate of growth, the period over which cash flows will occur, and determination of our cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions related to goodwill impairment.

 

Other-Than-Temporary Impairment of Securities. Each reporting period, the Company evaluates all securities classified as available-for-sale or held-to-maturity with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary (“OTTI”).

 

OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income, net of applicable taxes.

 

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Income Taxes. The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company’s assets and liabilities at enacted rates expected to be in effect when the amounts related to such temporary differences are realized or settled. A valuation allowance is established against deferred tax assets when, based upon the available evidence including historical and projected taxable income, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

Management has discussed the development and selection of these critical accounting policies with the Audit Committee.

 

NOTE 5 – Earnings Per Share (EPS)

 

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The rights to dividends on unvested options/awards are non-forfeitable, therefore the unvested awards/options are considered outstanding in the computation of basic earnings per share. Diluted earnings per share reflect 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. For purposes of computing diluted EPS, the treasury stock method is used.

 

The following information was used in the computation of EPS on both a basic and diluted basis for the three and six months ended December 31, 2019:

 

   Three months ended December 31,   Six months ended December 31, 
   2019   2018   2019   2018 
Net income  $913,000   $1,090,000   $1,869,000   $2,481,000 
                     
Weighted average common shares applicable to basic EPS   7,064,390    7,198,456    7,062,138    7,208,317 
Effect of dilutive potential common shares   86,750    -    49,407    4,306 
Weighted average common shares applicable to diluted EPS   7,151,140    7,198,456    7,111,545    7,212,623 
Earnings per share:                    
   Basic  $0.13   $0.15   $0.26   $0.34 
   Diluted  $0.13   $0.15   $0.26   $0.34 

 

For the three months ended December 31, 2018, there were no antidilutive options not being included in the computation of diluted earnings per share.

 

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NOTE 6 – Investment Securities

 

The carrying value, estimated fair values, and gross unrealized gains and losses of investment securities by maturity and type are as follows:

 

   Amortized   Gross Unrealized   Fair 
   Cost Basis   Gains   (Losses)   Value 
   (in thousands) 
December 31, 2019:                
Available-for-sale:                    
Debt securities:                    
U.S. government and government-sponsored securities:                    
Due after ten years  $1,992   $-   $(67)  $1,925 
                     
Corporate bonds:                    
Due from five through ten years   3,666    -    (222)   3,444 
                     
U.S. Government-sponsored and guaranteed mortgage-backed securities:                    
Due from one through five years   4,178    13    (6)   4,185 
From five through ten years   1,022    1    -    1,023 
After ten years   12,259    103    (58)   12,304 
    17,459    117    (64)   17,512 
                     
Non-agency mortgage-backed securities:                    
Due after ten years   2,236    399    (293)   2,342 
                     
Other debt securities:                    
Auction rate preferred:                    
Due from five through ten years   8,000    -    -    8,000 
After ten years   2,000    -    -    2,000 
    10,000    -    -    10,000 
                     
Total available-for-sale securities  $35,353   $516   $(646)  $35,223 
                     
Held-to-maturity:                    
U.S. government and government-sponsored securities:                    
Due in one year or less  $2,994   $14   $-   $3,008 
After ten years   4,150    -    (17)   4,133 
    7,144    14    (17)   7,141 
                     
State agency and municipal obligations                    
Due from one through five years   438    2    -    440 
                     
U.S. Government-sponsored and guaranteed mortgage-backed securities:                    
Due in one year or less   37    1    -    38 
From one through five years   222    5    -    227 
From five through ten years   9,077    72    (17)   9,132 
After ten years   36,330    439    (119)   36,650 
    45,666    517    (136)   46,047 
Total held-to-maturity securities  $53,248   $533   $(153)  $53,628 

 

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   Amortized   Gross Unrealized   Fair 
   Cost Basis   Gains   (Losses)   Value 
   (in thousands) 
June 30, 2019:                
Available-for-sale:                    
Debt securities:                    
U.S. government and government-sponsored securities:                    
Due after ten years  $2,310   $-   $(68)  $2,242 
                     
                     
Corporate bonds:                    
Due from five through ten years   3,999    -    (323)   3,676 
                     
                    
U.S. Government-sponsored and guaranteed mortgage-backed securities:                    
Due from one through five years   5,066    13    (5)   5,074 
From five through ten years   1,147    -    (5)   1,142 
After ten years   14,235    118    (117)   14,236 
    20,448    131    (127)   20,452 
                     
Non-agency mortgage-backed securities:                    
Due after ten years   2,503    410    (340)   2,573 
                     
Other debt securities:                    
Auction rate preferred:                    
Due from five through ten years   8,000    -    (24)   7,976 
After ten years   2,000    -    -    2,000 
                     
    10,000    -    (24)   9,976 
Total available-for-sale securities  $39,260   $541   $(882)  $38,919 
                     
Held-to-maturity:                    
U.S. government and government-sponsored securities:                    
Due in one year or less  $4,000   $-   $(4)  $3,996 
From one through five years   989    22    -    1,011 
After ten years   4,379    -    (2)   4,377 
    9,368    22    (6)   9,384 
                     
  State agency and municipal obligations                    
Due from one through five years   440    -    (2)   438 
                     
U.S. Government-sponsored and guaranteed mortgage-backed securities:                    
Due from one through five years   411    9    -    420 
From five through ten years   9,636    24    (37)   9,623 
After ten years   43,625    543    (175)   43,993 
    53,672    576    (212)   54,036 
                     
Total held-to-maturity securities  $63,480   $598   $(220)  $63,858 

 

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There were no sales of available-for-sale securities for the three and six months ended December 31, 2019 or 2018. Gains and losses on the sales of securities are recorded on the trade date and are determined using the specific identification method. There were other-than-temporary impairment OTTI charges on available-for-sale securities realized in income during the three months ended December 31, 2019 of $34,000 and $4,000 during the three months ended December 31, 2018. The OTTI charges for the three months ended December 31, 2019 included total other-than-temporary impairment losses on non-agency mortgage-backed securities of $17,000, net of a $17,000 gain recognized in other comprehensive loss, before taxes. The OTTI charges for the three months ended December 31, 2018 included total other-than-temporary impairment losses on non-agency mortgage-backed securities of $135,000, net of $131,000 recognized in other comprehensive loss, before taxes. There were other-than-temporary impairment charges on available-for-sale securities realized in income during the six months ended December 31, 2019 of $81,000 and $4,000 during the six months ended December 31, 2018. The OTTI charges for the six months ended December 31, 2019 included total other-than-temporary impairment losses on non-agency mortgage-backed securities of $216,000, net of $135,000 recognized in other comprehensive loss, before taxes. The OTTI charges for the six months ended December 31, 2018 included total other-than-temporary impairment losses on non-agency mortgage-backed securities of $135,000, net of $131,000 recognized in other comprehensive loss, before taxes.

 

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The following is a summary of the estimated fair value and related unrealized losses segregated by category and length of time that individual securities have been in a continuous unrealized loss position at:

 

   Less than 12 months   12 months or more   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
   (in thousands) 
December 31, 2019:                              
Available-for-sale:                              
U.S. Government and government-sponsored securities  $-   $-   $1,925   $67   $1,925   $67 
Corporate bonds   -    -    3,444    222    3,444    222 
U.S. Government-sponsored and guaranteed mortgage-backed securities   4,722    17    5,617    47    10,339    64 
       Total temporarily impaired available-for-sale   4,722    17    10,986    336    15,708    353 
                               
Held-to-maturity:                              
U.S. Government and government-sponsored securities   4,133    17    -    -    4,133    17 
U.S. Government-sponsored and guaranteed mortgage-backed securities   3,936    24    13,483    112    17,419    136 
        Total temporarily impaired held-to-maturity   8,069    41    13,483    112    21,552    153 
                               
Other-than-temporarily impaired debt securities (1):                              
Non-agency mortgage-backed securities   -    -    840    293    840    293 
                               
Total temporarily-impaired and other-than-temporarily impaired securities  $12,791   $58   $25,309   $741   $38,100   $799 

 

   Less than 12 months   12 months or more   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
   (in thousands) 
June 30, 2019:                              
Available-for-sale:                              
U.S. Government and government-sponsored securities  $-   $-   $2,242   $68   $2,242   $68 
Corporate bonds   -    -    3,676    323    3,676    323 
                               
U.S. Government-sponsored and guaranteed mortgage-backed securities   1,425    7    13,576    120    15,001    127 
Other securities   2,976    24    -    -    2,976    24 
      Total temporarily impaired available-for-sale   4,401    31    19,494    511    23,895    542 
                               
Held-to-maturity:                              
U.S. Government and government-sponsored securities   -    -    8,373    6    8,373    6 
State and political subdivisions   -    -    438    2    438    2 
                               
U.S. Government-sponsored and guaranteed mortgage-backed securities   -    -    29,400    212    29,400    212 
      Total temporarily impaired held-to-maturity   -    -    38,211    220    38,211    220 
                               
Other-than-temporarily impaired debt securities (1):                              
Non-agency mortgage-backed securities   268    11    947    329    1,215    340 
                               
Total temporarily-impaired and other-than-temporarily impaired securities  $4,669   $42   $58,652   $1,060   $63,321   $1,102 

 

(1)Includes other-than-temporary impaired available-for-sale debt securities in which a portion of the other-than-temporary impairment loss remains in accumulated other comprehensive loss.

 

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Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

 

At December 31, 2019, there were 46 individual investment securities with aggregate depreciation of 2.1% from the Company’s amortized cost basis. Management has the intent and ability to hold these securities until cost recovery occurs and considers these declines to be temporary.

 

The unrealized losses on the Company’s investment in U.S. Government-sponsored agency bonds and U.S. government-guaranteed and government-sponsored residential mortgage-backed securities were primarily caused by interest rate fluctuations. These investments are guaranteed or sponsored by the U.S. government or an agency thereof. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in market value is attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2019.

 

The Company’s unrealized losses on investments in corporate bonds and other securities relate to investments in companies within the financial services sector. As of December 31, 2019, the Company had three investments in corporate single-issuer trust preferred securities (TRUPs) with a total book value of $3.7 million and total fair value of $3.4 million, all of which were classified as available-for-sale. The single-issuer trust preferred investments are evaluated for other-than-temporary impairment by performing a present value of cash flows calculation each quarter. None of the issuers have deferred interest payments or announced the intention to defer interest payments. The Company believes the decline in fair value is related to the spread over three-month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR being received is significantly lower than current market spreads. Management concluded the impairment of these investments was considered temporary and asserts that the Company does not have the intent to sell these investments and that it is more likely than not it will not have to sell the investments before recovery of their cost bases which may be at maturity.

 

At December 31, 2019, there was one state and political subdivision security that had an unrealized loss of 0.5% from the Company’s amortized cost basis. We believe the unrealized loss was primarily caused by interest rate fluctuations. This security is guaranteed by a school district located in Texas. Because the decline in market value is attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider this investment to be other-than-temporarily impaired at December 31, 2019.

 

For the three months ended December 31, 2019, there was $34,000 in other-than-temporary impairment losses recognized in earnings and $4,000 for the three months ended December 31, 2018. For the six months ended December 31, 2019, there was $81,000 in other-than-temporary impairment losses recognized in earnings and $4,000 for the six months ended December 31, 2018. The other-than-temporary impairment losses were on non-agency mortgage-backed securities. The Company estimates the portion of possible loss attributable to credit loss using a discounted cash flow model. Significant inputs include the estimated cash flows of the underlying loans based on key assumptions, such as default rate, loss severity and prepayment rate. Assumptions can vary widely from security to security, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type. The present value of the expected cash flows is compared to the Company’s amortized cost basis to determine if there was a credit-related impairment loss. Based on the expected cash flows derived from the model, the Company expects to recover the remaining unrealized losses on these securities.

 

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The following table represents a roll-forward of the amount of credit losses on debt securities for which a portion of other-than-temporary impairment was recognized in other comprehensive loss:

 

   Six months ended 
   December 31, 
   2019   2018 
   (in thousands) 
Balance at beginning of period  $16,016   $15,983 
Additional credit losses on securities for which an other-than-temporary impairment charge was previously recorded   81    4 
Balance at end of period  $16,097   $15,987 

 

NOTE 7 – Loans

 

The following table sets forth the composition of our loan portfolio at December 31, 2019 and June 30, 2019:

 

   December 31,   June 30, 
   2019   2019 
   (in thousands) 
Real Estate:          
   Residential (1)  $211,893   $221,488 
   Commercial   147,464    145,694 
   Residential construction   2,019    1,476 
Commercial   10,599    10,298 
Consumer and other   814    968 
           
Total loans   372,789    379,924 
           
Net deferred loan costs   1,044    1,156 
Allowance for loan losses   (3,200)   (3,063)
           
Loans, net  $370,633   $378,017 

 

(1) Residential real estate loans include one-to four-family mortgage loans, second mortgage loans, and home equity lines of credit.

 

Credit Quality Information

 

The Company utilizes a nine grade internal loan rating system as follows:

 

Loans rated 1 - 5 are considered “pass” rated loans with low to average risk.

 

Loans rated 6 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

 

Loans rated 7 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

 

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Loans rated 8 are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

 

Loans rated 9 are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

 

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. Annually, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. Credit quality for residential real estate and consumer/other loans is determined by monitoring loan payment history and ongoing communications with the borrower.

 

The following table presents the Company’s loan classes by internally assigned grades at December 31, 2019 and June 30, 2019:

 

   Residential   Commercial   Residential       Consumer     
   Real Estate   Real Estate   Construction   Commercial   and other   Total 
   (in thousands) 
December 31, 2019                        
Grade:                        
     Pass  $207,201   $144,688   $2,019   $9,706   $814   $364,428 
     Special Mention   1,366    1,546    -    -    -    2,912 
     Substandard   3,326    1,230    -    893    -    5,449 
     Doubtful   -    -    -    -    -    - 
     Loss   -    -    -    -    -    - 
          Total  $211,893   $147,464   $2,019   $10,599   $814   $372,789 
                         
June 30, 2019                        
Grade:                        
     Pass  $217,800   $142,829   $1,476   $9,355   $968   $372,428 
     Special Mention   -    1,557    -    -    -    1,557 
     Substandard   3,688    1,308    -    943    -    5,939 
     Doubtful   -    -    -    -    -    - 
     Loss   -    -    -    -    -    - 
          Total  $221,488   $145,694   $1,476   $10,298   $968   $379,924 

 

Modifications deemed to be troubled debt restructurings were not material for the three and six months ended December 31, 2019 and 2018.

 

There were no troubled debt restructurings that subsequently defaulted (defined as 30 or more days past due subsequent to restructuring) within one year of modification during the three and six months ended December 31, 2019 and 2018.

 

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NOTE 8 – Non-performing Assets, Past Due and Impaired Loans

 

The table below sets forth the amounts and categories of non-performing assets at the dates indicated:

 

   At  December 31,   At June 30, 
   2019   2019 
   (Dollars in thousands) 
Non-accrual loans:          
Real Estate:          
   Residential  $3,326   $3,530 
   Commercial   513    260 
Total non-accrual loans   3,839    3,790 
           
Accruing loans past due 90 days or more:          
Real Estate:          
   Residential   -    159 
   Commercial   -    279 
Total accruing loans past due 90 days or more   -    438 
Total non-performing loans   3,839    4,228 
           
Other real estate owned   1,009    1,271 
Total non-performing assets  $4,848   $5,499 
           
Total non-performing loans to total loans   1.03%   1.11%
Total non-performing assets to total assets   0.92%   1.02%

 

Management is focused on working with borrowers and guarantors to resolve non-accrual loans by restructuring or liquidating assets when prudent. Many of our commercial relationships are secured by development loans, in particular condominiums which have experienced a significant reduction in demand. The Company reviews the strength of the guarantors; requires face to face discussions and offers restructuring suggestions that provide the borrowers with short term relief and exit strategies. The Company obtains a current appraisal on all real estate secured loans that are 180 days or more past due if the appraisal on file is older than one year. If the determination is made that there is the potential for collateral shortfall, an allocated reserve will be assigned to the loan for the expected deficiency. It is the policy of the Company to charge off or write down loans or other assets when, in the opinion of the Credit Committee and Loan Review, the ultimate amount recoverable is less than the carrying value, or the collection of the amount is expected to be unduly prolonged. The level of non-performing assets is expected to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with management’s degree of success in resolving problem assets.

 

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The following table sets forth information regarding past due loans at December 31, 2019 and June 30, 2019:

 

           90 days     
   30–59 Days   60–89 Days   or Greater   Total 
At December 31, 2019  Past Due   Past Due   Past Due   Past Due 
   (in thousands) 
Real Estate:                    
Residential  $1,659   $588   $695   $2,942 
Commercial   658    -    278    936 
Consumer and other   4    -    -    4 
Total  $2,321   $588   $973   $3,882 
                     
At June 30, 2019                    
                     
Real Estate:                    
Residential  $39   $397   $668   $1,104 
Commercial   -    -   $279    279 
Consumer and other   3    -    -    3 
     Total  $42   $397   $947   $1,386 

 

The following is a summary of information pertaining to impaired loans at December 31, 2019 and June 30, 2019, none of which had a valuation allowance:

 

   At December 31, 2019   At June 30, 2019 
       Unpaid       Unpaid 
   Recorded   Principal   Recorded   Principal 
   Investment   Balance   Investment   Balance 
   (in thousands) 
Real Estate:                    
     Residential  $1,794   $1,940   $2,150   $2,296 
     Commercial   514    514    260    260 
        Total impaired loans  $2,308   $2,454   $2,410   $2,556 

 

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The following is a summary of additional information pertaining to impaired loans:

 

   Three months ended   Three months ended 
   December 31, 2019   December 31, 2018 
   Average   Interest   Interest Income   Average   Interest   Interest Income 
   Recorded   Income   Recognized   Recorded   Income   Recognized 
   Investment   Recognized   on Cash Basis   Investment   Recognized   on Cash Basis 
   (in thousands) 
Real Estate:                              
     Residential  $1,812   $7   $4   $2,177   $22   $19 
     Commercial   381    -    -    411    -    - 
          Total impaired loans  $2,193   $7   $4   $2,588   $22   $19 

 

   Six months ended   Six months ended 
   December 31, 2019   December 31, 2018 
   Average   Interest   Interest Income   Average   Interest   Interest Income 
   Recorded   Income   Recognized   Recorded   Income   Recognized 
   Investment   Recognized   on Cash Basis   Investment   Recognized   on Cash Basis 
   (in thousands) 
Real Estate:                              
     Residential  $1,925   $27   $22   $2,362   $39   $33 
     Commercial   340    1    1    684    7    - 
          Total impaired loans  $2,265   $28   $23   $3,046   $46   $33 

 

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NOTE 9 – Allowance for Loan Losses

 

An analysis of the allow ance for loan losses for the three and six months ended December 31, 2019 and 2018 is as follows: 

 

  Residential   Commercial   Residential       Consumer         
   Real Estate   Real Estate   Construction   Commercial   and Other   Unallocated   Total 
   (in thousands) 
Three months ended December 31, 2019                                  
                                    
Beginning balance  $1,551   $1,443   $14   $91   $22   $91   $3,212 
     Charge-offs   -    -    -    -    (18)   -    (18)
     Recoveries   2    -    -    1    3    -    6 
     Provision   69    (102)   -    (6)   17    22    - 
Ending Balance  $1,622   $1,341   $14   $86   $24   $113   $3,200 
                                    
Three months ended December 31, 2018                                   
                                    
Beginning balance  $1,488   $1,094   $7   $77   $131   $109   $2,906 
     Charge-offs   (42)   -    -    -    (12)   -    (54)
     Recoveries   3    -    -    4    5    -    12 
     (Credit) provision   16    102    (2)   29    (92)   (53)   - 
Ending Balance  $1,465