Company Quick10K Filing
Quick10K
Prudential Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$17.15 9 $153
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-07-19 Earnings
8-K 2019-06-19 Officers
8-K 2019-05-15 Regulation FD
8-K 2019-04-19 Earnings
8-K 2019-02-20 Regulation FD, Exhibits
8-K 2019-02-20 Regulation FD
8-K 2019-02-20 Shareholder Vote
8-K 2019-01-25 Regulation FD
8-K 2019-01-18 Earnings
8-K 2018-11-30 Earnings
8-K 2018-11-19 Regulation FD
8-K 2018-08-15 Officers, Regulation FD, Exhibits
8-K 2018-07-20 Earnings
8-K 2018-05-16 Regulation FD
8-K 2018-04-26 Earnings
8-K 2018-03-26 Officers, Exhibits
8-K 2018-02-21 Regulation FD
8-K 2018-01-23 Earnings
LEA Lear 8,640
TKR Timken 3,800
SLRC Solar Capital 902
GFF Griffon 745
KURA Kura Oncology 652
NCNA Nucana 456
NICK Nicholas Financial 71
CZFS Citizens Financial Services 0
SPB Spectrum Brands Holdings 0
TWX Time Warner 0
PBIP 2019-06-30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tv526759_ex31-1.htm
EX-31.2 tv526759_ex31-2.htm
EX-32.0 tv526759_ex32-0.htm

Prudential Bancorp Earnings 2019-06-30

PBIP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526759_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, DC  20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY 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 number: 000-55084

 

Prudential Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania   46-2935427
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)

1834 West Oregon Avenue

Philadelphia, Pennsylvania

 

19145

Zip Code

(Address of Principal Executive Offices)    

 

(215) 755-1500

(Registrant’s Telephone Number, Including Area Code)

 

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   PBIP   Nasdaq Stock Market

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) 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 definition 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 x
Non-accelerated filer ¨ 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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practical date: as of July 31, 2019, 10,819,006 shares were issued and 8,888,847 were outstanding.

 

 

 

 

 

 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

  Page
PART I FINANCIAL INFORMATION:  
     
Item 1. Consolidated Financial Statements 2
     
  Unaudited Consolidated Statements of Financial Condition June 30, 2019 and September 30, 2018 2
     
  Unaudited Consolidated Statements of Operations for the Three and Nine months Ended June 30, 2019 and 2018 3
     
  Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine months Ended June 30, 2019 and 2018 4
     
  Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine months Ended June 30, 2019 and 2018 5
     
  Unaudited Consolidated Statements of Cash Flows for the Nine months Ended June 30, 2019 and 2018 7
     
  Notes to Unaudited Consolidated Financial Statements 9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 43
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 56
     
Item 4. Controls and Procedures 56
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 57
     
Item 1A. Risk Factors 58
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 58
     
Item 3. Defaults Upon Senior Securities 58
     
Item 4. Mine Safety Disclosures 58
     
Item 5. Other Information 58
     
Item 6. Exhibits 59
     
SIGNATURES 60

 

1

 

 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 

   June 30,   September 30, 
   2019   2018 
   (Dollars in Thousands, Except Per Share Data) 
ASSETS          
           
Cash and amounts due from depository institutions  $2,080   $2,457 
Interest-bearing deposits   35,997    45,714 
           
Total cash and cash equivalents   38,077    48,171 
           
Certificates of deposit   2,351    1,604 
Investment and mortgage-backed securities available for sale (amortized cost— June 30, 2019, $432,852; September 30, 2018, $316,719)   438,179    306,187 
Investment and mortgage-backed securities held to maturity (fair value— June 30, 2019, $57,371; September 30, 2018, $55,927)   57,085    59,852 
Equity securities (amortized cost June 30, 2019, $31)   69    - 
Loans receivable—net of allowance for loan losses (June 30, 2019, $5,330; September 30, 2018, $5,167)   586,507    602,932 
Accrued interest receivable   3,893    3,825 
Real estate owned   423    1,026 
Restricted bank stock—at cost   13,356    7,585 
Office properties and equipment—net   7,239    7,439 
Bank owned life insurance   31,669    28,691 
Deferred tax assets-net   3,165    4,655 
Goodwill   6,102    6,102 
Core deposit intangible   478    571 
Prepaid expenses and other assets   2,751    2,530 
TOTAL ASSETS  $1,191,344   $1,081,170 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
LIABILITIES:          
Deposits:          
Noninterest-bearing  $15,614   $13,677 
Interest-bearing   713,927    770,581 
Total deposits   729,541    784,258 
Advances from Federal Home Loan Bank (short-term)   36,500    10,000 
Advances from Federal Home Loan Bank (long-term)   264,766    144,683 
Accrued interest payable   3,404    3,232 
Advances from borrowers for taxes and insurance   3,533    2,083 
Interest rate swap contracts   8,806    - 
Accounts payable and accrued expenses   10,046    8,505 
           
Total liabilities   1,056,596    952,761 
           
STOCKHOLDERS' EQUITY:          
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued   -    - 
Common stock, $.01 par value, 40,000,000 shares authorized; 10,819,006 issued and 8,888,847 outstanding at June 30, 2019; 10,819,006 issued and 8,987,356 outstanding at September 30, 2018   108    108 
Additional paid-in capital   118,086    118,345 
Treasury stock, at cost: 1,930,159 shares at June 30, 2019 and 1,831,650 shares at September 30, 2018   (29,708)   (27,744)
Retained earnings   47,484    45,854 
Accumulated other comprehensive loss   (1,222)   (8,154)
           
Total stockholders' equity   134,748    128,409 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,191,344   $1,081,170 

 

See notes to unaudited consolidated financial statements.

 

2

 

 

PRUDENTIAL bancorp, inc. and subsidiarIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Three Months Ended
June 30,
   Nine Months Ended
June 30,
 
   2019   2018   2019   2018 
   (Dollars in Thousands, Except Per Share Data) 
INTEREST INCOME:                    
Interest on loans  $6,752   $6,485   $19,936   $18,853 
Interest on mortgage-backed securities   2,536    1,060    6,844    2,753 
Interest and dividends on investments   1,792    1,189    5,040    3,198 
Interest on interest-bearing assets   193    197    589    518 
                     
Total interest income   11,273    8,931    32,409    25,322 
                     
INTEREST EXPENSE:                    
Interest on deposits   3,356    1,932    9,936    4,915 
Interest on advances from Federal Home Loan Bank(short-term)   184    43    373    184 
Interest on advances from Federal Home Loan Bank(long-term)   1,518    734    3,546    1,637 
                     
Total interest expense   5,058    2,709    13,855    6,736 
                     
NET INTEREST INCOME   6,215    6,222    18,554    18,586 
                     
PROVISION FOR LOAN LOSSES   -    325    -    685 
                     
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   6,215    5,897    18,554    17,901 
                     
NON-INTEREST INCOME:                    
Fees and other service charges   157    177    491    505 
Gain on sale of loans, net   2    -    2    - 
Gain (loss) on the sale of investments and mortgage-backed securities   511    (376)   628    (376)
Swap income   125    925    125    1,087 
Holding gain (losses) on equity securities   (2)   -    32    - 
Income from bank owned life insurance   170    160    473    480 
Other   224    99    358    271 
                     
Total non-interest income   1,187    985    2,109    1,967 
                     
NON-INTEREST EXPENSE:                    
Salaries and employee benefits   2,175    2,042    6,558    6,053 
Data processing   201    180    585    545 
Professional services   385    431    1,160    1,625 
Office occupancy   226    266    739    845 
Depreciation   159    157    469    469 
Director compensation   65    56    195    176 
Deposit insurance premium   254    90    557    231 
Advertising   68    61    221    173 
Core deposit amortization   30    34    93    105 
Other   627    453    1,751    1,460 
Total non-interest expense   4,190    3,770    12,328    11,682 
                     
INCOME BEFORE INCOME TAXES   3,212    3,112    8,335    8,186 
                     
INCOME TAXES:                    
Current expense   513    1,096    1,748    2,366 
Deferred expense (benefit)   69    (420)   (357)   1,193 
                     
Total income tax expense   582    676    1,391    3,559 
                     
NET INCOME  $2,630   $2,436   $6,944   $4,627 
                     
BASIC EARNINGS PER SHARE  $0.30   $0.28   $0.79   $0.52 
                     
DILUTED EARNINGS PER SHARE  $0.29   $0.26   $0.78   $0.50 
                     
DIVIDENDS PER SHARE  $0.50   $0.05   $0.60   $0.30 

 

See notes to unaudited consolidated financial statements.

 

3

 

 

PRUDENTIAL bancorp, inc. and subsidiarIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

   Three months ended June 30,   Nine months ended June 30, 
   2019   2018   2019   2018 
   (Dollars in Thousands) 
Net income  $2,630   $2,436   $6,944   $4,627 
                     
Unrealized holding gains (losses) on available-for-sale securities   8,577    (1,996)   16,522    (6,699)
Tax effect   (1,801)   275    (3,469)   1,407 
Unrealized holding gains (losses) on interest rate swaps   (3,885)   (47)   (7,089)   187 
Tax effect   816    16    1,489    (39)
Reclassification adjustment for net gains recorded in net income   (511)   (498)   (628)   (498)
Tax effect   107    105    132    105 
                     
Total other comprehensive income (loss)   3,303    (2,145)   6,957    (5,537)
                     
Comprehensive income (loss)  $5,933   $291   $13,901   $(910)

 

See notes to unaudited consolidated financial statements.

 

4

 

 

PRUDENTIAL bancorp, inc. and subsidiarIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

                   Accumulated     
       Additional           Other   Total 
   Common   Paid-In   Treasury   Retained   Comprehensive   Stockholders' 
   Stock   Capital   Stock   Earnings   Income (Loss)   Equity 
   (Dollars in Thousands, Except Per Share Data) 
BALANCE, April 1, 2019  $108   $117,976   $(28,968)  $49,300   $(4,525)  $133,891 
                               
Net income                  2,630         2,630 
                               
Other comprehensive income                       3,303    3,303 
                               
Dividends paid ($0.50 per share)                  (4,446)        (4,446)
                               
Purchase of treasury stock (53,300 shares)             (912)             (912)
                               
Treasury stock used for employee benefit plans (10,747 shares)        (193)   172              (21)
                               
Stock option expense        146                   146 
                               
Restricted share award expense        157                   157 
                               
BALANCE, June 30, 2019  $108   $118,086   $(29,708)  $47,484   $(1,222)  $134,748 

 

                   Accumulated     
       Additional           Other   Total 
   Common   Paid-In   Treasury   Retained   Comprehensive   Stockholders' 
   Stock   Capital   Stock   Earnings   Loss   Equity 
   (Dollars in Thousands, Except Per Share Data) 
BALANCE, April 1, 2018  $108   $118,549   $(27,177)  $45,035   $(4,455)  $132,060 
                               
Net income                  2,436         2,436 
                               
Other comprehensive loss                       (2,145)   (2,145)
                               
Dividends paid ($0.05 per share)                  (448)        (448)
                               
Purchase of treasury stock (61,671 shares)             (1,118)             (1,118)
                               
Treasury stock used for employee benefit plans (72,362 shares)        (716)   1,140              424 
                               
Stock option expense        150                   150 
                               
Restricted share award expense        158                   158 
                               
BALANCE, June 30, 2018  $108   $118,141   $(27,155)  $47,023   $(6,600)  $131,517 

 

See notes to unaudited consolidated financial statements.

 

5

 

 

                   Accumulated     
       Additional           Other   Total 
   Common   Paid-In   Treasury   Retained   Comprehensive   Stockholders' 
   Stock   Capital   Stock   Earnings   Income (Loss)   Equity 
   (Dollars in Thousands, Except Per Share Data) 
BALANCE, October 1, 2018  $108   $118,345   $(27,744)  $45,854   $(8,154)  $128,409 
                               
Net income                  6,944         6,944 
                               
Other comprehensive income                       6,957    6,957 
                               
Dividends paid ($0.60 per share)                  (5,339)        (5,339)
                               
Purchase of treasury stock (159,665 shares)             (3,160)             (3,160)
                               
Treasury stock used for employee benefit plans (61,156 shares)        (1,146)   1,196              50 
                               
Stock option expense        423                   423 
                               
Restricted share award expense        464                   464 
                               
Reclassification for adoption of ASU 2016-01                  25    (25)   - 
                               
BALANCE, June 30, 2019  $108   $118,086   $(29,708)  $47,484   $(1,222)  $134,748 

 

                   Accumulated     
       Additional           Other   Total 
   Common   Paid-In   Treasury   Retained   Comprehensive   Stockholders' 
   Stock   Capital   Stock   Earnings   Income (Loss)   Equity 
   (Dollars in Thousands, Except Per Share Data) 
BALANCE, October 1, 2017  $108   $118,751   $(26,707)  $44,787   $(760)  $136,179 
                               
Net income                  4,627         4,627 
                               
Other comprehensive loss                       (5,537)   (5,537)
                               
Dividends paid ($0.30 per share)                  (2,694)        (2,694)
                               
Purchase of treasury stock (161,101 shares)             (2,922)             (2,922)
                               
Treasury stock used for employee benefit plans (161,812 shares)        (1,407)   2,474              1,067 
                               
Stock option expense        389                   389 
                               
Restricted share expense        408                   408 
                               
Reclassification due to change in federal income tax rate                  303    (303)   - 
                               
BALANCE, June 30, 2018  $108   $118,141   $(27,155)  $47,023   $(6,600)  $131,517 

 

See notes to unaudited consolidated financial statements.

 

6

 

 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine Months Ended June 30, 
   2019   2018 
   (Dollars in Thousands) 
OPERATING ACTIVITIES:          
Net income  $6,944   $4,627 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   469    469 
Net (accretion) amortization of premiums/discounts   (1,387)   517 
Provision for loan losses   -    685 
Net amortization of deferred loan fees and costs   (111)   (43)
Share-based compensation expense for stock options and share awards   887    797 
Income from bank owned life insurance   (473)   (480)
Gain on retirement of cash flow hedges   -    (808)
Loss (gain) on sale of other real estate owned   46    - 
Gain (loss) on sale of investment and mortgage-backed securities available for sale   (628)   376 
Holding gains on equity securities   (31)   - 
Deferred income tax expense (benefit)   (357)   1,193 
Changes in assets and liabilities which used cash:          
Accrued interest receivable   (68)   (845)
Accrued interest payable   172    246 
Other, net   (127)   590 
Net cash provided by operating activities   5,336    7,324 
INVESTING ACTIVITIES:          
Purchase of investment and mortgage-backed securities available for sale   (196,059)   (113,535)
Purchase of investment and mortgage-backed securities held to maturity   -    (2,458)
Loans originated   (79,076)   (93,038)
Principal collected on loans   96,015    61,569 
Principal payments received on investment and mortgage-backed securities:          
Held-to-maturity   2,714    975 
Available-for-sale   16,007    10,663 
Proceeds from the sale of investments and mortgage-backed securities   67,849    11,052 
Proceeds from retirement of cash flow hedges   -    856 
Redemption of FHLB Stock   6,401    3,228 
Purchase of FHLB stock   (12,172)   (5,135)
Purchase of Bank Owned Life Insurance   (2,500)   - 
Proceeds from sale of other real estate owned   644    278 
Purchases of equipment   (269)   (214)
Net cash used in investing activities   (100,446)   (125,759)
FINANCING ACTIVITIES:          
Net increase (decrease) in demand deposits, NOW accounts, and savings accounts   12,144    (18,819)
Net increase (decrease) in certificates of deposit   (66,856)   98,131 
Proceeds from FHLB advances - short term   26,500    15,000 
Proceeds from FHLB advances - long term   139,315    70,000 
Repayment of FHLB advances - long term   (19,088)   (34,776)
Increase in advances from borrowers for taxes and insurance   1,450    1,601 
Cash dividends paid   (5,339)   (2,695)
Treasury stock used for employee benefit plans   50    1,067 
Purchase of treasury stock   (3,160)   (2,922)
Net cash provided by financing activities   85,016    126,587 

 

7

 

 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -continued

 

   Nine Months Ended June 30. 
   2019   2018 
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (10,094)   8,152 
           
CASH AND CASH EQUIVALENTS—Beginning of period   48,171    27,903 
           
CASH AND CASH EQUIVALENTS—End of period  $38,077   $36,055 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
  Cash paid during the period for:          
Interest on deposits and advances from Federal          
Home Loan Bank  $13,683   $6,981 
Income taxes paid   1,325    1,900 
Loans transferred to other real estate owned   -    111 

 

See the accompany notes to the unaudited consolidated financial statements.

 

8

 

 

PRUDENTIAL BANCORP, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.SIGNIFICANT ACCOUNTING POLICIES

 

Prudential Bancorp, Inc. (the “Company”) is a Pennsylvania corporation and the parent holding company for Prudential Bank (the “Bank”). The Company is a registered bank holding company.

 

The Bank is a community-oriented, Pennsylvania-chartered savings bank headquartered in South Philadelphia. The banking office network currently consists of the headquarters and main office (which includes a branch office), administrative office, and nine additional full-service branch offices. Eight of the branch offices are located in Philadelphia (Philadelphia County), one is in Drexel Hill, Delaware County, and one is in Huntingdon Valley, Montgomery County (both Pennsylvania counties). The Bank maintains ATMs at all 10 of the banking offices. The Bank also provides on-line and mobile banking services.

 

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities (the “Department”), as its chartering authority and primary regulator, and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits up to applicable limits. As a bank holding company, the Company is subject to the regulation by the Board of Governors of the Federal Reserve System.

 

Basis of presentation – The accompanying unaudited consolidated financial statements were prepared pursuant to the rules and regulations of the U. S. Securities and Exchange Commission (“SEC”) for interim information and therefore do not include all the 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 (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial statements have been included. The results for the three and nine months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2019, or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018. The significant accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented on pages 84 through 88 of the Annual Report on Form 10-K for the year ended September 30, 2018.

 

Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions in the Company’s consolidated financial statements are recorded in the allowance for loan losses, deferred income taxes, other-than-temporary impairment, and the fair value measurement for financial instruments. Actual results could differ from those estimates.

 

Recently Adopted Accounting Pronouncements

 

Effective October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts at the date of adoption. The adoption of this guidance did not result in a change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustments were recorded.

 

9

 

 

Management determined that the primary sources of revenue emanating from interest and dividend income on loans and securities along with noninterest revenue resulting from investment security gains, loan servicing, gains on the sale of loans, commitment fees, fees from financial guarantees, certain credit cards fees, and income on bank-owned life insurance are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 98 percent of the total revenue of the Company. Services within the scope of ASC 606 include income from service charges on deposit accounts, other service income, ATM fees and gain on sale of Other Real Estate Owned, net. For these accounts, fees are related to specific customer transactions and are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time: completion of the requested service/transaction.

 

Effective October 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) 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. The adoption of this Update did not have a significant impact on the Company’s financial statements.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018 and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a one percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

 

10

 

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

 

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position and results of operations.

 

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting: (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments 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 evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

11

 

 

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815). The amendments in this Update permit use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to the interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. For entities that have not already adopted Update 2017-12, the amendments in this Update are required to be adopted concurrently with the amendments in Update 2017-12. For public business entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities that already have adopted the amendments in Update 2017-12, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this Update if an entity already has adopted Update 2017-12. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

 

12

 

 

2.EARNINGS PER SHARE

 

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock issued, net of any treasury shares and unearned restricted share awards, during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period.

 

The calculated basic and diluted earnings per share are as follows:

 

   Three Months Ended June 30, 
   2019   2018 
   Basic   Diluted   Basic   Diluted 
   (Dollars in Thousands, Except Share and Per Share Data) 
                 
Net income  $2,630   $2,630   $2,436   $2,436 
Weighted average shares outstanding   8,775,210    8,775,210    8,848,393    8,848,393 
Effect of common stock equivalents   -    162,094    -    378,912 
Adjusted weighted average shares used in earnings per share computation   8,775,210    8,937,304    8,848,393    9,227,305 
Earnings per share - basic and diluted  $0.30   $0.29   $0.28   $0.26 
                     
   Nine Months Ended June 30, 
   2019   2018 
   Basic   Diluted   Basic   Diluted 
   (Dollars in Thousands, Except Share and Per Share Data) 
                 
Net income  $6,944   $6,944   $4,627   $4,627 
Weighted average shares outstanding   8,785,618    8,785,618    8,851,784    8,851,784 
Effect of common stock equivalents   -    156,932    -    342,432 
Adjusted weighted average shares used in earnings per share computation   8,785,618    8,942,550    8,851,784    9,194,216 
Earnings per share - basic and diluted  $0.79   $0.78   $0.52   $0.50 

 

As of June 30, 2019 and 2018, there were 550,832 and 774,404 shares of common stock, respectively, subject to options with an exercise price less than the then current market price per share for the Company’s common stock and which were included in the computation of diluted earnings per share. At June 30, 2019 and 2018, there were 202,500 and 202,500 shares, respectively, that had exercise prices greater than the then current market value and were considered anti-dilutive at such dates.

 

13

 

 

3.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The following table presents the changes in accumulated other comprehensive (loss) income by component, net of tax, for the periods presented:

 

   Three Months Ended June 30,   Three Months Ended June 30, 
   2019   2019   2019   2018   2018   2018 
           (Dollars in Thousands)         
   Unrealized gain (loss)
on AFS securities (a)
   Unrealized gain (loss) on
interest rate swaps (a)
   Total accumulated
other comprehensive
(loss) income
   Unrealized gain (loss) on
AFS securities (a)
   Unrealized gain (loss) on
interest rate swaps (a)
   Total accumulated
other comprehensive
(loss) income
 
Beginning balance, April 1  $(2,160)  $(2,365)  $(4,525)  $(4,965)  $510   $(4,455)
Other comprehensive (loss) income before reclassifications   6,777    (3,070)   3,707    (1,476)   (669)   (2,145)
Total   4,617    (5,435)   (818)   (6,441)   (159)   (6,600)
Reclassification for net gains recorded in net income   (404)   -    (404)   -    -    - 
Ending Balance, June 30  $4,213   $(5,435)  $(1,222)  $(6,441)  $(159)  $(6,600)

 

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

 

The following table presents the changes in accumulated other comprehensive (loss) income by component, net of tax, for the periods presented:

 

   Nine Months Ended June 30,   Nine Months Ended June 30, 
   2019   2019   2019   2018   2018   2018 
           (Dollars in Thousands)         
   Unrealized gain (loss)
on AFS securities (a)
   Unrealized gain (loss) on
interest rate swaps (a)
   Total accumulated
other comprehensive
(loss) income
   Unrealized gain (loss) on
AFS securities (a)
   Unrealized gain (loss) on
interest rate swaps (a)
   Total accumulated
other comprehensive
(loss) income
 
Beginning balance, October 1  $(8,320)  $166   $(8,154)  $(1,091)  $331   $(760)
Other comprehensive (loss) income before reclassification   13,054    (5,601)   7,453    (5,047)   (490)   (5,537)
Total   4,734    (5,435)   (701)   (6,138)   (159)   (6,297)
Reclassification from adoption of ASU 2016-01   (25)   -    (25)               
Reclassification for net gains recorded in net income   (496)   -    (496)   (303)   -    (303)
Ending Balance, June 30  $4,213   $(5,435)  $(1,222)  $(6,441)  $(159)  $(6,600)

 

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

 

14

 

 

4.INVESTMENT AND MORTGAGE-BACKED SECURITIES

 

The amortized cost and fair value of investment and mortgage-backed securities, with gross unrealized gains and losses, are as follows:

 

   June 30, 2019 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (Dollars in Thousands) 
Securities Available for Sale:                    
U.S. government and agency obligations  $25,112   $-   $(134)  $24,978 
Mortgage-backed securities - U.S. government agencies   308,758    5,883    (1,211)   313,430 
State and political subdivisions   34,729    15    (638)   34,106 
Corporate bonds   64,253    1,501    (89)   65,665 
                     
Total securities available for sale  $432,852   $7,399   $(2,072)  $438,179 
                     
Securities Held to Maturity:                    
U.S. government and agency obligations  $31,500   $150   $(578)  $31,072 
Mortgage-backed securities - U.S. government agencies   5,086    204    (10)   5,280 
State and political subdivisions   20,499    574    (54)   21,019 
                     
Total securities held to maturity  $57,085   $928   $(642)  $57,371 
     
   June 30, 2019 
   Amortized   Gross   Gross   Fair 
   Cost   Gains   Losses   Value 
   (Dollars in Thousands) 
Equity securities                    
FHLMC preferred stock  $31   $38   $-   $69 
Total equity securities  $31   $38   $    $69 

 

The Company recognized a net gain on equity securities of $38,000 for the nine months ended June 30, 2019 and a loss of $3,000 for the three months ended June 30, 2019. No net gains or losses on sold equity securities were realized during the nine or three months ended June 30, 2018.

 

15

 

 

   September 30, 2018 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
   (Dollars in Thousands) 
Securities Available for Sale:                    
U.S. government and agency obligations  $25,562   $-   $(1,391)  $24,171 
Mortgage-backed securities - U.S. government agencies   193,451    77    (6,168)   187,360 
State and political subdivisions   22,078    -    (542)   21,536 
Corporate bonds   75,622    -    (2,539)   73,083 
Total debt securities available for sale   316,713    77    (10,640)   306,150 
                     
FHLMC preferred stock   6    31    -    37 
                     
Total securities available for sale  $316,719   $108   $(10,640)  $306,187 
                     
Securities Held to Maturity:                    
U.S. government and agency obligations  $33,500   $85   $(3,311)  $30,274 
Mortgage-backed securities - U.S. government agencies   5,778    148    (153)   5,773 
State and political subdivisions   20,574    2    (696)   19,880 
                     
Total securities held to maturity  $59,852   $235   $(4,160)  $55,927 

 

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As of June 30, 2019, the Bank maintained $244.1 million of securities in a safekeeping account at the FHLB of Pittsburgh available to be used for collateral and convenience. The Bank is only required to hold $54.7 million as specific collateral for its borrowings; therefore the $189.4 million excess securities are not restricted and could be sold or transferred if needed.

 

The following table shows the gross unrealized losses and related fair values of the Company’s investment and mortgage-backed securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of June 30, 2019:

 

   Less than 12 months   More than 12 months   Total 
   Gross       Gross       Gross     
   Unrealized   Fair   Unrealized   Fair   Unrealized   Fair 
   Losses   Value   Losses   Value   Losses   Value 
   (Dollars in Thousands) 
Securities Available for Sale:                              
U.S. government and agency obligations  $-   $-   $(134)  $20,977   $(134)  $20,977 
Mortgage-backed securities - U.S. government agencies   (15)   15,898    (1,196)   84,561    (1,211)   100,459 
State and political subdivisions   -    -    (638)   23,332    (638)   23,332 
Corporate bonds   (17)   1,986    (72)   6,958    (89)   8,944 
                               
Total securities available for sale  $(32)  $17,884   $(2,040)  $135,828   $(2,072)  $153,712 
                               
Securities Held to Maturity:                              
U.S. government and agency obligations  $-   $-   $(578)  $29,921   $(578)  $29,921 
Mortgage-backed securities - U.S. government agencies   -    -    (10)   838    (10)   838 
State and political subdivisions   -    -    (54)   3,769    (54)   3,769 
                               
Total securities held to maturity  $-   $-   $(642)  $34,528   $(642)  $34,528 
                               
Total  $(32)  $17,884   $(2,682)  $170,356   $(2,714)  $188,240 

 

17

 

 

The following table shows the gross unrealized losses and related fair values of the Company’s investment securities, aggregated by investment category and length of time that individual securities had been in a continuous loss position as of September 30, 2018:

 

   Less than 12 months   More than 12 months   Total 
   Gross       Gross       Gross     
   Unrealized   Fair   Unrealized   Fair   Unrealized   Fair 
   Losses   Value   Losses   Value   Losses   Value 
   (Dollars in Thousands) 
Securities Available for Sale:                              
U.S. government and agency obligations  $(89)  $4,479   $(1,302)  $19,692   $(1,391)  $24,171 
Mortgage-backed securities - U.S. government agencies   (1,821)   92,851    (4,347)   86,268    (6,168)   179,119 
State and political subdivisions   (542)   21,536    -    -    (542)   21,536 
Corporate bonds   (1,719)   58,753    (820)   14,330    (2,539)   73,083 
                               
Total securities available for sale  $(4,171)  $177,619   $(6,469)  $120,290   $(10,640)  $297,909 
                               
Securities Held to Maturity:                              
U.S. government and agency obligations  $-   $-   $(3,311)  $27,190   $(3,311)  $27,190 
Mortgage-backed securities - U.S. government agencies   (106)   2,630    (47)   930    (153)   3,560 
State and political subdivisions   (234)   11,238    (462)   6,618    (696)   17,856 
                               
Total securities held to maturity  $(340)  $13,868   $(3,820)  $34,738   $(4,160)  $48,606 
                               
Total  $(4,511)  $191,487   $(10,289)  $155,028   $(14,800)  $346,515 

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least once each quarter, and more frequently when economic or market concerns warrant such evaluation. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, the length of time and extent to which the fair value of the security has been less than cost, and the near-term prospects of the issuer.

 

The Company assesses whether a credit loss exists with respect to a security by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery has occurred, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company bifurcates the OTTI impact on impaired securities where impairment in value is deemed to be other than temporary between the component representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a charge to earnings. The credit component is determined by comparing the present value of the cash flows expected to be collected, discounted at the rate in effect before recognizing any OTTI, with the amortized cost basis of the debt security.  The Company uses the cash flows expected to be realized from the security, which includes assumptions about interest rates, timing and severity of defaults, estimates of potential recoveries, the cash flow distribution from the security and other factors, then applies a discount rate equal to the effective yield of the security.  The difference between the present value of the expected cash flows and the amortized book value is considered a credit loss.  The fair value of the security is determined using the same expected cash flows; the discount rate is a rate the Company determines from open market and other sources as appropriate for the particular security.  The difference between the fair value and the security’s remaining amortized cost is recognized in other comprehensive income (loss).

 

18

 

 

For both the three and nine months ended June 30, 2019 and 2018, the Company did not record any credit losses on investment securities through earnings.

 

U.S. Government and Agency Obligations - At June 30, 2019, there were no securities in a gross unrealized loss position for less than 12 months while there were 14 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider any of these investments to be other-than-temporarily impaired at June 30, 2019.

 

Mortgage-Backed Securities – At June 30, 2019, there were two mortgage-backed securities in a gross unrealized loss position for less than 12 months, while there were 49 securities in a gross unrealized loss position for more than 12 months at such date. These securities represent asset-backed issues that are issued or guaranteed by a U.S. Government sponsored agency or carry the full faith and credit of the United States through a government agency and are currently rated AAA by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.

 

Corporate Bonds – At June 30, 2019, there was one security in a gross unrealized loss position for less than 12 months, while there were six securities in a gross unrealized loss position for more than 12 months at such date. These securities are issued by publicly traded companies with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.

 

State and political subdivisions – At June 30, 2019, there were no securities in a gross unrealized loss for less than 12 months, while there were nine securities in a gross unrealized loss position for more than 12 months at such date. These securities are issued by local municipalities/school districts located in the Commonwealth of Pennsylvania with an investment grade rating by at least one bond credit rating agency. As a result, the Company does not consider these investments to be other-than-temporarily impaired at June 30, 2019.

 

The amortized cost and fair value of debt securities, 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.

 

The maturity table below excludes mortgage-backed securities because the contractual maturities of such securities are not indicative of actual maturities due to significant prepayments.

 

   June 30, 2019 
   Held to Maturity   Available for Sale 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
   (Dollars in Thousands) 
Due after one through five years  $1,705   $1,720   $13,407   $13,568 
Due after five through ten years   24,751    25,206    50,847    52,097 
Due after ten years   25,543    25,165    59,840    59,084 
                     
Total  $51,999   $52,091   $124,094   $124,749 

 

19

 

 

During the three and nine month periods ended June 30, 2019, the Company sold securities with an aggregate amortized cost of $49.1 million and $61.9 million, respectively, for a recognized aggregate gain of $511,000 and $628,000 respectively (pre-tax). During the both three and nine month periods ended June 30, 2018, the Company sold securities with an aggregate amortized cost of $11.7 million and none, respectively, for a recognized aggregate loss of $376,000 (pre-tax). The sales were of securities which bore yields below market rates in order to better position the securities portfolio in a rising rate environment.

 

5.LOANS RECEIVABLE

 

Loans receivable consist of the following:

 

   June 30,   September 30, 
   2019   2018 
   (Dollars in Thousands) 
One-to-four family residential  $277,344   $324,865 
Multi-family residential   31,068    34,355 
Commercial real estate   132,007    119,511 
Construction and land development   240,755    160,228 
Loans to financial institutions   6,000    6,000 
Commercial business   19,748    17,792 
Leases   886    1,687 
Consumer   863    953 
           
Total loans   708,671    665,391 
           
Undisbursed portion of loans-in-process   (113,943)   (54,474)
Deferred loan fees (net)   (2,891)   (2,818)
Allowance for loan losses   (5,330)   (5,167)
           
Net loans  $586,507   $602,932 

 

The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at June 30, 2019:

 

   One- to-four
family residential
   Multi-family
residential
   Commercial real
estate
   Construction and
land development
   Loans to financial
institutions
   Commercial
Business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
Allowance for loan losses:                                                  
Individually evaluated for impairment  $-   $-   $-   $-   $-   $-   $-   $-   $-   $- 
Collectively evaluated for impairment   1,030    320    1,286    1,907    63    207    9    6    502    5,330 
Total ending allowance balance  $1,030   $320   $1,286   $1,907   $63   $207   $9   $6   $502   $5,330 
                                                   
Loans:                                                  
Individually evaluated for impairment  $4,436   $-   $2,188   $8,750   $-   $-   $-   $-        $15,374 
Collectively evaluated for impairment   272,908    31,068    129,819    232,005    6,000    19,748    886    863         693,297 
Total loans  $277,344   $31,068   $132,007   $240,755   $6,000   $19,748   $886   $863        $708,671 

 

20

 

 

The following table summarizes by loan segment the balance in the allowance for loan losses and the loans individually and collectively evaluated for impairment by loan segment at September 30, 2018:

 

   One- to-four
family residential
   Multi-family
residential
   Commercial real
estate
   Construction and
land development
   Loans to financial
institutions
   Commercial
business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
Allowance for loan losses:                                                  
Individually evaluated for impairment  $-   $-   $-   $-   $-   $-   $-   $-   $-   $- 
Collectively evaluated for impairment   1,343    347    1,154    1,554    64    187    18    18    482    5,167 
Total ending allowance balance  $1,343   $347   $1,154   $1,554   $64   $187   $18   $18   $482   $5,167 
                                                   
Loans:                                                  
Individually evaluated for impairment  $5,081   $298   $1,919   $8,750   $-   $-   $-   $-        $16,048 
Collectively evaluated for impairment   319,784    34,057    117,592    151,478    6,000    17,792    1,687    953         649,343 
Total loans  $324,865   $34,355   $119,511   $160,228   $6,000   $17,792   $1,687   $953        $665,391 

 

The loan portfolio is segmented at a level that allows management to monitor both risk and performance. Management evaluates for potential impairment all construction loans, multi-family loans, commercial real estate loans, commercial business loans, loans to financial institutions, leases and all loans and leases more than 90 days delinquent as to principal and/or interest. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect in full the scheduled payments of principal and/or interest when due according to the contractual terms of the loan agreement.

 

Once the determination is made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is generally measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following three methods: (a) the present value of the expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. Management primarily utilizes the fair value of collateral method as a practically expedient alternative. On collateral method evaluations, any portion of the loan deemed uncollectible is charged-off against the loan loss allowance.

 

The following table presents impaired loans by class as of June 30, 2019, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.

 

21

 

 

           Impaired         
           Loans with         
   Impaired Loans with   No Specific         
   Specific Allowance   Allowance   Total Impaired Loans 
   (Dollars in Thousands) 
                   Unpaid 
   Recorded   Related   Recorded   Recorded   Principal 
   Investment   Allowance   Investment   Investment   Balance 
One-to-four family residential  $             -   $     -   $4,436   $4,436   $4,788 
Commercial real estate   -    -    2,188    2,188    2,349 
Construction and land development   -    -    8,750    8,750    11,131 
Total impaired loans  $-   $-   $15,374   $15,374   $18,268 

 

The following table presents impaired loans by class as of September 30, 2018, segregated by those for which a specific allowance was required and those for which a specific allowance was not required.

 

           Impaired         
           Loans with         
   Impaired Loans with   No Specific         
   Specific Allowance   Allowance   Total Impaired Loans 
   (Dollars in Thousands) 
                   Unpaid 
   Recorded   Related   Recorded   Recorded   Principal 
   Investment   Allowance   Investment   Investment   Balance 
One-to-four family residential  $          -   $           -   $5,081   $5,081   $5,432 
Multi-family   -    -    298    298    298 
Commercial real estate   -    -    1,919    1,919    2,057 
Construction and land development   -    -    8,750    8,750    11,131 
Total impaired loans  $-   $-   $16,048   $16,048   $18,918 

 

22

 

 

The following tables present the average recorded investment in impaired loans and related interest income recognized for the periods indicated:

 

   Three Months Ended June 30, 2019 
   Average
Recorded
Investment
   Income Recognized
on Accrual Basis
   Income
Recognized on
Cash Basis
 
   (Dollars in Thousands) 
One-to-four family residential  $4,633   $18   $6 
Multi-family residential   144    -    - 
Commercial real estate   2,192    10    1 
Construction and land development   8,750            -               - 
Consumer   5    -    - 
Total impaired loans  $15,724   $28   $7 

 

   Three Months Ended June 30, 2018 
   Average
Recorded
Investment
   Income Recognized
on Accrual Basis
   Income
Recognized on
Cash Basis
 
   (Dollars in Thousands) 
One-to-four family residential  $6,159   $            -   $17 
Multi-family residential   305    -    - 
Commercial real estate   2,624    -    2 
Construction and land development   8,745    -    - 
Consumer   -    -    - 
Total impaired loans  $17,833   $-   $19 

 

   Nine Months Ended June 30, 2019 
   Average
Recorded
Investment
   Income Recognized
on Accrual Basis
   Income
Recognized on
Cash Basis
 
   (Dollars in Thousands) 
One-to-four family residential  $4,849   $62   $16 
Multi-family residential   195    10    - 
Commercial real estate   2,151    30    3 
Construction and land development   8,751    -    - 
Consumer   5    -    - 
Total impaired loans  $15,951   $102   $19 

 

23

 

 

   Nine Months Ended June 30, 2018 
   Average
Recorded
Investment
   Income Recognized
on Accrual Basis
   Income
Recognized on
Cash Basis
 
   (Dollars in Thousands) 
One-to-four family residential  $6,636   $77   $21 
Multi-family residential   307    11    - 
Commercial real estate   3,004    58    2 
Construction and land development   8,741    -    - 
Consumer   -    -    - 
Total impaired loans  $18,688   $146   $23 

 

Federal regulations and our loan policy require that the Company utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Company has incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of its credit monitoring system. Management currently classifies problem and potential problem assets as “special mention”, “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the three aforementioned categories but possess weaknesses are required to be designated “special mention.”

 

The following tables present the classes of the loan portfolio in which a formal risk weighting system is utilized summarized by the aggregate “Pass” and the criticized category of “special mention”, and the classified categories of “substandard”, “doubtful” and “loss” within the Company’s risk rating system as applied to the loan portfolio. The Company had no loans classified as “doubtful” or “loss” at either of the dates presented.

 

   June 30, 2019 
       Special       Total 
   Pass   Mention   Substandard   Loans 
   (Dollars in Thousands) 
One-to-four family residential  $270,187   $2,721   $4,436   $277,344 
Multi-family residential   30,744    324    -    31,068 
Commercial real estate   125,780    4,039    2,188    132,007 
Construction and land development   232,005    -    8,750    240,755 
Loans to financial institutions   6,000    -    -    6,000 
Commercial business   19,748    -    -    19,748 
Total loans  $684,464   $7,084   $15,374   $706,922 

 

24

 

 

   September 30, 2018 
       Special       Total 
   Pass   Mention   Substandard   Loans 
   (Dollars in Thousands) 
One-to-four family residential  $317,033   $2,751   $5,081   $324,865 
Multi-family residential   34,057    -    298    34,355 
Commercial real estate   115,670    1,922    1,919    119,511 
Construction and land development   151,478    -    8,750    160,228 
Loans to financial institutions   6,000    -    -    6,000 
Commercial business   17,792    -    -    17,792 
Total loans  $642,030   $4,673   $16,048   $662,751 

 

The Company evaluates the classification of one-to-four family residential, leases and consumer loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a loan, the loan is downgraded following the above definitions of special mention, substandard, doubtful and loss.

 

The following tables represent loans in which a formal risk rating system is not utilized, but loans are segregated between performing and non-performing based primarily on delinquency status. Non-performing loans that would be included in the table are those loans greater than 90 days past due as to principal and/or interest that do not have a designated risk rating.

 

   June 30, 2019 
       Non-   Total 
   Performing   Performing   Loans 
   (Dollars in Thousands) 
One-to-four family residential  $274,339   $3,005   $277,344 
Leases   886    -    886 
Consumer   863    -    863 
Total loans  $276,088   $3,005   $279,093 

 

   September 30, 2018 
       Non-   Total 
   Performing   Performing   Loans 
   (Dollars in Thousands) 
One-to-four family residential  $321,853   $3,012   $324,865 
Leases   1,687    -    1,687 
Consumer   953    -    953 
Total loans  $324,493   $3,012   $327,505 

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is due or overdue, as the case may be. The following tables present the loan categories of the loan portfolio summarized by the aging categories of performing loans, delinquent loans and nonaccrual loans:

 

25

 

 

   June 30, 2019 
                           90 Days+ 
       30-89 Days   90 Days +   Total   Total   Non-   Past Due 
   Current   Past Due   Past Due   Past Due   Loans   Accrual   and Accruing 
   (Dollars in Thousands) 
One-to-four family residential  $272,528   $2,439   $2,377   $4,816   $277,344   $3,005   $          - 
Multi-family residential   31,068    -    -    -    31,068    -    - 
Commercial real estate   130,590    -    1,417    1,417    132,007    1,474    - 
Construction and land development   232,005    -    8,750    8,750    240,755    8,750    - 
Financial institutions   6,000    -    -    -    6,000    -    - 
Commercial business   19,748    -    -    -    19,748    -    - 
Leases   886    -    -    -    886    -    - 
Consumer   807    56    -    56    863    -    - 
Total loans  $693,632   $2,495   $12,544   $15,039   $708,671   $13,229   $- 
                                    
   September 30, 2018 
                           90 Days+ 
       30-89 Days   90 Days +   Total   Total   Non-   Past Due 
   Current   Past Due   Past Due   Past Due   Loans   Accrual   and Accruing 
   (Dollars in Thousands) 
One-to-four family residential  $321,749   $1,037   $2,079   $3,116   $324,865   $3,012   $- 
Multi-family residential   34,355    -    -    -    34,355    -    - 
Commercial real estate   117,335    722    1,454    2,176    119,511    1,627    - 
Construction and land development   151,478    -    8,750    8,750    160,228    8,750    - 
Commercial business   17,792    -    -    -    17,792    -    - 
Loans to financial institutions   6,000    -    -    -    6,000    -    - 
Leases   1,687    -    -    -    1,687    -    - 
Consumer   837    116    -    116    953    -    - 
Total loans  $651,233   $1,875   $12,283   $14,158   $665,391   $13,389   $- 

 

The allowance for loan losses is established through a provision for loan losses charged to expense. The Company maintains the allowance at a level believed to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses no less than quarterly in order to identify these inherent losses and to assess the overall collection probability for the loan portfolio in view of these inherent losses. For each primary type of loan, a loss factor is established reflecting an estimate of the known and inherent losses in such loan type contained in the portfolio using both a quantitative analysis as well as consideration of qualitative factors. The evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the Company’s loans, the value of collateral securing the loans, the borrowers’ ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience.

 

26

 

 

Commercial real estate loans entail significant additional credit risks compared to owner-occupied one-to-four family residential mortgage loans, as they generally involve large loan balances concentrated with a single borrower or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is, in some cases, also the primary occupant, and thus may be subject to a greater extent to the effects of adverse conditions in the real estate market and in the economy in general. Commercial business loans typically involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development and construction lending exposes the Company to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. These events may adversely affect the sale of the properties, potentially reducing both the borrowers’ ability to make required payments as well as reducing the value of the collateral property. Such lending is additionally subject to the risk that if the estimate of construction cost proves to be inaccurate, the Company potentially will be compelled to advance additional funds to allow completion of the project. In addition, if the estimate of value proves to be inaccurate, the Company may be confronted with a project, when completed, having less value than the loan amount. If the Company is forced to foreclose on a construction project prior to completion, there is no assurance that the Company would be able to recover the entire unpaid portion of the loan.

 

The following tables summarize the primary segments of the allowance for loan losses. Activity in the allowance is presented for the both three and nine month periods ended June 30, 2019 and 2018:

 

   Three Months Ended June 30, 2019 
   One- to
four-family
residential
   Multi-
family
residential
   Commercial
real estate
   Construction
and land
development
   Financial
institutions
   Commercial
business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
ALLL balance at March 31, 2019  $1,314   $385   $1,342   $1,370   $68   $235   $13   $20   $480   $5,227 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   103    -    -    -    -    -    -    -    -    103 
Provision   (387)   (65)   (56)   537    (5)   (28)   (4)   (14)   22    - 
ALLL balance at June 30, 2019  $1,030   $320   $1,286   $1,907   $63   $207   $9   $6   $502   $5,330 

 

   Nine Months Ended June 30, 2019 
   One- to
four-family
residential
   Multi-
family
residential
   Commercial
real estate
   Construction
and land
development
   Financial
institutions
   Commercial
business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
ALLL balance at September 30, 2018  $1,343   $347   $1,154   $1,554   $64   $187   $18   $18   $482   $5,167 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   163    -    -    -    -    -    -    -    -    163 
Provision   (476)   (27)   132    353    (1)   20    (9)   (12)   20    - 
ALLL balance at June 30, 2019  $1,030   $320   $1,286   $1,907   $63   $207   $9   $6   $502   $5,330 

 

27

 

 

   Three Months Ended June 30, 2018 
   One- to
four-family
residential
   Multi-
family
residential
   Commercial
real estate
   Construction
and land
development
   Financial
institutions
   Commercial
business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
ALLL balance at March 31, 2018  $1,308   $205   $1,083   $1,465   $62   $106   $29   $97   $486   $4,841 
Charge-offs   (114)   -    -    -    -    -    (11)   -    -    (125)
Recoveries   -    -    -    -    -    -    -    -    -    - 
Provision   100    178    (27)   135    -    40    5    (81)   (25)   325 
ALLL balance at June 30, 2018  $1,294   $383   $1,056   $1,600   $62   $146   $23   $16   $461   $5,041 

 

   Nine Months Ended June 30, 2018 
   One- to
four-family
residential
   Multi-
family
residential
   Commercial
real estate
   Construction
and land
development
   Financial
institutions
   Commercial
business
   Leases   Consumer   Unallocated   Total 
   (Dollars in Thousands) 
ALLL balance at September 30, 2017  $1,241   $205   $1,201   $1,358   $-   $4   $23   $24   $410   $4,466 
Charge-offs   (125)   -    -    (12)   -    -    -    -    -    (137)
Recoveries   27    -    -    -    -    -    -    -    -    27 
Provision   151    178    (145)   254    62    142    -    (8)   51    685 
ALLL balance at June 30, 2018  $1,294   $383   $1,056   $1,600   $62   $146   $23   $16   $461   $5,041 

 

The Company recorded no provision for loan losses for the three and nine months period ended June 30, 2019, respectively, compared to $325,000 and $685,000 for the comparable three and nine months periods in fiscal 2018. The provisions in the 2018 periods were primarily due to growth in the loan portfolio. During the quarter ended June 30, 2019, the Company recorded no charge offs and recoveries of $103,000. During the nine months ended June 30, 2019, the Company recorded no charge offs and recoveries of $163,000. During the quarter ended June 30, 2018, the Company recorded charge offs of $125,000 and no recoveries. During the nine months ended June 30, 2018, the Company recorded charge offs of $137,000 and recoveries of $27,000.

 

At June 30, 2019, the Company had nine loans aggregating $6.0 million that were classified as troubled debt restructurings (“TDRs”). Five of the nine loans aggregating $633,000 were performing in accordance with their restructured terms as of June 30, 2019 and accruing interest, with four of the nine TDRs on non-accrual status. Three of the TDRs which are classified as non-accrual totaling $4.9 million are a part of a troubled lending relationship totaling $10.6 million (after taking into account the previously disclosed $1.9 million write-down recognized during the quarter ending June 30, 2017 related to this borrowing relationship). The remaining TDR is also on non-accrual and consists of a $437,000 loan secured by various commercial and residential properties.

 

The Company did not approve any TDRs during the three and nine months ended June 30, 2019, or during the three and nine months ending June 30, 2018.

 

No TDRs defaulted during the three and nine-month period endings June 30, 2019 or 2018.

 

28

 

 

6.DEPOSITS

 

Deposits consist of the following major classifications:

 

   June 30,   September 30, 
   2019   2018 
   Amount   Percent   Amount   Percent 
   (Dollars in Thousands) 
Money market deposit accounts  $74,521    10.2%  $66,120    8.4%
Interest-bearing checking accounts   59,706    8.2    49,209    6.3 
Non interest-bearing checking accounts   15,614    2.2    13,620    1.7 
Passbook, club and statement savings   82,741    11.3    91,489    11.7 
Certificates maturing in six months or less   272,172    37.3    301,184    38.4 
Certificates maturing in more than six months   224,787    30.8    262,636    33.5 
                     
Total  $729,541    100.0%  $784,258    100.0%

 

Certificates of $250,000 and over totaled $25.7 million as of June 30, 2019 and $81.9 million as of September 30, 2018.

 

7.ADVANCES FROM FEDERAL HOME LOAN BANK – SHORT TERM

 

As of June 30, 2019 and September 30, 2018 outstanding balances and related information of short-term borrowings from the FHLB are summarized as follows:

 

             June 30,   September 30, 
             2019   2018 
Type  Maturity Date  Coupon   Call Date  Amount   Amount 
      (Dollars in Thousands) 
Fixed Rate - Repo Plus  12-Oct-18   2.31%  Not Applicable  $-   $10,000 
Weighted average rate      2.31%             
                      
Fixed Rate - Repo Plus  1-Jul-19   2.48%  Not Applicable  $1,500   $- 
Fixed Rate - Repo Plus  12-Jul-19   2.57%  Not Applicable   10,000    - 
Fixed Rate - Repo Plus  15-Jul-19   2.56%  Not Applicable   10,000    - 
Fixed Rate - Repo Plus  17-Jul-19   2.52%  Not Applicable   15,000    - 
Weighted average rate      2.54%     $36,500   $10,000 

 

As of June 30, 2019, short-term advances include two $10.0 million and one $15.0 million 30 day FHLB advances associated with interest rate swap contracts. The additional $1.5 million at June 30, 2019 consisted of an overnight borrowing to provide additional short-term liquidity. As of September 30, 2018, there was a $10.0 million 30 day FHLB advance associated with an interest rate swap contract.

 

29

 

 

8.ADVANCES FROM FEDERAL HOME LOAN BANK – LONG TERM

 

Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by a blanket collateral of loans held by the Company and qualifying fixed-income securities and FHLB stock. The long-term advances outstanding as of June 30, 2019 and September 30, 2018 are as follows:

 

Lomg-term FHLB advances:  Maturity range  Weighted average   Stated interest rate range   June 30,   September 30, 
Description  from  to  interest rate   from   to   2019   2018 
                     (Dollars in Thousands) 
Fixed Rate - Amortizing  1-Oct-18  30-Sep-20   1.53%   1.53%   1.53%  $589   $1,639 
Fixed Rate - Amortizing  1-Oct-20  30-Sep-21   2.69%   1.94%   2.83%   16,609    23,288 
Fixed Rate - Amortizing  1-Oct-21  30-Sep-22   2.81%   1.99%   3.05%   9,517    11,848 
Fixed Rate - Amortizing  1-Oct-22  30-Sep-23   2.88%   1.94%   3.11%   7,340    8,550 
Total         2.74%            $34,055   $45,325 
                                
                                
Fixed Rate - Advances  1-Oct-18  30-Sep-19   2.66%   2.66%   2.66%  $3,004   $18,528 
Fixed Rate - Advances  1-Oct-19  30-Sep-20   2.62%   1.38%   3.06%   12,341    12,413 
Fixed Rate - Advances  1-Oct-20  30-Sep-21   2.37%   1.42%   2.92%   18,022    3,037 
Fixed Rate - Advances  1-Oct-21  30-Sep-22   2.31%   1.94%   3.23%   63,347    23,380 
Fixed Rate - Advances  1-Oct-22  30-Sep-23   2.72%   2.18%   3.22%   65,999    37,000 
Fixed Rate - Advances  1-Oct-23  30-Sep-24   2.88%   2.38%   3.20%   67,998    5,000 
Total         2.62%            $230,711   $99,358 
                                
          2.64%        Total   $264,766   $144,683 

 

9.DERIVATIVES

 

The Company has contracted with a third party to participate in interest rate swap contracts. One of the swaps is a cash flow hedge associated with FHLB advances at both June 30, 2019 and September 30, 2018, while there are eight additional cash flow hedges tied to wholesale funding at June 30, 2019. These interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments. During the quarter ended June 30, 2019, $3,000 of expense was recognized as ineffectiveness through earnings, while $6,000 of income was recognized as ineffectiveness through earnings during the comparable period in fiscal 2018. During the nine months ended June 30, 2019, $5,000 of expense was recognized as ineffectiveness through earnings, while $48,000 of income was recognized as ineffectiveness through earnings during the comparable period in 2018. There were nine interest rate swaps designated as fair value hedges involving the receipt of variable-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements that were applicable to three loans and seven investment securities as of June 30, 2019 and three loans and seven investments at September 30, 2018. The fair value of the swaps is recorded in the other liabilities section of the statement of financial condition.

 

Below is a summary of the interest rate swap agreements and their terms as of June 30, 2019.

 

30

 

 

   Hedged  Notional   Pay   Receive  Maturity  Unrealized 
   Item  Amount   Rate   Rate  Date  Loss 
              (Dollars in thousands)       
                      
Interest rate swap contract   FHLB Advance  $10,000    2.70%  1 Mth Libor  10-Apr-25  $(586)
Interest rate swap contract   State and political subdivision   1,705    3.06%  3 Mth Libor  16-Feb-27   (147)
Interest rate swap contract   State and political subdivision   2,825    3.06%  3 Mth Libor  1-Apr-27   (247)
Interest rate swap contract   State and political subdivision   5,000    3.07%  3 Mth Libor  3-Jan-28   (465)
Interest rate swap contract   State and political subdivision   1,235    3.07%  3 Mth Libor  1-Mar-28   (116)
Interest rate swap contract   State and political subdivision   4,500    3.07%  3 Mth Libor  1-May-28   (426)
Interest rate swap contract   State and political subdivision   3,305    3.05%  3 Mth Libor  1-Feb-27   (280)
Interest rate swap contract   State and political subdivision   3,000    3.06%  3 Mth Libor  15-Oct-27   (272)
Interest rate swap contract   Commercial loan   8,000    4.85%  1 Mth Libor +225 bp  1-Jun-28   - 
Interest rate swap contract   Commercial loan   8,300    5.74%  1 Mth Libor +250 bp  13-Jun-25   - 
Interest rate swap contract   Commercial loan   1,044    4.10%  1 Mth Libor +276 bp  1-Aug-26   - 
Interest rate swap contract   90 Day wholesale funding   20,000    2.78%  3 Mth Libor  11-Jan-24   (932)
Interest rate swap contract   90 Day wholesale funding   15,000    2.75%  3 Mth Libor  18-Jan-24   (678)
Interest rate swap contract   90 Day wholesale funding   25,000    2.66%  3 Mth Libor  20-Feb-24   (1,065)
Interest rate swap contract   90 Day wholesale funding   25,000    2.56%  3 Mth Libor  28-Feb-24   (955)
Interest rate swap contract   30 Day wholesale funding   15,000    2.51%  1 Mth Libor  15-Feb-24   (605)
Interest rate swap contract   90 Day wholesale funding   25,000    2.59%  3 Mth Libor  13-Mar-24   (990)
Interest rate swap contract   90 Day wholesale funding   25,000    2.51%  3 Mth Libor  27-Mar-24   (909)
Interest rate swap contract   30 Day wholesale funding   10,000    1.94%  1 Mth Libor  12-Jun-26   (156)
                         
Total                     $(8,829)

 

Below is a summary of the interest rate swap agreements and their terms as of September 30, 2018.

 

   Hedged  Notional   Pay   Receive  Maturity  Unrealized 
   Item  Amount   Rate   Rate  Date  Gain (Loss) 
              (Dollars in thousands)       
                      
Interest rate swap contract   FHLB Advance  $10,000    2.70%  1 Mth Libor  10-Apr-25  $35 
Interest rate swap contract   State and political subdivision   1,705    3.06%  3 Mth Libor  15-Feb-27   (19)
Interest rate swap contract   State and political subdivision   2,825    3.06%  3 Mth Libor  1-Apr-27   (31)
Interest rate swap contract   State and political subdivision   5,000    3.07%  3 Mth Libor  1-Jan-28   (57)
Interest rate swap contract   State and political subdivision   1,235    3.07%  3 Mth Libor  1-Mar-28   (14)
Interest rate swap contract   State and political subdivision   4,500    3.07%  3 Mth Libor  1-May-28   (52)
Interest rate swap contract   State and political subdivision   3,305    3.05%  3 Mth Libor  1-Feb-27   (32)
Interest rate swap contract   State and political subdivision   3,000    3.06%  3 Mth Libor  15-Oct-27   (32)
Interest rate swap contract   Commercial loan   8,300    5.74%  1 Mth Libor +250 bp  13-Jun-25   - 
Interest rate swap contract   Commercial loan   1,100    4.10%  1 Mth Libor +276 bp  1-Aug-26   - 
                         
Total                     $(202)

 

All interest swaps are carried at fair value in accordance with FASB ASC 815 “Derivatives and Hedging.”

 

31

 

 

10.INCOME TAXES

 

Items that gave rise to significant portions of deferred income taxes are as follows:

 

   June 30,   September 30, 
   2019   2018 
   (Dollars in Thousands) 
Deferred tax assets:          
Allowance for loan losses  $1,465   $1,445 
Nonaccrual interest   446    312 
Accrued vacation   4    29 
Capital loss carryforward   356    356 
Split dollar life insurance   9    10 
Post-retirement benefits   76    85 
Unrealized losses on available for sale securities   -    2,212 
Unrealized losses on interest rate swaps   1,445    - 
Deferred compensation   816    838 
Goodwill   72    80 
Other   49    55 
Employee benefit plans   375    239 
           
Total deferred tax assets   5,113    5,661 
Valuation allowance   (356)   (356)
Total deferred tax assets, net of valuation allowance   4,757    5,305 
           
Deferred tax liabilities:          
Property   159    179 
Unrealized gains on available for sale securities   1,118    - 
Unrealized gains on interest rate swaps   -    44 
Purchase accounting adjustments   102    59 
Deferred loan fees   213    368 
           
Total deferred tax liabilities   1,592    650 
           
Net deferred tax assets  $3,165   $4,655 

 

The Company establishes a valuation allowance for deferred tax assets when management believes that the use of the deferred tax assets is not likely to be fully realized through future reversals of existing taxable temporary differences, and/or to a lesser extent, future taxable income. The tax deduction generated by the redemption of the shares of a mutual fund held by the Bank and the subsequent impairment charge on the assets acquired through the redemption in kind are considered capital losses and can only be utilized to the extent of capital gains recognized over a five year period, resulting in the establishment of a valuation allowance for the carryforward period. The valuation allowance totaled $356,000 at both June 30, 2019, and September 30, 2018, respectively.

 

For the nine-month period ended June 30, 2019, the Company recorded income tax expense of $1.4 million compared to income tax expense of $3.6 million for the period ended June 30, 2018, which included a $1.8 million one-time non-cash charge related to a re-evaluation of the Company’s deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. The re-evaluation reflected the effect of the significant decline in the federal corporate income tax rate applicable to the Company. During fiscal 2018, commencing with the quarter ended December 31, 2017, the Company’s federal statutory income tax rate was 24.25% as compared to companies which are calendar year tax reporting companies whose statutory rate decreased to 21% starting January 1, 2018. Effective October 1, 2018, the Company’s federal statutory tax rate was reduced to 21%.

 

32

 

There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Operations as a component of income tax expense. During fiscal 2017, the Internal Revenue Service conducted an audit of the Company’s tax return for the year ended September 30, 2014, and no adverse findings were reported. The Company’s federal and state income tax returns for taxable years through September 30, 2015 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.

 

11.STOCK COMPENSATION PLANS

 

The Company maintains the 2008 Recognition and Retention Plan and Trust (the “2008 RRP”) which is administered by a committee of the Board of Directors of the Company. The RRP provides for the grant of shares of common stock of the Company to officers, employees and directors of the Company. In order to fund the grant of shares under the RRP, the 2008 RRP purchased 213,528 shares (on a converted basis) of the Company’s common stock in the open market for an aggregate cost of approximately $2.5 million, at an average purchase price per share of $11.49. The Company made sufficient contributions to the 2008 RRP to fund these purchases. Shares subject to awards under the 2008 RRP generally vest at the rate of 20% per year over five years. During February 2015, shareholders approved the 2014 Stock Incentive Plan (the “2014 SIP”). As part of the 2014 SIP, a maximum of 285,655 shares of common stock can be awarded as restricted stock awards or units, of which 233,500 shares were awarded during February 2015. In August 2016, the Company granted 7,473 shares under the 2008 RRP and 3,027 shares under the 2014 SIP. In March 2017, the Company granted 17,128 shares under the 2014 SIP. In March 2018, the Company granted 8,209 shares under the 2008 RRP and 18,291 shares under the 2014 SIP. Grants can no longer be made pursuant to the 2008 RRP.

 

Compensation expense related to the shares subject to restricted stock awards granted is recognized ratably over the five-year vesting period in an amount which totals the grant date fair value multiplied by the number of shares subject to the grant. During the three and nine months ended June 30, 2019, an aggregate of $157,000 and $464,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. During the three and nine months ended June 30, 2018, $158,000 and $408,000, respectively, was recognized in compensation expense for the grants pursuant to the 2008 RRP and the grants pursuant to the 2014 SIP. At June 30, 2019, approximately $870,000 in additional compensation expense for unvested shares awarded related to the 2008 RRP and 2014 SIP remained unrecognized.

 

A summary of the Company’s non-vested stock award activity for the nine months ended June 30, 2019 and 2018 is presented in the following tables:

 

33

 

 

   Nine Months Ended
June 30, 2019
 
   Number of
Shares (1)
   Weighted Average
Grant Date Fair
Value
 
         
Non-vested stock awards at October 1, 2018   116,916   $14.36 
Granted   -    - 
Forfeited   -    - 
Vested   (44,024)   13.38 
Non-vested stock awards at June 30, 2019   72,892   $14.95 

 

   Nine Months Ended
June 30, 2018
 
   Number of
Shares
   Weighted Average
Grant Date Fair
Value
 
         
Non-vested stock awards at October 1, 2017   142,594   $12.79 
Granted   26,500    18.46 
Forfeited   4,636    11.91 
Vested   (44,647)   12.06 
Non-vested stock awards at June 30, 2018   129,083   $14.17 

 

The Company maintains the 2008 Stock Option Plan (the “2008 Option Plan”) which authorizes the grant of stock options to officers, employees and directors of the Company to acquire shares of common stock with an exercise price at least equal to the fair market value of the common stock on the grant date. Options generally become vested and exercisable at the rate of 20% per year over five years and are generally exercisable for a period of ten years after the grant date. A total of 533,808 shares of common stock were approved for future issuance pursuant to the 2008 Option Plan. As of June 30, 2019, all of the options had been awarded under the 2008 Option Plan and no further options can be awarded, even if existing options under the 2008 option plan are forfeited. The 2014 SIP reserved up to 714,145 shares for issuance pursuant to options. Options to purchase 605,000 shares were awarded during February 2015. During August 2016, the Company granted 18,867 shares under the 2008 Option Plan and 8,633 shares under the 2014 SIP. In March 2017, the Company granted 22,828 shares under the 2014 SIP. In May 2017, the Company granted 24,717 shares under the 2014 SIP and 283 shares under the 2008 Option Plan. In March 2018, the Company granted 159,265 shares under the 2014 SIP and 18,235 shares under the 2008 Option Plan.

 

A summary of the status of the Company’s stock options under the 2008 Option Plan and the 2014 SIP for the nine months ended June 30, 2019 and 2018 are presented below:

 

34

 

 

   Nine Months Ended
June 30, 2019
 
   Number of
Shares
   Weighted Average
Exercise Price
 
         
Outstanding at October 1, 2018   869,026   $13.41 
Granted   -    - 
Exercised   (109,694)   11.91 
Forfeited   (6,000)   12.23 
Outstanding at June 30, 2019   753,332   $13.64 
Exercisable at June 30, 2019   530,953   $12.37 

 

   Nine Months Ended
June 30, 2018
 
   Number of
Shares
   Weighted Average
Exercise Price
 
         
Outstanding at October 1, 2017   922,564   $12.04 
Granted   177,500    18.46 
Exercised   (110,926)   11.73 
Forfeited   (12,234)   11.90 
Outstanding at June 30, 2018   976,904   $13.15 
Exercisable at June 30, 2018   521,630   $11.49 

 

The weighted average remaining contractual term was approximately 7.0 years for options outstanding as of June 30, 2019.

 

The estimated fair value of options granted during fiscal 2009 was $2.98 per share, $2.92 for options granted during fiscal 2010, $3.34 for options granted during fiscal 2013, $4.67 for options granted during fiscal 2014, $4.58 for options granted during fiscal 2015, $2.13 for options granted during fiscal 2016, $3.18 for options granted during fiscal 2017 and $3.63 for options granted in fiscal 2018. The fair value for grants made in fiscal 2017 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise price range from $17.43 to $18.39, a term of seven years, a volatility of 14.37%, an interest rate of 2.22% and a yield of 0.69%. The fair value for grants made in fiscal 2018 was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: an exercise and fair value based on the grant date market value price of $18.46, a term of seven years, a volatility rate of 15.9%, an interest rate of 2.82% and a yield rate of 1.08%.

 

During the three and nine months ended June 30, 2019, $146,000 and $423,000, respectively, was recognized in compensation expense for options granted pursuant to the 2008 Option Plan and the 2014 SIP. During the three and nine months ended June 30, 2018, $150,000 and $389,000, respectively, was recognized in compensation expense for options granted pursuant to the 2008 Option Plan and the 2014 SIP.

 

At June 30, 2019, there was approximately $887,000 in additional compensation expense to be recognized for awarded options which remained outstanding and unvested at such date. The weighted average period over which this expense will be recognized is approximately 2.5 years.

 

35

 

 

12.COMMITMENTS AND CONTINGENT LIABILITIES

 

At June 30, 2019, the Company had a total of $50.8 million in outstanding commitments to originate loans with market interest rates ranging from 5.75% to 7.00%. At September 30, 2018, the Company had $40.4 million in outstanding commitments to originate loans with market interest rates ranging from 4.25% to 6.25%. The aggregate undisbursed portion of loans-in-process related to the bank’s construction loans amounted to $113.9 million at June 30, 2019 and $54.5 million at September 30, 2018.

 

The Company also had commitments under unused lines of credit aggregating $36.8 million as of June 30, 2019 and $51.9 million as of September 30, 2018 and letters of credit outstanding of $1.6 million as of June 30, 2019 and $1.6 million as of September 30, 2018.

 

Among the Company’s contingent liabilities are exposures to limited recourse arrangements with respect to the Company’s sales of whole loans and participation interests. At June 30, 2019, the exposure, which represents a portion of credit risk associated with the interests sold, amounted to $1.4 million related to loans sold to the FHLB. This exposure is for the life of the related loans and payables, on our proportionate share, as actual losses are incurred. These loans are seasoned loans and remain performing.

 

The Company is involved in various legal proceedings occurring in the ordinary course of business. Management of the Company, based on discussions with litigation counsel, believes that such proceedings will not have a material adverse effect on the financial condition, operations or cash flows of the Company. However, there can be no assurance that any of the outstanding legal proceedings to which the Company is a party will not be decided adversely to the Company's interests and not have a material adverse effect on the financial condition and operations of the Company.

 

13.FAIR VALUE MEASUREMENT

 

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2019 and September 30, 2018, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

 

Generally accepted accounting principles used in the United States establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

 

The three broad levels of hierarchy are as follows:

 

  Level 1 Quoted prices in active markets for identical assets or liabilities.
  Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
  Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. 

 

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Those assets and liabilities as of June 30, 2019 which are measured at fair value on a recurring basis were as follows:

 

   Category Used for Fair Value Measurement 
   Level 1   Level 2   Level 3   Total 
   (Dollars in Thousands) 
                 
Assets:                    
Securities available for sale:                           
U.S. Government and agency obligations  $-   $24,978   $-   $24,978 
Mortgage-backed securities - U.S. Government agencies   -    313,430    -    313,430 
State and political subdivisions   -    34,106    -    34,106 
Corporate bonds   -    65,665    -    65,665 
Equity securities   69    -    -    69 
Total  $69   $438,179   $-   $438,248 
                     
Liabilities                    
Interest rate swap contracts  $-   $8,806   $-   $8,806 
Total  $-   $8,806   $-   $8,806 

 

Those assets as of September 30, 2018 which are measured at fair value on a recurring basis were as follows:

 

   Category Used for Fair Value Measurement 
   Level 1   Level 2   Level 3   Total 
   (Dollars in Thousands) 
                 
Assets:                    
Securities available for sale:                            
U.S. Government and agency obligations  $-   $24,171   $-   $24,171 
Mortgage-backed securities - U.S. Government agencies   -    187,360    -    187,360 
State and political subdivisions   -    21,536    -    21,536 
Corporate bonds   -    73,083    -    73,083 
FHLMC preferred stock   37    -    -    37 
Interest rate swap contracts   -    225    -    225 
Total  $37   $306,375   $-   $306,412 

 

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans and real estate owned at fair value on a non-recurring basis.

 

Impaired Loans

 

The Company considers loans to be impaired when it becomes more likely than not that the Company will be unable to collect all amounts due (principle and interest) in accordance with the contractual terms of the loan agreements. Collateral dependent impaired loans are based on the fair value of the collateral which is based on appraisals and would be categorized as Level 2 measurement.  In some cases, adjustments are made to the appraised values for various factors including the age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. These loans are reviewed for impairment and written down to their net realizable value by charges against the allowance for loan losses. The collateral underlying these loans had a fair value of approximately $15.4 million as of June 30, 2019.

 

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Other Real Estate Owned

 

Once an asset is determined to be uncollectible, the underlying collateral is generally repossessed and reclassified to foreclosed real estate and repossessed assets. These repossessed assets are carried at the lower of cost or fair value of the collateral, based on independent appraisals, less cost to sell and would be categorized as Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparable included in the appraisal, and known changes in the market and in the collateral. As a result, the evaluations are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.

 

Summary of Non-Recurring Fair Value Measurements

 

   At June 30, 2019 
   (Dollars in Thousands) 
   Level 1   Level 2   Level 3   Total 
Impaired loans  $-   $-   $15,374   $15,374 
Other real estate owned   -    -    423    423 
Total  $-   $-   $       15,797   $         15,797 
                     
   At September 30, 2018 
   (Dollars in Thousands) 
   Level 1   Level 2   Level 3   Total 
Impaired loans  $-   $-   $16,048   $16,048 
Other real estate owned   -    -    1,026    1,026 
Total  $-   $-   $17,074   $17,074 

 

The following table provides information describing the valuation processes used to determine nonrecurring fair value measurements categorized within Level 3 of the fair value hierarchy:

 

   At June 30, 2019
   (Dollars in Thousands)
       Valuation     Range/
   Fair Value   Technique