Company Quick10K Filing
Quick10K
Pilgrim Bancshares
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2019-01-31 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-01-25 Other Events
8-K 2019-01-25 Other Events
8-K 2018-12-11 Shareholder Vote
8-K 2018-12-03 Other Events
8-K 2018-07-25 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-05-22 Shareholder Vote, Other Events
8-K 2018-01-26 Other Events, Exhibits
AL Air Lease 4,240
SAIA SAIA 1,740
KRNY Kearny Financial 1,270
WTBA West Bancorporation 352
CBL CBL & Associates Properties 217
MBIO Mustang Bio 160
XSPA Xpresspa Group 5
GRSU Greenhouse Solutions 0
OMVS On The Move Systems 0
ATHN Athenahealth 0
PLRM 2018-09-30
Note 1 - Nature of Operations
Note 2 - Basis of Presentation
Note 3 - Recent Accounting Pronouncements
Note 4 - Earnings per Share (Eps)
Note 5 - Investments in Securities
Note 6 - Loans
Note 7 - Deposits
Note 8 - Federal Home Loan Bank Advances
Note 9 - Fair Value Measurements
Note 10 - Regulatory Capital
Note 11 - Common Stock Repurchases
Note 12 - Equity Incentive Plan
Note 13 - Merger Announcement
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tv505724_ex31-1.htm
EX-31.2 tv505724_ex31-2.htm
EX-32 tv505724_ex32.htm

Pilgrim Bancshares Earnings 2018-09-30

PLRM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv505724_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2018

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: 000-55290

 

PILGRIM BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 46-5110553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

 

40 South Main Street, Cohasset, Massachusetts 02025
(Address of principal executive offices) (Zip Code)

 

Registrant's telephone number, including area code: (781) 383-0541

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

 

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). YES x   NO ¨

 

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

 

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

 

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

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨    NO x

 

As of November 7, 2018, there were issued and outstanding 2,261,619 shares of the Registrant’s Common Stock with a par value of $0.01 per share.

 

 

  

 

 

 

Pilgrim Bancshares, Inc.

Form 10-Q

 

Index

 

        Page
    Part I. Financial Information    
         
Item 1.   Consolidated Financial Statements (unaudited)    
         
    Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017   3
         
    Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and September 30, 2017   4
         
    Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and September 30, 2017   5
         
    Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2018 and September 30, 2017  

6 

         
    Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and September 30, 2017  

7

         
    Notes to Unaudited Consolidated Financial Statements   8
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations  

32

         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   43
         
Item 4.   Controls and Procedures   43
         
    Part II. Other Information    
         
Item 1.   Legal Proceedings   43
         
Item 1A.   Risk Factors   43
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   43
         
Item 3.   Defaults upon Senior Securities   43
         
Item 4.   Mine Safety Disclosures   43
         
Item 5.   Other Information   43
         
Item 6.   Exhibits   43
         
    Signature Page   44

 

 2 

 

  

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

(In Thousands, except share data)

 

   September 30,   December 31, 
(unaudited)  2018   2017 
         
ASSETS          
Cash and due from banks  $1,382   $1,391 
Interest-bearing demand deposits with other banks   11,070    13,579 
Total cash and cash equivalents   12,452    14,970 
Interest-bearing time deposits with other banks   1,111    1,106 
Investments in available-for-sale securities (at fair value)   15,920    16,607 
Investments in held-to-maturity securities (fair value of $114 at September 30, 2018, and $121 at December 31, 2017)   72    83 
Federal Home Loan Bank stock, at cost   2,296    2,296 
Investment in The Co-operative Central Reserve Fund, at cost   384    384 
Loans, net of allowance for loan losses of  $1,319 at September 30, 2018,and $1,229 at December 31, 2017   222,615    219,975 
Premises and equipment, net   4,674    4,758 
Investment in real estate, net   1,515    1,547 
Accrued interest receivable   709    625 
Deferred income tax asset, net   592    559 
Bank-owned life insurance   2,373    2,349 
Other assets   349    249 
Total assets  $265,062   $265,508 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Deposits:          
Noninterest-bearing  $21,923   $17,559 
Interest-bearing   169,038    172,688 
Total deposits   190,961    190,247 
Federal Home Loan Bank advances   38,588    40,209 
Other liabilities   1,005    933 
Total liabilities   230,554    231,389 
Stockholders' equity:          
Common stock $.01 par value per share: 10,000,000 shares authorized, 2,261,619 shares issued at September 30, 2018 and 2,255,450 shares issued at December 31, 2017   23    23 
Additional paid-in capital   21,347    21,093 
Retained earnings   15,624    15,369 
Unearned compensation - ESOP (151,337 shares unallocated at September 30, 2018 and 155,833 shares unallocated at December 31, 2017)   (1,513)   (1,559)
Unearned compensation  - Restricted Stock   (688)   (675)
Accumulated other comprehensive loss   (285)   (132)
Total stockholders' equity   34,508    34,119 
Total liabilities and stockholders' equity  $265,062   $265,508 

 

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

 

 3 

 

 

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF INCOME

 

(In Thousands, except share and per share data)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(unaudited)  2018   2017   2018   2017 
         
Interest and dividend income:                    
Interest and fees on loans  $2,588   $2,327   $7,400   $6,752 
Interest on debt securities:                    
Taxable   61    48    175    149 
Tax-exempt   15    11    46    32 
Other interest and dividends   102    70    280    189 
Total interest and dividend income   2,766    2,456    7,901    7,122 
Interest expense:                    
Interest on deposits   518    388    1,339    1,123 
Interest on Federal Home Loan Bank advances   156    115    452    311 
Total interest expense   674    503    1,791    1,434 
Net interest and dividend income   2,092    1,953    6,110    5,688 
Provision for loan losses   45    45    90    135 
Net interest and dividend income after provision for loan losses   2,047    1,908    6,020    5,553 
Noninterest income:                    
Service charges on deposit accounts   31    31    95    84 
Gain on sales/calls of securities, net   1    -    3    2 
Gain on sales of loans, net   -    14    1    20 
Rental income   56    52    170    165 
Other income   21    31    92    89 
Total noninterest income   109    128    361    360 
Noninterest expense:                    
Salaries and employee benefits   927    874    2,778    2,691 
Occupancy expense   112    116    361    355 
Equipment expense   40    40    123    125 
Data processing expense   122    107    354    311 
Professional fees   90    93    275    277 
Federal Deposit Insurance Corporation assessment   19    42    101    129 
Communications expense   22    22    86    75 
Advertising and public relations expense   33    25    113    88 
Insurance expense   16    16    47    48 
Supplies expense   15    16    45    46 
Merger related expense   456    -    456    - 
Other expense   42    54    149    178 
Total noninterest expense   1,894    1,405    4,888    4,323 
Income before income taxes   262    631    1,493    1,590 
Income tax expense   208    257    558    620 
Net income  $54   $374   $935   $970 
                     
Weighted-average number of common shares outstanding:                    
Basic   2,058,910    2,039,792    2,055,104    2,035,678 
Diluted   2,130,979    2,090,449    2,116,574    2,066,640 
                     
Earnings per share:                    
Basic  $0.03   $0.18   $0.46   $0.48 
Diluted  $0.03   $0.18   $0.44   $0.47 

 

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

 

 4 

 

 

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(In Thousands)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
(unaudited)  2018   2017   2018   2017 
         
Net income  $54   $374   $935   $970 
Other comprehensive (loss) income, net of tax:                    
Net unrealized holding (loss) gain on available-for-sale securities   (7)   17    (183)   92 
Reclassification adjustment for net realized gains in net income   (1)   -    (3)   (2)
Other comprehensive (loss) income before income tax effect   (8)   17    (186)   90 
Income tax (expense) benefit   (9)   (6)   33    (33)
Other comprehensive (loss) income, net of tax   (17)   11    (153)   57 
Comprehensive income  $37   $385   $782   $1,027 

 

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

 

 5 

 

 

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

For the Nine Months Ended September 30, 2018 and 2017

 

(In Thousands, except share data)

 

                           Accumulated     
    Common   Additional       Unearned   Unearned   Other     
(unaudited)   Stock   Paid-in   Retained   Compensation-   Compensation-   Comprehensive     
   Shares   Amount   Capital   Earnings   ESOP   Restricted Stock   Loss   Total 
Balance, December 31, 2016   2,253,439   $23   $20,910   $14,260   $(1,619)  $(806)  $(121)  $32,647 
Net income   -    -    -    970    -    -    -    970 
Restricted stock surrendered and retired   (3,339)   -    (58)   -    -    -    -    (58)
Restricted stock granted in connection with equity incentive plan   3,350    -    58    -    -    (58)   -    - 
Stock options exercised   1,500    -    19    -    -    -    -    19 
Common stock held by ESOP committed to be allocated (4,495 shares)   -    -    30    -    45    -    -    75 
Share based compensation-restricted stock   -    -    -    -    -    141    -    141 
Share based compensation-options   -    -    84    -    -    -    -    84 
Other comprehensive income, net of tax effect   -    -    -    -    -    -    57    57 
Balance, September 30, 2017   2,254,950   $23   $21,043   $15,230   $(1,574)  $(723)  $(64)  $33,935 
                                         
Balance, December 31, 2017   2,255,450   $23   $21,093   $15,369   $(1,559)  $(675)  $(132)  $34,119 
Net income   -    -    -    935    -    -    -    935 
Restricted shares surrendered and retired   (3,331)   -    (67)   -    -    -    -    (67)
Restricted stock granted in connection with the equity incentive plan   9,500    -    183    -    -    (183)   -    - 
Common stock held by ESOP committed to be allocated (4,496 shares)   -    -    47    -    46    -    -    93 
Share based compensation-restricted stock   -    -    -    -    -    170    -    170 
Share based compensation-options   -    -    91    -    -    -    -    91 
Dividend declared   -    -    -    (680)   -    -    -    (680)
Other comprehensive loss, net of tax effect   -    -    -    -    -    -    (153)   (153)
Balance, September 30, 2018   2,261,619   $23   $21,347   $15,624   $(1,513)  $(688)  $(285)  $34,508 

 

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

 

 6 

 


PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In Thousands)

 

   Nine Months Ended September 30, 
(unaudited)    2018   2017 
     
Cash flows from operating activities:          
Net income  $935   $970 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   90    135 
Capitalized interest on interest-bearing time deposits   (5)   (6)
Amortization of securities, net   44    65 
Gain on sales/calls of securities, net   (3)   (2)
Loans originated for sale   (280)   (1,122)
Proceeds from sales of loans originated for sale   281    1,142 
Gains on sales of loans, net   (1)   (20)
Change in net deferred origination fees, costs, premiums and discounts   41    (51)
Depreciation and amortization   245    242 
Stock based compensation expense   354    300 
Increase in accrued interest receivable   (84)   (63)
Increase in bank-owned life insurance   (24)   (26)
(Increase) decrease in other assets   (100)   13 
Increase (decrease) in other liabilities   72    (64)
Net cash provided by operating activities   1,565    1,513 
           
Cash flows from investing activities:          
Purchase of Federal Home Loan Bank stock   -    (135)
Redemption of Federal Home Loan Bank stock   -    138 
Purchases of available-for-sale securities   (893)   (852)
Proceeds from maturities/calls/pay downs of available-for-sale securities   1,353    1,443 
Proceeds from maturities of held-to-maturity securities   11    18 
Loan principal originations and collections, net   (2,376)   2,393 
Loans purchased   (395)   (11,514)
Capital expenditures   (129)   (99)
Net cash used in investing activities   (2,429)   (8,608)
           
Cash flows from financing activities:          
Net increase (decrease) in demand deposits, NOW and savings accounts   1,651    (2,246)
Net (decrease) increase in time deposits   (937)   5,814 
Payments on Federal Home Loan Bank long-term advances   (9,621)   (17,545)
Proceeds from Federal Home Loan Bank long-term advances   8,000    22,500 
Restricted shares surrendered and retired   (67)   (58)
Stock options exercised   -    19 
Dividends paid to stockholders   (680)   - 
Net cash (used in) provided by financing activities   (1,654)   8,484 
           
Net (decrease) increase in cash and cash equivalents   (2,518)   1,389 
Cash and cash equivalents at beginning of period   14,970    11,188 
Cash and cash equivalents at end of period  $12,452   $12,577 
           
Supplemental disclosures:          
Interest paid  $1,785   $1,425 
Income taxes paid   634    793 

 

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

 

 7 

 

  

PILGRIM BANCSHARES, INC. AND SUBSIDIARY

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - NATURE OF OPERATIONS

 

Pilgrim Bancshares, Inc. (the “Company”) was incorporated in February 2014 under the laws of the State of Maryland. The Company owns all of the outstanding shares of common stock of Pilgrim Bank (the “Bank”). The Bank is a Massachusetts-chartered stock bank, which was incorporated in 1916 and is headquartered in Cohasset, Massachusetts. The Bank operates its business from three banking offices located in Massachusetts. The Bank is engaged principally in the business of attracting deposits from the public and investing those deposits in residential and commercial real estate loans, and in commercial, consumer and small business loans. The Bank is subject to the regulations of, and periodic examination by, the Massachusetts Division of Banks (“DOB”) and the Federal Deposit Insurance Corporation (“the FDIC”).

 

NOTE 2 - BASIS OF PRESENTATION

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 48 South Main Street Corporation, which was formed to hold securities for its own account; 40 South Main Street Realty Trust, which was formed to hold our main office; and 800 CJC Realty Corporation, which was formed to invest in and develop residential and commercial property. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. Financial information as of September 30, 2018 and for the interim periods ended September 30, 2018 and 2017 is unaudited; however, in the opinion of management, reflects all adjustments considered necessary for a fair presentation of such information. Such adjustments were of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

 

These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.

 

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

 

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

 

As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, the consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of September 30, 2018, there is no significant difference in the comparability of the consolidated financial statements as a result of this extended transition period. The Company’s status as an “emerging growth company” will end on December 31, 2019.

 

 8 

 

  

In May 2014 and August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the extended transition period for an emerging growth company, the amendments in ASU 2015-14 defer the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim periods within that period. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of ASU 2014-09 is not expected to have a material impact on the Company’s consolidated financial statements.

 

We have evaluated the impact of adopting the update and concluded that it will not have a significant impact on our consolidated financial statements. The Company’s revenue streams that are in-scope of the update include: deposit fees, (including ATM fees, overdraft fees, maintenance fees and dormancy fees); and debit card fees. For in-scope revenue streams, our current revenue recognition would not be different than revenue recognition under the update. Financing the sale of OREO would be included in the scope of the update; however, the Company has not been involved in the financing of any OREO sales. Our customer contracts generally do not have performance obligations and fees are assessed and collected as the transaction occurs. The Company’s fee income, from service charges on deposit accounts and bankcard fees, is not material for any one individual income stream.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and makes targeted improvements to GAAP as follows:

 

1.Require 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. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same manner.
2.Simplify the impairment assessment of equity investments without determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.
3.Eliminate 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.
4.Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
5.Require an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
6.Require separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
7.Clarify 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.

  

 9 

 

 

Under the extended transition period for an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. Early application of item 5 above is permitted for fiscal years, or interim periods for which financial statements have not yet been issued. Early application of all other amendments in this ASU is not permitted. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU was issued to increase transparency and comparability among organizations by requiring reporting entities to recognize all leases, including operating, as lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods therein. The Company anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting.” The ASU simplifies several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company adopted ASU 2016-09 during the reporting period that ended September 30, 2017. As a result of the adoption of ASU 2016-09, the Company recognized an excess tax benefit of $26,000 in the income tax expense section of the consolidated statements of income, for the year ended December 31, 2017. Following the adoption of ASU 2016-09, the Company continues to estimate zero forfeitures.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgement to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the amendments of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” Current GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. Under the extended transition period for an emerging growth company, the amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial statements.

 

 10 

 

  

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows – Restricted Cash (Topic 230).” The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. Under the extended transition period for an emerging growth company, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. As this guidance only affects the classification within the statement of cash flows, ASU 2016-18 is not expected to have a material impact on the Company’s 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 require shortening 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.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods therein. 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.  ASU 2017-08 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  ASU 2018-02 was issued to address the income tax accounting treatment of the stranded tax effects within accumulated other comprehensive income due to the prohibition of backward tracing due to an income tax rate change that was initially recorded in other comprehensive income.  This issue came about from the enactment of the Tax Cuts and Jobs Act on December 22, 2017 that changed the Company’s federal tax rate from 34% to 21%.  The ASU changed the current accounting whereby an entity may elect to reclassify the stranded tax effect from accumulated other comprehensive income to retained earnings.  The ASU is effective for periods beginning after December 15, 2018 although early adoption is permitted.  The Company elected to early adopt ASU 2018-02 and reclassified stranded taxes of $22,000 within accumulated other comprehensive loss to retained earnings, for the year ended December 31, 2017.

 

In August 2018, the FASB issued ASU 2018-13, “Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820).” This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and interim periods therein and are to be applied prospectively for all new disclosures, and retrospectively for existing disclosures that were modified or removed. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures and delay adoption of additional disclosures until their effective date. The Company is evaluating the impact of adopting ASU 2018-13 on its financial statements.

  

 11 

 

 

NOTE 4 - EARNINGS PER SHARE (EPS)

 

The Company has adopted the EPS guidance included in Accounting Standards Codification (ASC) 260-10. As presented below, basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For purposes of computing diluted EPS, the treasury stock method is used.

 

Unallocated ESOP shares and unearned shares of restricted stock are not deemed outstanding for earnings per share calculations.

 

EPS for the three and nine months ended September 30, 2018 and 2017 have been computed based on the following:

 

   Three Months Ended September 30,   Nine Months Ended September  30, 
   2018   2017   2018   2017 
Net income (In thousands)  $54   $374   $935   $970 
                     
Basic and diluted common shares:                    
Weighted average common shares outstanding   2,261,619    2,254,950    2,262,669    2,254,070 
Weighted average unearned shares-restricted stock   (50,629)   (57,060)   (53,982)   (58,808)
Weighted average unallocated ESOP shares   (152,080)   (158,098)   (153,583)   (159,584)
Basic weighted average shares outstanding   2,058,910    2,039,792    2,055,104    2,035,678 
                     
Dilutive potential common shares-options   54,510    32,934    44,875    16,668 
Dilutive effect of unearned restricted stock   17,559    17,723    16,595    14,294 
Diluted weighted average shares outstanding   2,130,979    2,090,449    2,116,574    2,066,640 
                     
Basic earnings per share  $0.03   $0.18   $0.46   $0.48 
Diluted earnings per share (1) (2)  $0.03   $0.18   $0.44   $0.47 

 

(1)Options to purchase 10,000 shares were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2018 because the effect was anti-dilutive.
(2)Options to purchase 7,500 shares were not included in the computation of diluted earnings per share for the nine months ended September 30, 2017 because the effect was anti-dilutive.

  

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NOTE 5 - INVESTMENTS IN SECURITIES

 

Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost basis of securities and their approximate fair values are as follows as of September 30, 2018 and December 31, 2017:

 

   Amortized   Gross   Gross     
   Cost   Unrealized   Unrealized   Fair 
   Basis   Gains   Losses   Value 
   (In Thousands) 
Available-for-sale securities:                    
September 30, 2018:                    
Debt securities issued by U.S. government corporations and agencies  $9,252   $-   $149   $9,103 
Debt securities issued by states of the United States and political subdivisions of the states   2,741    -    43    2,698 
Mortgage-backed securities   4,288    3    172    4,119 
   $16,281   $3   $364   $15,920 
                     
December 31, 2017:                    
Debt securities issued by U.S. government corporations and agencies  $8,350   $-   $70   $8,280 
Debt securities issued by states of the United States and political subdivisions of the states   3,258    15    20    3,253 
Mortgage-backed securities   5,174    3    103    5,074 
   $16,782   $18   $193   $16,607 

 

   Amortized   Gross   Gross     
   Cost   Unrealized   Unrealized   Fair 
   Basis   Gains   Losses   Value 
   (In Thousands) 
Held-to-maturity securities:                    
September 30, 2018:                    
Mortgage-backed securities  $72   $42   $-   $114 
   $72   $42   $-   $114 
                     
December 31, 2017:                    
Mortgage-backed securities  $83   $38   $-   $121 
   $83   $38   $-   $121 

 

 13 

 

  

The scheduled maturities of debt securities were as follows as of September 30, 2018:

 

   Available-For-Sale   Held-To-Maturity 
       Amortized     
   Fair   Cost   Fair 
   Value   Basis   Value 
   (In Thousands) 
Due within one year  $3,026   $-   $- 
Due after one year through five years   7,181    -    - 
Due after five years through ten years   1,022    -    - 
Due after ten years   572    -    - 
Mortgage-backed securities   4,119    72    114 
   $15,920   $72   $114 

 

No available-for-sale securities were sold during the three and nine months ended September 30, 2018 and 2017. As of September 30, 2018 and December 31, 2017, there were no securities of issuers whose aggregate carrying amount exceeded 10% of stockholders’ equity.

 

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and are not other-than-temporarily impaired, are as follows:

 

   Less than 12 Months   12 Months or Longer   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
   (In Thousands) 
September 30, 2018:                        
Debt securities issued by U.S. government corporations and agencies  $5,105   $100    3,998   $49   $9,103   $149 
Debt securities issued by states of the United States and political subdivisions of the states   2,143    21    555    22    2,698    43 
Mortgage-backed securities   1,319    45    2,511    127    3,830    172 
Total temporarily impaired securities  $8,567   $166   $7,064   $198   $15,631   $364 
                               
December 31, 2017:                              
Debt securities issued by U.S. government corporations and agencies  $4,025   $30   $3,755   $40   $7,780   $70 
Debt securities issued by states of the United States and political subdivisions of the states   990    7    1,073    13    2,063    20 
Mortgage-backed securities   1,512    10    3,228    93    4,740    103 
Total temporarily impaired securities  $6,527   $47   $8,056   $146   $14,583   $193 

 

 14 

 

  

As of September 30, 2018, investment securities with unrealized losses consist of 21 debt securities issued by U.S. government corporations and government-sponsored agencies, 11 debt securities issued by states of the United States and political subdivisions of the states and mortgage-backed securities consisting of 26 government agencies and government sponsored enterprises. The Company reviews investments for other-than-temporary impairment using a number of factors including the length of time and the extent to which the market value has been less than cost and by examining any credit deterioration or ratings downgrades. The unrealized losses in the above tables are primarily attributable to changes in market interest rates. As Company management has the intent and ability to hold impaired debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary. For those debt securities for which the fair value of the security is less than its amortized cost and the Company does not intend to sell such security and it is more likely than not that it will not be required to sell such security prior to the recovery of its amortized cost basis less any credit losses, ASC 320-10, “Investments - Debt and Equity Securities,” requires that the credit component of the other-than-temporary impairment losses be recognized in earnings while the noncredit component is recognized in other comprehensive income, net of related taxes.

 

No other-than-temporary impairment losses were recognized for the three and nine months ended September 30, 2018 and 2017.

 

NOTE 6 - LOANS

 

Loans consisted of the following:

 

   September 30,   December 31, 
   2018   2017 
   (In Thousands) 
Real estate loans:          
     One-to four- family residential  $137,685   $143,413 
     Commercial   24,042    24,360 
     Multi-family   27,334    21,402 
     Home equity loans and lines of credit   3,346    2,553 
     Construction   27,813    25,279 
Commercial and industrial loans   2,761    2,802 
Consumer loans:          
     Consumer lines of credit   19    12 
     Other consumer loans   586    994 
    223,586    220,815 
Net deferred loan origination fees, costs, premiums and discounts   348    389 
Allowance for loan losses   (1,319)   (1,229)
          Net loans  $222,615   $219,975 

 

 15 

 

  

The following tables set forth information regarding the allowance for loan losses as of and for the three and nine months ended September 30, 2018 and 2017:

 

   Real Estate:       Consumer         
   One- to four-family            Home Equity Loans       Commercial and   Consumer   Other         
   Residential   Commercial   Multi-family   and Lines of Credit   Construction   Industrial Loans   Lines of Credit   Consumer   Unallocated   Total 
   (In Thousands) 
Three Months ended September 30, 2018:                                        
Allowance for loan losses:                                                  
Beginning balance  $581   $120   $87   $17   $392   $9   $-   $6   $62   $1,274 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    -    - 
(Benefit) provision   (25)   15    36    (1)   6         -    (1)   15    45 
Ending balance  $556   $135   $123   $16   $398   $9   $-   $5   $77   $1,319 
                                                   
Three Months ended September 30, 2017:                                                  
Allowance for loan losses:                                                  
Beginning balance  $524   $131   $85   $11   $349   $9   $1   $10   $19   $1,139 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    -    - 
Provision (benefit)   44    (6)   1    2    10    -    -    (2)   (4)   45 
Ending balance  $568   $125   $86   $13   $359   $9   $1   $8   $15   $1,184 

 

   Real Estate:       Consumer         
   One- to four-family           Home Equity Loans       Commercial and   Consumer   Other         
   Residential   Commercial   Multi-family   and Lines of Credit   Construction   Industrial Loans   Lines of Credit   Consumer   Unallocated   Total 
   (In Thousands) 
Nine Months ended September 30, 2018:                                        
Allowance for loan losses:                                                  
Beginning balance  $612   $124   $86   $12   $348   $9   $-   $8   $30   $1,229 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    -    - 
(Benefit) provision   (56)   11    37    4    50    -    -    (3)   47    90 
Ending balance  $556   $135   $123   $16   $398   $9   $-   $5   $77   $1,319 
                                                   
Nine Months ended September 30, 2017:                                                  
Allowance for loan losses:                                                  
Beginning balance  $449   $134   $74   $12   $340   $10   $1   $15   $14   $1,049 
Charge-offs   -    -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    -    - 
Provision (benefit)   119    (9)   12    1    19    (1)   -    (7)   1    135 
Ending balance  $568   $125   $86   $13   $359   $9   $1   $8   $15   $1,184 

  

 16 

 

  

The following tables set forth information regarding the allowance for loan losses at September 30, 2018 and December 31, 2017:

 

   Real Estate:       Consumer         
   One- to four-family           Home Equity Loans       Commercial and   Consumer   Other         
   Residential   Commercial   Multi-family   and Lines of Credit   Construction   Industrial Loans   Lines of Credit   Consumer   Unallocated   Total 
                                         
At September 30, 2018                                                  
Allowance for loan losses:                                                  
Ending balance:                                                  
Individually evaluated for impairment  $-   $-   $-   $-   $-   $-   $-   $-   $-   $- 
Ending balance:                                                  
Collectively evaluated for impairment   556    135    123    16    398    9    -    5    77    1,319 
Total allowance for loan losses ending balance  $556   $135   $123   $16   $398   $9   $-   $5   $77   $1,319 
                                                   
Loans:                                                  
Ending balance:                                                  
Individually evaluated for impairment  $4,830   $602   $-   $5   $-   $-   $-   $-   $-   $5,437 
Ending balance:                                                  
Collectively evaluated for impairment   132,855    23,440    27,334    3,341    27,813    2,761    19    586    -    218,149 
Total loans ending balance  $137,685   $24,042   $27,334   $3,346   $27,813   $2,761   $19   $586   $-   $223,586 

 

   Real Estate:       Consumer         
   One- to four-family           Home Equity Loans       Commercial and   Consumer   Other         
   Residential   Commercial   Multi-family   and Lines of Credit   Construction   Industrial Loans   Lines of Credit   Consumer   Unallocated   Total 
                                         
At December 31, 2017:                                                  
Allowance for loan losses:                                                  
Ending balance:                                                  
Individually evaluated for impairment  $21   $-   $-   $-   $-   $-   $-   $-   $-   $21 
Ending balance:                                                  
Collectively evaluated for impairment   591    124    86    12    348    9    -    8    30    1,208 
Total allowance for loan losses ending balance  $612   $124   $86   $12   $348   $9   $-   $8   $30   $1,229 
                                                   
Loans:                                                  
Ending balance:                                                  
Individually evaluated for impairment  $2,882   $622   $-   $6   $-   $-   $-   $-   $-   $3,510 
Ending balance:                                                  
Collectively evaluated for impairment   140,531    23,738    21,402    2,547    25,279    2,802    12    994    -    217,305 
Total loans ending balance  $143,413   $24,360   $21,402   $2,553   $25,279   $2,802   $12   $994   $-   $220,815 

 

 17 

 

  

The following tables set forth information regarding nonaccrual loans and past-due loans as of September 30, 2018 and December 31, 2017:

 

                           90 Days     
           90 Days               or More     
   30-59 Days   60-89 Days   or More   Total   Total       Past Due   Nonaccrual 
   Past Due   Past Due   Past Due   Past Due   Current   Total   and Accruing   Loans 
   (In Thousands) 
September 30, 2018:                                
Real estate loans:                                        
One- to four-family residential  $-   $-   $567   $567   $137,118   $137,685   $-   $567 
Commercial   -    -    -    -    24,042    24,042    -    - 
Multi-family   -    -    -    -    27,334    27,334    -    - 
Home equity loans and lines of credit   -    -    5    5    3,341    3,346    -    5 
Construction   -    -    -    -    27,813    27,813    -    - 
Commercial and industrial loans   -    -    -    -    2,761    2,761    -    - 
Consumer loans:                                        
Consumer lines of credit   -    -    -    -    19    19    -    - 
Other consumer   -    -    -    -    586    586    -    - 
Total  $-   $-   $572   $572   $223,014   $223,586   $-   $572 
                                         
December 31, 2017:                                        
Real estate loans:                                        
One- to four-family residential  $-   $-   $112   $112   $143,301   $143,413   $-   $112 
Commercial   -    -    -    -    24,360    24,360    -    - 
Multi-family   -    -    -    -    21,402    21,402    -    - 
Home equity loans and lines of credit   -    -    -    -    2,553    2,553    -    - 
Construction   -    -    -    -    25,279    25,279    -    - 
Commercial and industrial loans   -    -    -    -    2,802    2,802    -    - 
Consumer loans:                                        
Consumer lines of credit   -    -    -    -    12    12    -    - 
Other consumer   12    -    -    12    982    994    -    - 
Total  $12   $-   $112   $124   $220,691   $220,815   $-   $112 

 

 18 

 

 

Information about loans that meet the definition of an impaired loan in ASC 310-10-35, “Receivables – Overall Subsequent Measurement,” is as follows at September 30, 2018 and December 31, 2017:

 

       Unpaid     
   Recorded   Principal   Related 
   Investment   Balance   Allowance 
   (In Thousands) 
September 30, 2018:            
With no related allowance recorded:               
Real estate loans:               
One- to four-family residential  $4,830   $4,830   $- 
Commercial   602    602    - 
Home equity loans and lines of credit   5    87    - 
Total impaired with no related allowance   5,437    5,519    - 
                
With an allowance recorded:               
Real estate loans:               
One- to four-family residential   -    -    - 
Commercial   -    -    - 
Home equity loans and lines of credit   -    -    - 
Total impaired with an allowance recorded   -    -    - 
                
Total               
Real estate loans:               
One- to four-family residential   4,830    4,830    - 
Commercial   602    602    - 
Home equity loans and lines of credit   5    87    - 
Total impaired loans  $5,437   $5,519   $- 
                
December 31, 2017:            
With no related allowance recorded:    
Real estate loans:               
One- to four-family residential  $2,315   $2,315   $- 
Commercial   622    622    - 
Home equity loans and lines of credit   6    88    - 
Total impaired with no related allowance   2,943    3,025    - 
                
With an allowance recorded:               
Real estate loans:               
One- to four-family residential   567    567    21 
Commercial   -    -    - 
Home equity loans and lines of credit   -    -    - 
Total impaired with an allowance recorded   567    567    21 
                
Total               
Real estate loans:               
One- to four-family residential   2,882    2,882    21 
Commercial   622    622    - 
Home equity loans and lines of credit   6    88    - 
Total impaired loans  $3,510   $3,592   $21 

 

 19 

 

  

The following table presents, by class, information related to average recorded investment and interest income recognized on impaired loans for the nine months ended September 30, 2018 and September 30, 2017.

 

   Nine Months Ended   Nine Months Ended 
   September 30, 2018   September 30, 2017 
   Average   Interest   Average   Interest 
   Recorded   Income   Recorded   Income 
   Investment   Recognized   Investment   Recognized 
   (In Thousands) 
With no related allowance recorded:                    
Real estate loans:                    
One- to four-family residential  $3,076   $76   $2,757   $87 
Commercial   611    35    642    27 
Home equity loans and lines of credit   5    -    6    2 
Total impaired with no related allowance   3,692    111    3,405    116 
                     
With an allowance recorded:                    
Real estate loans:                    
One- to four-family residential   -    -    643    41 
Commercial   -    -    -    - 
Home equity loans and lines of credit   -    -    -    - 
Total impaired with an allowance recorded   -    -    643    41 
                     
Total                     
Real estate loans:                     
One- to four-family residential    3,076    76    3,400    128 
Commercial    611    35    642    27 
Home equity loans and lines of credit    5    -    6    2 
Total impaired loans   $3,692   $111   $4,048   $157 

 

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The following tables present the Company’s loans by risk rating:

 

   Real Estate:       Consumer     
   One- to four-family           Home Equity Loans       Commercial and   Consumer         
   Residential   Commercial   Multi-family   and Lines of Credit   Construction   Industrial Loans   Lines of Credit   Other Consumer   Total 
   (In Thousands) 
September 30, 2018:                                    
Grade:                                    
Pass  $-   $18,504   $27,334   $-   $27,813   $2,761   $-   $-   $76,412 
Special mention   2,000    5,538    -    -         -    -    -    7,538 
Substandard   567    -    -    5    -    -    -    -    572 
Loans not formally rated   135,118         -    3,341    -    -    19    586    139,064 
Total  $137,685   $24,042   $27,334   $3,346   $27,813   $2,761   $19   $586   $223,586 
                                              
December 31, 2017:                                             
Grade:                                             
Pass  $-   $22,818   $21,402   $-   $23,649   $2,802   $-   $-   $70,671 
Special mention   -    1,542    -    -    1,630    -    -    -    3,172 
Substandard   679    -    -    6    -    -    -    -    685 
Loans not formally rated   142,734    -    -    2,547    -    -    12    994    146,287 
Total  $143,413   $24,360   $21,402   $2,553   $25,279   $2,802   $12   $994   $220,815 

 

At September 30, 2018 and December 31, 2017, there were no loans rated “doubtful” or “loss.”

 

Credit Quality Information

 

The Company utilizes an eight grade internal loan rating system for commercial and multi-family real estate, construction and commercial loans as follows:

 

Loans rated 1 – 3W: Loans in these categories are considered “pass” rated loans with low to average risk.

 

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

 

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

 

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, highly questionable and improbable.

 

Loans rated 7: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

 

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On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial and multi-family real estate, construction and commercial loans. For residential real estate, home equity loans and lines of credit and consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity.

 

The Company classifies loans modified as TDRs as impaired loans with an allowance established as part of the allocated component of the allowance for loan losses when the discounted cash flows or value of the underlying collateral of the impaired loan is lower than its carrying value.

 

During the nine months ended September 30, 2018, there were two loans modified as TDRs. During the nine months ended September 30, 2017, there were two loans (one relationship) modified as TDRs. The following tables provide information on how the loans were modified as TDRs during the nine month period ending September 30, 2018 and 2017:

 

       Pre-Modification   Post-Modification 
   Number of   Outstanding Recorded   Outstanding Recorded 
   Contracts   Investment   Investment 
   (Dollars In Thousands) 
September 30, 2018            
Troubled Debt Restructurings:               
Real estate loans:               
One- to four- family residential   2   $1,788   $2,150 
    2   $1,788   $2,150 
                
September 30, 2017:               
Troubled Debt Restructurings:               
Real estate loans:               
One- to four- family residential   1   $567   $567 
Home equity loans and lines of credit   1    6    6 
    2   $573   $573 

 

               Term Extensions and 
   Rate   Interest Only   Rate Reduction and   Capitalization of 
   Reduction   Period   Interest Only Period   Payments and Fees 
   (Dollars in Thousands) 
September 30, 2018                    
Real estate loans:                    
One- to four- family residential  $-   $150   $-   $2,000 
     Total  $-   $150   $-   $2,000 
                     
December 31, 2017:                    
Real estate loans:                    
One- to four- family residential  $-   $567   $-   $- 
Home equity loans and lines of credit   -    6    -    - 
     Total  $-   $573   $-   $- 

  

As of September 30, 2018 there were two consumer mortgage loans (one relationship) collateralized by residential real estate in the process of foreclosure. These loans, which were modified as troubled debt restructures within the past twelve months, amount to $654,000 on a gross basis and previously had a partial charge off of $82,000 resulting in a combined net loan balance of $572,000. As of September 30, 2018, there was no commitment to lend additional funds to this borrower. As of December 31, 2017, there were no consumer mortgage loans collateralized by residential real estate in the process of foreclosure. As of September 30, 2018 and December 31, 2017, there were no commitments to lend additional funds to borrowers whose loans were modified in troubled debt restructurings.

 

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Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balances of mortgage and other loans serviced for others were $23.0 million and $22.7 million at September 30, 2018 and December 31, 2017, respectively.

 

NOTE 7 – DEPOSITS

 

The aggregate amount of time deposit accounts in denominations that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit (currently $250,000) at September 30, 2018 and December 31, 2017 was $27.0 million and $28.4 million, respectively. The totals exclude $5.0 million of brokered time deposits, which were bifurcated into amounts below the FDIC insurance limit, as of September 30, 2018 and December 31, 2017.

 

For time deposits as of September 30, 2018, the scheduled maturities for each of the following five years ended September 30 are:

 

   (In Thousands) 
2019  $43,072 
2020   31,633 
2021   16,331 
2022   5,214 
2023   732 
       Total  $96,982 

 

There were $8.3 million of brokered certificates of deposit and $8.6 million of listing service deposits at September 30, 2018. There were $9.1 million of broker certificates of deposit and $9.1 million of listing service deposits at December 31, 2017.

 

NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

 

Maturities of advances from the FHLB for the years ending after September 30, 2018 are summarized as follows:

 

   (In Thousands) 
2019  $10,208 
2020   7,572 
2021   2,405 
2022   9,833 
2023   70 
Thereafter   8,500 
   $38,588 

  

Interest rates ranged from 1.01% to 2.71% with a weighted-average interest rate of 1.74% at September 30, 2018. Interest rates ranged from 1.01% to 2.08% with a weighted-average interest rate of 1.48% at December 31, 2017.

 

Borrowings from the FHLB are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one-to-four family properties, certain unencumbered investment securities and other qualified assets.

 

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NOTE 9 - FAIR VALUE MEASUREMENTS

 

ASC 820-10, “Fair Value Measurement - Overall,” provides a framework for measuring fair value under generally accepted accounting principles. This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

 

In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

 

Level 3 - Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value as of September 30, 2018 and December 31, 2017. The Company did not have any significant transfers between level 1 and level 2 of the fair value hierarchy during the nine months ended September 30, 2018.

 

The Company’s investment in mortgage-backed securities and other debt securities available-for-sale is generally classified within level 2 of the fair value hierarchy. For these securities, we obtain fair value measurements from independent pricing services. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

 

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

 

The Company’s impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using level 2 inputs based upon appraisals of similar properties obtained from a third party. For level 3 inputs, fair value is based upon management estimates of the value of the underlying collateral or the present value of the expected cash flows.

 

 24 

 

 

The following tables summarize assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017:

 

   Fair Value Measurements at Reporting Date Using: 
       Quoted Prices in   Significant   Significant 
       Active Markets for   Other Observable   Unobservable 
       Identical Assets   Inputs   Inputs 
   Total   Level 1   Level 2   Level 3 
   (In Thousands) 
September 30, 2018 :                    
Debt securities issued by                    
U.S. government corporations and agencies  $9,103   $       -   $9,103   $           - 
Debt securities issued by states of the                    
United States and political subdivisions of the states   2,698    -    2,698    - 
Mortgage-backed securities   4,119    -    4,119    - 
Totals  $15,920   $-   $15,920   $- 
                     
December 31, 2017 :                    
Debt securities issued by                    
U.S. government corporations and agencies  $8,280   $-   $8,280   $- 
Debt securities issued by states of the                    
United States and political subdivisions of the states   3,253    -    3,253    - 
Mortgage-backed securities   5,074    -    5,074    - 
Totals  $16,607   $-   $16,607   $- 

 

Under certain circumstances, we make adjustments to fair value for certain assets and liabilities although they are not measured at fair value on an ongoing basis. The following table presents assets carried on the consolidated balance sheet by caption and by level in the fair value hierarchy at September 30, 2018 and December 31, 2017 for which a nonrecurring change in fair value has been recorded:

 

   Fair Value Measurements at Reporting Date Using: 
       Quoted Prices in   Significant   Significant 
       Active Markets for   Other Observable   Unobservable 
       Identical Assets   Inputs   Inputs 
   Total   Level 1   Level 2   Level 3 
   (In Thousands) 
September 30, 2018:                    
Impaired loans  $572   $        -   $       -   $572 
Totals  $572   $-   $-   $572 
                     
December 31, 2017:                    
Impaired loans  $552   $-   $-   $552 
Totals  $552   $-   $-   $552 

 

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The estimated fair values of the Company’s financial instruments, all of which are held or issued for purposes other than trading, are as follows:

 

   September 30, 2018 
   Carrying   Fair Value 
   Amount   Level 1   Level 2   Level 3   Total 
   (In Thousands) 
Financial assets:                         
Cash and cash equivalents  $12,452   $12,452   $-   $  -   $12,452 
Interest-bearing time deposits with other banks   1,111    -    1,111    -    1,111 
Available-for-sale securities   15,920    -    15,920    -    15,920 
Held-to-maturity securities   72    -    114    -    114 
Federal Home Loan Bank stock   2,296    2,296    -    -    2,296 
Investment in The Co-operative Central                         
Reserve Fund   384    384    -    -    384 
Loans, net   222,615    -    -    224,360    224,360 
Accrued interest receivable   709    709    -    -    709 
                          
Financial liabilities:                         
Deposits   190,961    -    190,977    -    190,977 
FHLB advances   38,588    -    36,716    -    36,716 

 

   December 31, 2017 
   Carrying   Fair Value 
   Amount   Level 1   Level 2   Level 3   Total 
   (In Thousands) 
Financial assets:                         
Cash and cash equivalents  $14,970   $14,970   $-   $-   $14,970 
Interest-bearing time deposits with other banks   1,106    -    1,106    -    1,106 
Available-for-sale securities   16,607    -    16,607    -    16,607 
Held-to-maturity securities   83    -    121    -    121 
Federal Home Loan Bank stock   2,296    2,296    -    -    2,296 
Investment in The Co-operative Central                         
Reserve Fund   384    384    -    -    384 
Loans, net   219,975    -    -    221,238    221,238 
Accrued interest receivable   625    625    -    -    625 
                          
Financial liabilities:                         
Deposits   190,247    -    190,748    -    190,748 
FHLB advances   40,209    -    38,212    -    38,212 

 

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets as of September 30, 2018 and December 31, 2017 under the indicated captions. Accounting policies related to financial instruments are described below.

 

ASC 825, “Financial Instruments,” requires that the Company disclose estimated fair values for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows:

 

Cash and cash equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets' fair values.

 

Interest-bearing time deposits with other banks: The fair value of interest-bearing time deposits with other banks was determined by discounting the cash flows associated with these instruments using current market rates for deposits with similar characteristics.

 

Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

 

 26 

 

 

Federal Home Loan Bank stock: The carrying amount of the stock is based on redemption provisions of the Federal Home Loan Bank and approximates those assets’ fair values.

 

Investment in the Co-operative Central Reserve Fund: the carrying amount is based on redemption provisions of the Reserve Fund and approximates those assets’ fair values.

 

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated by discounting the future cash flows, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

 

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

 

Deposit liabilities: The fair values disclosed for demand deposits, regular savings, NOW accounts, and money market accounts are equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

 

Federal Home Loan Bank advances: Fair values for Federal Home Loan Bank advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of aggregated expected monthly maturities on Federal Home Loan Bank advances.

 

NOTE 10 - REGULATORY CAPITAL

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

 

Effective January 1, 2015 (with a phase-in period of two to four years for certain components), the Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the FDIC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The regulations require a common equity Tier 1 (“CET 1”) capital ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum Tier 1 leverage ratio of 4.0%. CET1 generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CET1 capital ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a Tier 1 leverage ratio of 5.0%. In addition, the regulations establish a capital conservation buffer above the required capital ratios that began phasing in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019. Beginning January 1, 2016, failure to maintain the capital conservation buffer will limit the ability of the Bank and the Company to pay dividends, repurchase shares or pay discretionary bonuses. At September 30, 2018, the Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer.

 

Management believes, as of September 30, 2018, that the Bank meets all capital adequacy requirements to which it is subject.

 

 27 

 

 

As of September 30, 2018, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1, total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

 

The Bank’s actual capital amounts and ratios are also presented in the table as of September 30, 2018 and December 31, 2017.

 

               To Be Well 
               Capitalized Under 
           For Capital   Prompt Corrective 
   Actual   Adequacy Purposes   Action Provisions 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
   (Dollars In Thousands) 
As of September 30, 2018:                              
Total Capital (to Risk Weighted Assets)  $27,900    15.72%  $14,201    8.0%  $17,751    10.0%
Tier 1 Capital (to Risk Weighted Assets)   26,572    14.97    10,651    6.0    14,201    8.0 
Common Equity Tier 1  Capital (to Risk Weighted Assets)   26,572    14.97    7,988    4.5    11,538    6.5 
Tier 1 Capital (to Average Assets)   26,572    10.04    10,588    4.0    13,234    5.0 
                               
As of December 31, 2017:                              
Total Capital (to Risk Weighted Assets)  $26,097    15.15%  $13,782    8.0%  $17,227    10.0%
Tier 1 Capital (to Risk Weighted Assets)   24,859    14.43    10,336    6.0    13,782    8.0 
Common Equity Tier 1  Capital (to Risk Weighted Assets)   24,859    14.43    7,752    4.5    11,198    6.5 
Tier 1 Capital (to Average Assets)   24,859    9.45    10,521    4.0    13,151    5.0 

 

NOTE 11 - COMMON STOCK REPURCHASES

 

On November 24, 2015, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company may purchase up to 89,903 shares of the Company’s common stock, equal to 4.0% of the Company’s outstanding common stock at the time. The program allows the Company to repurchase common stock at various prices in the open market or through private transactions. The actual amount and timing of future repurchases, if any, will depend on market conditions, applicable SEC rules and various other factors.

 

The Company did not repurchase any shares of common stock during the nine months ended September 30, 2018 and 2017.

 

NOTE 12 - EQUITY INCENTIVE PLAN

 

On November 24, 2015, stockholders of the Company approved the 2015 Equity Incentive Plan (“2015 EIP”). The 2015 EIP provided for the award of up to 314,661 shares of common stock pursuant to grants of restricted stock awards and stock options. All stock options have a ten year life.

 

Pursuant to the terms of the 2015 EIP, on June 1, 2016, the Board of Directors granted 70,950 shares of restricted stock and 169,500 stock options to certain employees and directors. Of the 70,950 shares of restricted stock granted, 47,600 shares vest evenly over a five year period and 23,350 shares vest over a four year period. Of the 169,500 stock options granted, 122,500 options vest evenly over a five year period and 47,000 options vest over a four year period. On June 1, 2018, 3,331 shares of restricted stock were surrendered for payment of tax obligations related to the vesting process. On June 1, 2017, 3,339 shares of restricted stock were surrendered for payment of tax obligations related to the vesting process.

 

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Pursuant to the terms of the 2015 EIP, on June 1, 2017, the Board of Directors granted 3,350 shares of restricted stock and 7,500 stock options to a director. The 3,350 shares of restricted stock granted and 7,500 stock options vest evenly over a five year period.

 

Pursuant to the terms of the 2015 EIP, on January 23, 2018, the Board of Directors granted 9,500 shares of restricted stock and 10,000 stock options to certain employees. Of the 9,500 shares of restricted stock granted, 8,500 vest evenly over a five year period and the remaining 1,000 vest over a three year period. The 10,000 stock options vest over a five year period.

 

At September 30, 2018, there were 6,103 restricted stock awards and 37,758 stock options available for future grants pursuant to the 2015 EIP.

 

The fair value of each option awarded under the 2015 EIP is estimated on the date of the grant using the Black-Scholes Option-Pricing Model. The expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term and the vesting period. The expected volatility for the 2016 and 2017 awards is based on peer group volatility because the Company did not have sufficient trading history. The expected volatility for the 2018 awards is based on Pilgrim Bancshares, Inc.’s trading history. The dividend yield is based on the Company’s expectation of no dividend payouts. The risk-free rate was based on the U.S. Treasury yield curve in effect at the date of the grant for a period equivalent to the expected life of the option.

 

The weighted average assumptions and fair value used for options granted are as follows:

 

   Stock Option 
   Assumptions 
    Grant 1/23/2018    Grant 6/1/2017    Grant 6/1/2016 
Expected life   6.40 years    6.40 years    6.40 years 
Expected dividend yield   0%   0%   0%
Expected volatility   13.74%   23.93%   20.24%
Expected forfeiture rate   0%   0%   0%
Risk free rate   2.55%   2.02%   1.67%
Fair value per option  $4.18   $5.04   $3.17 

 

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A summary of activity for the 2015 Equity Incentive Plan as of and for the nine months ended September 30, 2018 and September 30, 2017 is as follows:

 

   2018       2017     
   Number of   Weighted Avg.   Number of   Weighted Avg. 
   Options   Exercise Price   Options   Exercise Price 
                 
Outstanding at beginning of period   175,000   $13.05    169,500   $12.85 
Granted   10,000   $19.30    7,500   $17.45 
Exercised   -   $-    (1,500)  $12.85 
Outstanding at end of period   185,000   $13.39    175,500   $13.05 
                     
Exercisable at end of period   31,900   $12.85    32,400   $12.85 
                     
Weighted average fair value of 169,500 options granted 6/1/2016  $3.17                
Weighted average contractual life remaining   7.7 years                
Weighted average exercise price  $12.85                
Aggregate intrinsic value as of September 30, 2018 ($ in thousands)  $1,590                
                     
                     
Weighted average fair value of 7,500 options granted 6/1/2017  $5.04                
Weighted average contractual life remaining   8.7 years                
Weighted average exercise price  $17.45                
Aggregate intrinsic value as of September 30, 2018 ($ in thousands)  $37                
                     
                     
Weighted average fair value of 10,000 options granted 1/23/2018  $4.18                
Weighted average contractual life remaining   9.4 years                
Weighted average exercise price  $19.30                
Aggregate intrinsic value as of September 30, 2018 ($ in thousands)  $31                

 

   Restricted Stock 
   2018       2017     
   Number of   Weighted Average   Number of   Weighted Average 
   Shares   Grant Date Fair Value   Shares   Grant Date Fair Value 
                 
Unvested outstanding at beginning of period   60,110   $13.11    70,950   $12.85 
Granted   9,500   $19.30    3,350   $17.45 
Shares surrendered   (3,331)  $12.85    (3,339)  $12.85 
Shares vested   (11,529)  $13.12    (10,851)  $12.85 
Unvested oustanding at end of period   54,750   $14.19    60,110   $13.11 

 

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As of September 30, 2018, unrecognized share-based compensation expense related to non-vested options granted on June 1, 2016 amounted to $287,000 and the unrecognized share-based compensation expense related to non-vested restricted stock granted on June 1, 2016 amounted to $486,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 2.5 years.

 

As of September 30, 2018, unrecognized share-based compensation expense related to non-vested options granted on June 1, 2017 amounted to $28,000 and the unrecognized share-based compensation expense related to non-vested restricted stock granted on June 1, 2017 amounted to $43,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 3.6 years.

 

As of September 30, 2018, unrecognized share-based compensation expense related to non-vested options granted on January 23, 2018 amounted to $36,000 and the unrecognized share-based compensation expense related to non-vested restricted stock granted on January 23, 2018 amounted to $159,000. The unrecognized expense related to the non-vested options and non-vested restricted stock will be recognized over a weighted average period of 4.4 years.

 

For the three months ended September 30, 2018, the Company recognized stock option related compensation expense of $31,000, and the recognized tax benefit related to this expense was $3,000. For the nine months ended September 30, 2018, the Company recognized stock option related compensation expense of $91,000, and the recognized tax benefit related to this expense was $9,000.

 

For the three months ended September 30, 2017, the Company recognized stock option related compensation expense of $29,000, and the recognized tax benefit related to this expense was $3,000. For the nine months ended September 30, 2017, the Company recognized stock option related compensation expense of $84,000, and the recognized tax benefit related to this expense was $10,000.

 

For the three months ended September 30, 2018, the Company recognized restricted stock related compensation expense of $58,000, and the recognized tax benefit related to this expense was $16,000. For the nine months ended September 30, 2018, the Company recognized restricted stock related compensation expense of $170,000, and the recognized tax benefit related to this expense was $47,000.

 

For the three months ended September 30, 2017, the Company recognized restricted stock related compensation expense of $49,000, and the recognized tax benefit related to this expense was $20,000. For the nine months ended September 30, 2017, the Company recognized restricted stock related compensation expense of $141,000, and the recognized tax benefit related to this expense was $55,000.

 

NOTE 13 – MERGER ANNOUNCEMENT

 

On July 25, 2018, the Company announced that it has entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Hometown Financial Group, MHC and Hometown Financial Group, Inc. pursuant to which the Company will merge with a to-be-formed wholly owned subsidiary of Hometown Financial Group, Inc., in an all cash transaction valued at approximately $53.9 million. Under the terms of the agreement, shareholders of the Company will receive $23.00 in cash in exchange for each share of Company common stock.

 

The respective boards of each of the parties to the Merger Agreement have unanimously approved the transaction.  The transaction is subject to receipt of state and federal regulatory approvals and approval by shareholders of the Company and is expected to close in the first quarter of 2019. 

 

The definitive agreement provides for a termination fee of $1,625,000 that would be payable to Hometown Financial Group, Inc. by the Company under certain circumstances, which are described in detail in the Merger Agreement.

 

For the three and nine months ended September 30, 2018, the Company incurred $456,000 of merger related expenses.

 

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

 

General

 

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2018 and 2017 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

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

 

·our ability to consummate our proposed merger with Hometown Financial Group, Inc.;

 

·statements of our goals, intentions and expectations;

 

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

 

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

 

·estimates of our risks and future costs and benefits.

 

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

 

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

 

·our pending merger with Hometown Financial Group is not consummated;

 

·our ability to manage our operations under the current adverse economic conditions nationally and in our market area;

 

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

 

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

 

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

 

·competition among depository and other financial institutions;

 

·our success in implementing our business strategy, particularly increasing our commercial real estate, multi-family, non-owner occupied residential and construction lending;

 

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·our success in introducing new financial products;

 

·our ability to attract and maintain deposits;

 

·our ability to continue to improve our asset quality even as we increase our non-residential and non-owner occupied residential lending;

 

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

 

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

 

·the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Report.

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. During the nine months ended September 30, 2018, there were no material changes to the critical accounting policies disclosed in Pilgrim Bancshares, Inc.’s Annual Report Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 21, 2018.

 

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Comparison of Financial Condition at September 30, 2018 and December 31, 2017

 

Total assets decreased $446,000, to $265.1 million at September 30, 2018 from $265.5 million at December 31, 2017. The slight decrease was primarily due to a decrease in cash and cash equivalents of $2.5 million and a decrease in available-for-sale investment securities of $687,000, partially offset by an increase in several asset categories including net loans, which increased $2.6 million.

 

Total cash and cash equivalents decreased $2.5 million, or 16.8%, to $12.5 million at September 30, 2018 from $15.0 million at December 31, 2017. The decrease in cash and cash equivalents resulted from a decrease in borrowings and an increase in loans.

 

Net loans increased $2.6 million, or 1.2%, to $222.6 million at September 30, 2018 from $220.0 million at December 31, 2017. The Company originated $49.4 million of new loans, and participated in a $395,000 residential construction loan for the nine months ended September 30, 2018. Of the $49.4 million of new loans originated during the nine months ended September 30, 2018, $6.7 million of funds were not advanced. Loan amortization and payoffs totaled $40.3 million during the nine months ended September 30, 2018.

 

Investment securities classified as available-for-sale decreased $687,000, or 4.1%, to $15.9 million at September 30, 2018 from $16.6 million at December 31, 2017. The decrease was due to the maturity of two securities and payments in the ordinary course of business. Investment securities classified as held-to-maturity decreased $11,000, or 13.3%, to $72,000 at September 30, 2018, from $83,000 at December 31, 2017 due to payments in the ordinary course of business.

 

Bank-owned life insurance at September 30, 2018 increased $24,000, or 1.0%, to $2.4 million at September 30, 2018 from $2.3 million at December 31, 2017 due to normal increases in cash surrender value.

 

Deposits increased $714,000, or 0.4%, to $191.0 million at September 30, 2018 from $190.2 million at December 31, 2017, primarily due to a $4.4 million increase in demand deposits and a $1.1 million increase in savings accounts, partially offset by a $2.5 million decrease in money market accounts and a $1.2 million decrease in NOW accounts. Core deposits, which we consider to be our noninterest-bearing demand accounts, NOW accounts, savings accounts and money market accounts, collectively increased $1.7 million, or 1.8%, to $94.0 million at September 30, 2018 from $92.3 million at December 31, 2017 due to new deposit account openings.

 

FHLB advances decreased $1.6 million, or 4.0%, to $38.6 million at September 30, 2018 from $40.2 million at December 31, 2017 as a result of payments on amortizing borrowings. FHLB advances as of September 30, 2018 consisted of long term bullet and amortizing borrowings.

 

Stockholders’ equity increased $389,000, or 1.1%, to $34.5 million at September 30, 2018 from $34.1 million at December 31, 2017. The increase was driven by $935,000 of net income offset by $680,000 of dividends declared during the nine months ended September 30, 2018. Additional paid in capital increased $254,000 during the nine month period ended September 30, 2018 due to the impact of equity incentive plans.

 

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Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.

 

   At September 30, 2018   At December 31, 2017 
                 
   30-59   60-89   90 Days or   30-59   60-89   90 Days or 
   Days   Days   More   Days   Days   More 
   Past Due   Past Due   Past Due   Past Due   Past Due   Past Due 
   (In Thousands) 
Real estate loans:                              
One- to four-family residential (1)  $-    -   $567   $-   $-   $112 
Commercial   -    -    -    -    -    - 
Multi-family   -    -    -    -    -    - 
Home equity loans and lines of credit   -    -