Company Quick10K Filing
SB One Bank
Price23.40 EPS2
Shares9 P/E13
MCap220 P/FCF11
Net Debt-5 EBIT40
TEV215 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
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10-Q 2019-09-30 Filed 2019-11-08
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10-K 2009-12-31 Filed 2010-03-22
8-K 2020-07-31 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Exhibits
8-K 2020-06-24
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8-K 2018-01-21
8-K 2018-01-04

SBBX 10Q Quarterly Report

Part I – Financial Information
Item 1 – Financial Statements
Note 1 – Summary of Significant Accounting Policies
Note 2 – Securities
Note 3 – Loans
Note 4 – Allowance for Loan Losses and Credit Quality of Financing Receivables
Note 5 – Earnings per Share
Note 6 – Other Comprehensive Income
Note 7 – Goodwill and Other Intangibles
Note 8 – Segment Information
Note 9 – Stock - Based Compensation
Note 10 – Guarantees
Note 11 – Fair Value of Financial Instruments
Note 12 – Derivatives
Note 13 – Borrowings
Note 14 – Revenue Recognition
Note 15 – Right of Use Asset and Lease Liability
Note 16 – Impact of Covid - 19
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 sbbx-20200331ex31192909d.htm
EX-31.2 sbbx-20200331ex312a913b0.htm
EX-32.1 sbbx-20200331ex3211d7f43.htm

SB One Bank Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 sbbx-20200331x10q.htm 10-Q sbbx_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549


FORM 10-Q

(Mark One)

 

 

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

 

For the quarterly period ended March 31, 2020 

 

 

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

 

For the transition period from ___________to ________

 

Commission File Number 001-12569

SB ONE BANCORP

(Exact name of registrant as specified in its charter)

New Jersey

22‑3475473

(State or other jurisdiction of incorporation or organization)

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

 

 

95 State Route 17, Paramus, NJ

07652

(Address of principal executive offices)

(Zip Code)

 

(844) 256‑7328

(Registrant’s telephone number, including area code)

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

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

SBBX

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 ☒     No ☐

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

Yes ☒     No ☐

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

Large accelerated filer

Accelerated filer 

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

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

Yes ☐     No ☒

As of May 4, 2020 there were 9,432,466 shares of common stock, no par value, outstanding.

 

 

 

 

2

FORWARD-LOOKING STATEMENTS

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Quarterly Report on Form 10‑Q contains “forward-looking statements” which may be identified by the use of such words as “believe,” “project,” “expect,” “anticipate,” “should,” “may,”  “will,” “intend,” “planned,” “estimated,” “potential” or similar expressions.  Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operation and business that are subject to various factors which could cause actual results to differ materially from these estimates.  These factors include, but are not limited to:

·

effects of the coronavirus disease 2019 ("COVID-19") pandemic on the economy generally and on us in particular;

·

the expected growth opportunities or cost savings from the merger (the "Merger") with Provident Financial Services, Inc. ("Provident") may not be fully realized or may take longer to realize than expected;

·

our business and Provident's business may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected;

·

deposit attrition, operating costs, customer losses and business disruption following the Merger, including adverse effects on relationships with employees and customers, may be greater than expected;

·

the regulatory approvals required for the Merger may not be obtained on the proposed terms or on the anticipated schedule;

·

our shareholders may fail to approve the Merger;

·

changes in the interest rate environment that reduce margins;

·

changes in the regulatory environment;

·

the highly competitive industry and market area in which we operate;

·

general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;

·

changes in business conditions and inflation;

·

changes in credit market conditions;

·

changes in the securities markets which affect investment management revenues;

·

increases in Federal Deposit Insurance Corporation (“FDIC”) deposit insurance premiums and assessments, which could adversely affect our financial condition;

·

changes in technology used in the banking business;

·

the soundness of other financial services institutions, which may adversely affect our credit risk;

·

our controls and procedures may fail or be circumvented;

·

new lines of business or new products and services, which may subject us to additional risks;

·

changes in key management personnel which may adversely impact our operations;

·

the effect on our operations of recent legislative and regulatory initiatives that were or may be enacted in response to the recent financial crisis;

i

·

severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business;

·

the inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the acquisition of Community Bank of Bergen County (“Community”);

·

the inability to realize expected cost savings or to implement integration plans and other adverse consequences associated with the acquisition of Enterprise Bank, NJ (“Enterprise”); and

·

other factors detailed from time to time in our filings with the SEC.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

 

ii

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

SB ONE BANCORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

(Dollars in Thousands)

    

March 31, 2020

    

December 31, 2019

ASSETS

 

 

  

 

 

  

Cash and due from banks

 

$

12,377

 

$

9,525

Interest-bearing deposits with other banks

 

 

27,928

 

 

34,161

Cash and cash equivalents

 

 

40,305

 

 

43,686

Interest bearing time deposits with other banks

 

 

200

 

 

200

Securities available for sale, at fair value

 

 

232,205

 

 

212,181

Securities held to maturity, at amortized cost (fair value of $6,399 and $4083 at March 31, 2020 and December 31, 2019, respectively)

 

 

6,339

 

 

4,012

Other Bank Stock, at cost

 

 

12,487

 

 

12,498

Loans receivable, net of unearned income

 

 

1,685,138

 

 

1,628,846

Less: allowance for loan losses

 

 

10,867

 

 

10,267

Net loans receivable

 

 

1,674,271

 

 

1,618,579

Foreclosed real estate

 

 

3,097

 

 

3,793

Premises and equipment, net

 

 

19,055

 

 

19,080

Right-of-use assets, net

 

 

4,535

 

 

4,644

Accrued interest receivable

 

 

6,856

 

 

6,175

Goodwill and intangibles

 

 

28,948

 

 

29,039

Bank-owned life insurance

 

 

36,936

 

 

37,209

Other assets

 

 

15,002

 

 

10,561

Total Assets

 

$

2,080,236

 

$

2,001,657

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Deposits:

 

 

  

 

 

  

Non-interest bearing

 

$

285,857

 

$

258,311

Interest bearing

 

 

1,312,694

 

 

1,266,730

Total deposits

 

 

1,598,551

 

 

1,525,041

Short-term borrowings

 

 

196,145

 

 

193,000

Long-term borrowings

 

 

34,127

 

 

40,114

Lease liability

 

 

4,676

 

 

4,727

Accrued interest payable and other liabilities

 

 

23,952

 

 

11,677

Subordinated debentures

 

 

27,871

 

 

27,869

Total Liabilities

 

 

1,885,322

 

 

1,802,428

Stockholders' Equity:

 

 

  

 

 

  

Preferred stock, no par value, 1,000,000 shares authorized; none issued

 

 

 —

 

 

Common stock, no par value, 15,000,000 shares authorized; 9,649,140 and 9,589,201 shares issued and 9,417,933 and 9,357,994 shares outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

151,543

 

 

151,165

Treasury stock, at cost; 231,207 shares at March 31, 2020 and December 31, 2019, respectively

 

 

(5,132)

 

 

(5,132)

Deferred compensation obligation under Rabbi Trust

 

 

1,882

 

 

1,852

Retained earnings

 

 

59,037

 

 

54,706

Accumulated other comprehensive (loss)

 

 

(10,534)

 

 

(1,510)

Stock held by Rabbi Trust

 

 

(1,882)

 

 

(1,852)

Total Stockholders' Equity

 

 

194,914

 

 

199,229

Total Liabilities and Stockholders' Equity

 

$

2,080,236

 

$

2,001,657

 

See Notes to Consolidated Financial Statements

1

 

SB ONE BANCORP

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

(Dollars in thousands except per share data)

    

2020

    

2019

    

INTEREST INCOME

 

 

  

 

 

  

 

Loans receivable, including fees

 

$

19,330

 

$

18,160

 

Securities:

 

 

 

 

 

 

 

Taxable

 

 

1,508

 

 

1,175

 

Tax-exempt

 

 

119

 

 

448

 

Interest bearing deposits

 

 

20

 

 

49

 

Total Interest Income

 

 

20,977

 

 

19,832

 

INTEREST EXPENSE

 

 

  

 

 

  

 

Deposits

 

 

4,340

 

 

3,864

 

Borrowings

 

 

1,141

 

 

1,214

 

Subordinated debentures

 

 

316

 

 

315

 

Total Interest Expense

 

 

5,797

 

 

5,393

 

Net Interest Income

 

 

15,180

 

 

14,439

 

PROVISION FOR LOAN LOSSES

 

 

879

 

 

571

 

Net Interest Income after Provision for Loan Losses

 

 

14,301

 

 

13,868

 

NON -INTEREST INCOME

 

 

  

 

 

  

 

Service fees on deposit accounts

 

 

319

 

 

330

 

ATM and debit card fees

 

 

245

 

 

231

 

Bank-owned life insurance

 

 

228

 

 

230

 

Insurance commissions and fees

 

 

2,598

 

 

2,562

 

Investment brokerage fees

 

 

15

 

 

56

 

Other

 

 

276

 

 

224

 

Total Non-Interest Income

 

 

3,681

 

 

3,633

 

NON-INTEREST EXPENSES

 

 

  

 

 

  

 

Salaries and employee benefits

 

 

6,770

 

 

6,130

 

Occupancy, net

 

 

879

 

 

779

 

Data processing

 

 

1,054

 

 

940

 

Furniture and equipment

 

 

318

 

 

318

 

Advertising and promotion

 

 

112

 

 

132

 

Professional fees

 

 

443

 

 

462

 

Director fees

 

 

177

 

 

145

 

FDIC assessment

 

 

252

 

 

166

 

Insurance

 

 

32

 

 

30

 

Stationary and supplies

 

 

91

 

 

84

 

Merger-related expenses

 

 

315

 

 

 —

 

Loan collection costs

 

 

75

 

 

120

 

Net expenses and write-downs related to foreclosed real estate

 

 

90

 

 

65

 

Amortization of intangible assets

 

 

91

 

 

102

 

Other

 

 

668

 

 

705

 

Total Non-Interest Expenses

 

 

11,367

 

 

10,178

 

Income before Income Taxes

 

 

6,615

 

 

7,323

 

EXPENSE FOR INCOME TAXES

 

 

1,487

 

 

1,500

 

Net Income

 

 

5,128

 

 

5,823

 

OTHER COMPREHENSIVE INCOME:

 

 

  

 

 

  

 

Unrealized gain (loss) on available for sale securities arising during the period

 

 

1,073

 

 

2,912

 

Fair value adjustments on derivatives

 

 

(13,933)

 

 

(1,734)

 

Income tax related to items of other comprehensive income

 

 

3,836

 

 

(302)

 

Other comprehensive (loss) income, net of income taxes

 

 

(9,024)

 

 

876

 

Comprehensive (loss) income

 

$

(3,896)

 

$

6,699

 

EARNINGS PER SHARE

 

 

  

 

 

  

 

Basic

 

$

0.55

 

$

0.62

 

Diluted

 

$

0.55

 

$

0.62

 

 

See Notes to Consolidated Financial Statements

2

 

SB ONE BANCORP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2020 and 2019

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Deferred

    

 

 

    

Accumulated

    

Stock

    

 

 

    

 

 

 

 

Number of

 

 

 

 

Compensation

 

 

 

 

Other

 

Held by

 

 

 

 

Total

 

 

Shares

 

Common

 

Obligation Under

 

Retained

 

Comprehensive

 

Rabbi

 

Treasury

 

Stockholders'

(Dollars in Thousands)

 

Outstanding

 

Stock

 

Rabbi Trust

 

Earnings

 

Income

 

Trust

 

Stock

 

Equity

Balance December 31, 2018

 

9,532,943

 

$

150,419

 

$

1,647

 

$

35,192

 

$

(167)

 

$

(1,647)

 

$

 —

 

$

185,444

Net income

 

 —

 

 

 —

 

 

 —

 

 

5,823

 

 

 —

 

 

 —

 

 

 —

 

 

5,823

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

876

 

 

 —

 

 

 —

 

 

876

Funding of Supplemental Director Retirement Plan

 

 —

 

 

 —

 

 

42

 

 

 —

 

 

 —

 

 

(42)

 

 

 —

 

 

 —

Common stock issued

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Treasury shares purchased

 

(88,091)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,926)

 

 

(1,926)

Restricted stock granted

 

41,832

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Restricted stock forfeited

 

(15,954)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Compensation expense related to stock option and restricted stock grants

 

 —

 

 

190

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

190

Dividends declared on common stock ($0.75 per share)

 

 —

 

 

 —

 

 

 —

 

 

(712)

 

 

 —

 

 

 —

 

 

 —

 

 

(712)

Balance March 31, 2019

 

9,470,730

 

$

150,609

 

$

1,689

 

$

40,303

 

$

709

 

$

(1,689)

 

$

(1,926)

 

$

189,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2019

 

9,357,994

 

$

151,165

 

 

1,852

 

$

54,706

 

$

(1,510)

 

 

(1,852)

 

$

(5,132)

 

$

199,229

Net income

 

 —

 

 

 —

 

 

 —

 

 

5,128

 

 

 —

 

 

 —

 

 

 —

 

 

5,128

Other comprehensive (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(9,024)

 

 

 —

 

 

 —

 

 

(9,024)

Funding of Supplemental Director Retirement Plan

 

 —

 

 

 —

 

 

30

 

 

 —

 

 

 —

 

 

(30)

 

 

 —

 

 

 —

Treasury shares issued

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Restricted stock granted

 

59,939

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Compensation expense related to stock option and restricted stock grants

 

 —

 

 

378

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

378

Dividends declared on common stock ($0.15 per share)

 

 —

 

 

 —

 

 

 —

 

 

(797)

 

 

 —

 

 

 —

 

 

 —

 

 

(797)

Balance March 31, 2020

 

9,417,933

 

$

151,543

 

$

1,882

 

$

59,037

 

$

(10,534)

 

$

(1,882)

 

$

(5,132)

 

$

194,914

 

See Notes to Consolidated Financial Statements

3

 

SB ONE BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

(Dollars in thousands)

    

2020

    

2019

Cash Flows from Operating Activities

 

 

  

 

 

  

Net income

 

$

5,128

 

$

5,823

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

 

 

  

 

 

  

Provision for loan losses

 

 

879

 

 

571

Depreciation and amortization

 

 

479

 

 

537

Net amortization of securities premiums and discounts

 

 

313

 

 

501

Amortization of subordinated debt issuance costs

 

 

 2

 

 

 3

Net realized (gain) on sale of foreclosed real estate

 

 

(54)

 

 

 9

Write-downs of and provisions for foreclosed real estate

 

 

51

 

 

 6

Deferred income tax (benefit)

 

 

(257)

 

 

(1,534)

Earnings on bank-owned life insurance

 

 

(228)

 

 

(230)

Compensation expense for stock options and restricted stock grants

 

 

378

 

 

191

Decrease (increase) in assets:

 

 

  

 

 

  

Accrued interest receivable

 

 

(681)

 

 

(43)

Other assets

 

 

(132)

 

 

(1,556)

Increase in accrued interest payable and other liabilities

 

 

(1,815)

 

 

(454)

Net Cash Provided by Operating Activities

 

 

4,063

 

 

3,824

Cash Flows from Investing Activities

 

 

  

 

 

  

Securities available for sale:

 

 

 

 

 

  

Purchases

 

 

(22,903)

 

 

(9,565)

Maturities, calls and principal repayments

 

 

3,645

 

 

2,072

Securities held to maturity:

 

 

 

 

 

  

Purchases

 

 

(2,534)

 

 

(200)

Maturities, calls and principal repayments

 

 

200

 

 

239

Net (increase) in loans

 

 

(56,571)

 

 

(39,026)

Proceeds from the sale of foreclosed real estate

 

 

699

 

 

893

Purchases of bank premises and equipment

 

 

(363)

 

 

(678)

Payback of bank owned life insurance

 

 

501

 

 

 —

Net (increase) in other bank stock

 

 

11

 

 

2,417

Net Cash Used in Investing Activities

 

 

(77,315)

 

 

(43,848)

Cash Flows from Financing Activities

 

 

  

 

 

  

Net increase in deposits

 

 

73,510

 

 

107,385

Net increase (decrease) in short-term borrowed funds

 

 

3,145

 

 

(60,495)

Proceeds from long-term borrowings

 

 

13

 

 

46

Repayment of long-term borrowings

 

 

(6,000)

 

 

(7,949)

Purchase of treasury stock

 

 

 —

 

 

(1,926)

Dividends paid

 

 

(797)

 

 

(712)

Net Cash Provided by Financing Activities

 

 

69,871

 

 

36,349

Net increase in Cash and Cash Equivalents

 

 

(3,381)

 

 

(3,675)

Cash and Cash Equivalents - Beginning

 

 

43,686

 

 

26,678

Cash and Cash Equivalents - Ending

 

$

40,305

 

$

23,003

Supplementary Cash Flows Information

 

 

  

 

 

  

Interest paid

 

$

5,594

 

$

5,252

Income taxes paid

 

$

5,498

 

$

96

 

See Notes to Consolidated Financial Statements໿໿

4

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of SB One Bancorp, (“we,” “us,” “our” or the “Company”) and our wholly owned subsidiary SB One Bank (the “Bank”). The Bank’s wholly owned subsidiaries are SCB Investment Company, Inc., SCBNY Company, Inc., ClassicLake Enterprises, LLC, GFR Maywood, LLC, PPD Holding Company, LLC, Community Investing Company, Inc., 490 Boulevard Realty Corp., and SB One Insurance Agency Inc. ("SB One Insurance Agency"), a full service insurance agency located in Sussex County, New Jersey with a satellite office located in Bergen County, New Jersey. SB One Insurance Agency’s operations are considered a separate segment for financial disclosure purposes. All inter-company transactions and balances have been eliminated in consolidation. The Bank operates nineteen banking offices: eight located in Sussex County, New Jersey, four located in Bergen County, New Jersey, two located in Essex County, New Jersey, one located in Hudson County, New Jersey, one located in Middlesex County, New Jersey, one located in Union County, New Jersey, one located in Warren County, New Jersey, and one located in Queens County, New York.

We are subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the “FRB”). The Bank’s deposits are insured by the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. The operations of the Company and the Bank are subject to the supervision and regulation of the FRB, the FDIC and the New Jersey Department of Banking and Insurance (the “Department”) and the operations of SB One Insurance Agency are subject to supervision and regulation by the Department.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for full year financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Announcement of Merger Agreement

On March 12, 2020, the Company announced the signing of a definitive merger agreement with Provident Financial Services, Inc. (“Provident”) where Provident will acquire the Company in an all-stock transaction (the “Merger”). Each outstanding share of Company common stock will be exchanged for 1.357 shares of Provident common stock.  The Merger is expected to close in the third quarter of 2020, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by the shareholders of the Company.

 

New Accounting Standards

In February 2016, FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). Under the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-10, Codification

5

 

Improvements to Topic 842, Leases which was issued to clarify and correct untended application of the guidance in ASU 2016-02 (Topic 842). The amendments in this ASU affect aspects of the guidance issued in ASU 2016-02 and provide clarification to related topics, such as 1) Rate implicit in the lease; 2) Reassessment of leases; 3) Transition guidance; and 4) Impairment of net investment in the lease. In July 2018, the FASB also issued ASU 2018-11 Leases (Topic 842) Targeted Improvements, which provides guidance related to comparative reporting requirements for initial adoption and separating lease and non-lease components. Currently, entities are required to adopt the new standard utilizing the modified retrospective approach. This amendment provides entities with an additional transition method which allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Currently, ASU 2016-02 provides a practical expedient to lessees to allow them to not separate non-lease components from lease components; however, it does not provide a similar practical expedient to lessors. This amendment provides a practical expedient to lessors which allows them the option to not separate non-lease components from the associated lease components. However, the lessor practical expedient is limited to circumstances in which the non-lease components would otherwise be account for under the new revenue guidance (Topic 606). In addition, both of the following conditions must be met: the timing and pattern of transfer are the same for non-lease components and associated lease components 2) the lease component, if accounted for separately, would be classified as an operating lease. An entity that elects the lessor practical expedient is also required to provide certain disclosures. For entities that early adopted Topic 842 the amendments in these ASUs are effective upon issuance. The Company adopted both ASU No. 2016-02 and ASU No. 2018-11 effective January 1, 2019 and elected to apply the guidance as of the beginning of the period of adoption (January 1, 2019) and not restate comparative periods. The Company also elected certain optional practical expedients, which allow the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. Additionally, the Company elected to adopt the practical expedient use of hindsight to determine right of use asset and lease liability for each lease with a renewal option through their first option date. Adoption of the standard did not result in material changes to the Company's consolidated results of operations. The Company's adoption of the ASU resulted in a right of use asset and lease liability of approximately $2.7 million at January 1, 2019. The impact of the adoption on the Company's operating results was not significant.

In March 2019, FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which amends certain aspects of FASB's leasing standard, ASU 2016-02.1 ASU 2019-01 is the result of a proposed ASU issued in December 2018. The ASU addresses the following issues:

·

Determining the fair value of the underlying asset by lessors that are not manufacturers or dealers.

·

Statement of cash flows presentation for sales-type and direct financing leases by lessors within the scope of ASC 942.3

·

Clarification of interim disclosure requirements during transition.

 

ASU 2019-01 will be effective for public business entities for fiscal years ending after December 15, 2019. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for- sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In April 2019, FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU 2019-04 made amendments to the following categories in ASU 2016-13 which include Accrued interest, transfers between classifications or categories for loans and debt securities, recoveries, reinsurance recoverables, projections of interest rate environments for variable-rate financial instruments, costs to sell when foreclosure is probable, consideration of expected prepayments when determining the effective interest rate, vintage disclosures and extension and renewal options. In May 2019, FASB issued ASU 2019-05, Financial Instruments - Credit Losses (Topic 326); Targeted Transition Relief, ASU 2019-05 allows the Company to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of Topic 326 if the instruments are eligible for the fair value option

6

 

under authoritative guidance for fair value. The fair value option election does not apply to held-to-maturity debt securities. We are required to make this election on an instrument-by-instrument basis. This ASU will be effective for public business entities that are SEC filers and considered smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company elected not to adopt ASU 2016-13 early. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements. The Company has determined that a third-party vendor will assist with model development, data governance and operational controls to support the adoption of this ASU. Model implementation, including development and validation, began in the second quarter of 2019, as did the establishment of the control activities required to support the models.

In January 2017, FASB issued ASU 2017‑04, Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is to simplify the accounting for goodwill impairment by requiring impairment charges be based upon the first step in the current two-step impairment test under Accounting Standards Codification (ASC) 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). This ASU’s objective is to simplify how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

In March 2017, FASB issued ASU 2017‑08, Premium Amortization on Purchased Callable Debt Securities (Subtopic 310‑20). The update shortens the amortization period for premiums on purchased callable debt securities to the earliest call date. The amendment will apply only to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates, apply to all premiums on callable debt securities, regardless of how they were generated, and require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. The ASU does not require an accounting change for securities held at a discount. The discount continues to be amortized to maturity and does not apply when the investor has already incorporated prepayments into the calculation of its effective yield under other GAAP. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. 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. The Company’s adoption of the ASU did not have a significant impact on the Company’s consolidated financial statements.

In August 2017, FASB issued ASU 2017‑12 Derivatives and Hedging (Topic 815). The objective of the ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make improvements to simplify the application of hedge accounting guidance in current GAAP. The amendments in the ASU will, among other things, 1) permit hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risks; 2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; 3) modify disclosures to include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges; and 4) eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments. These changes will more closely align the results of cash flow and fair value hedge accounting with risk management activities and the presentation of hedge results in the financial statements. ASU 2017‑12 will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other entities, the ASU will be effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted in any interim period after issuance of the update with all transition requirements and elections being applied to hedging relationships existing on the date of adoption. The Company’s adoption of the ASU did not have a significant impact on the Company’s consolidated financial statements.

7

 

In August 2018, FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The updates in this ASU are part of the disclosure framework project and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The modifications include removal, modification, and removal of disclosure requirements. The ASU removed the following disclosure requirements: a) The amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, b) The policy for timing of transfers between levels, c) The valuation process for Level 3 fair value measurements, c) For nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU added the following disclosure requirements: a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The ASU also modified the following disclosure requirements: a) In lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; b) For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; c) Clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018‑13 will be effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2019. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

In August 2018, FASB issued ASU 2018‑14, Compensation-Retirement Benefits-Defined Benefit Plans - General (Topic 715‑20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The updates in this ASU are part of the disclosure framework project ASU 2018‑14 and modify the disclosure requirements under ASC 715‑201 for employers that sponsor defined benefit pension or other postretirement plans. Those modifications include the removal, addition, and of disclosure requirements as well as clarifying specific disclosure requirements. The ASU removed the following disclosures: a) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year;  b) the amount and timing of plan assets expected to be returned to the employer;  c) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law;  d) related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan; and  e) for nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets. For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. The ASU added the following disclosures: a) The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU then clarified the following disclosures: a) the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs more than plan assets; and  b) the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs more than plan assets. ASU 2018‑14 will be effective for public business entities for fiscal years ending after December 15, 2020. The Company is currently evaluating the impact of the pending adoption on its consolidated financial statements and does not expect a material impact on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018‑16: “Derivatives and Hedging (Topic 815)-Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendment permits the use of the Overnight Index Swap (OIS) Rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes. ASU 2018‑16 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Early adoption is permitted in any interim

8

 

period upon issuance of this ASU if an entity already has adopted ASU 2017‑12. The amendments in this update should be applied prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Company’s adoption of the ASU did not have a significant impact on the Company’s consolidated financial statements.

 

 

NOTE 2 – SECURITIES

Available for Sale

The amortized cost and approximate fair value of securities available for sale as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

March 31, 2020

 

 

  

 

 

  

 

 

  

 

 

  

U.S. government agencies

 

$

8,235

 

$

 —

 

$

(135)

 

$

8,100

U.S. government-sponsored enterprises

 

 

53,906

 

 

22

 

 

(2,908)

 

 

51,020

State and political subdivisions

 

 

45,232

 

 

2,682

 

 

 —

 

 

47,914

Mortgage-backed securities -

 

 

 

 

 

 

 

 

 

 

 

  

U.S. government-sponsored enterprises

 

 

82,891

 

 

3,160

 

 

(377)

 

 

85,674

 Private mortgage-backed securities

 

 

26,858

 

 

331

 

 

(357)

 

 

26,832

Corporate Debt