Company Quick10K Filing
Standard AVB Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 5 $132
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-18 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-04-02 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-Q 2017-09-29 Quarter: 2016-12-31
10-K 2013-12-19 Annual: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-Q 2013-05-09 Quarter: 2013-03-31
10-Q 2013-02-07 Quarter: 2012-12-31
10-K 2012-12-20 Annual: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-Q 2012-02-08 Quarter: 2011-12-31
10-K 2011-12-15 Annual: 2011-09-30
10-Q 2011-08-10 Quarter: 2011-06-30
10-Q 2011-05-11 Quarter: 2011-03-31
10-Q 2011-02-11 Quarter: 2010-12-31
10-K 2010-12-23 Annual: 2010-09-30
8-K 2019-10-24 Earnings, Other Events, Exhibits
8-K 2019-07-25 Earnings, Other Events, Exhibits
8-K 2019-05-21 Shareholder Vote, Exhibits
8-K 2019-05-21 Regulation FD, Exhibits
8-K 2019-03-12 Officers, Exhibits
8-K 2018-12-19 Other Events, Exhibits
8-K 2018-10-25 Earnings, Other Events, Exhibits
8-K 2018-09-26 Officers, Exhibits
8-K 2018-07-26 Earnings, Other Events, Exhibits
8-K 2018-06-26 Officers, Exhibits
8-K 2018-05-22 Shareholder Vote, Exhibits
8-K 2018-05-22 Regulation FD, Exhibits
8-K 2018-05-21 Other Events, Exhibits
8-K 2018-04-24 Earnings, Other Events, Exhibits
8-K 2018-04-16 Other Events, Exhibits
8-K 2018-04-06 Officers, Exhibits
8-K 2018-01-25 Officers, Exhibits
8-K 2018-01-25 Earnings, Other Events, Exhibits
STND 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tm1919610d1_ex31-1.htm
EX-31.2 tm1919610d1_ex31-2.htm
EX-32 tm1919610d1_ex32.htm

Standard AVB Financial Earnings 2019-09-30

STND 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
FCCO 137 1,116 998 2 0 11 20 97 0% 5.0 1%
SSFN 134 964 880 0 0 7 20 122 6.1 1%
STND 132 990 849 0 0 0 13 235 18.2 0%
FUNC 130 1,406 1,279 5 0 11 25 195 0% 7.9 1%
HFBC 130 934 838 1 0 5 16 83 0% 5.2 1%
MBCN 129 1,288 1,154 0 0 13 28 -6 -0.2 1%
CBFV 126 1,305 1,160 25 0 11 24 82 0% 3.4 1%
BKJ 124 925 832 0 0 6 20 38 1.9 1%
OPOF 117 1,029 922 54 0 7 13 66 0% 5.0 1%
ICBK 114 1,485 1,322 0 0 14 45 -2 -0.0 1%

10-Q 1 tm1919610d1_10q.htm FORM 10-Q

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

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

 

For the transition period from _______________ to _______________

 

Commission File No. 001-34893

 

Standard AVB Financial Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   27-3100949
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
2640 Monroeville Blvd.
Monroeville, Pennsylvania
  15146
(Address of Principal Executive Offices)   (Zip Code)

 

(412) 856-0363

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Title of each class   Trading
Symbol(s)
  Name of each exchange on which registered
Common Stock, par value $0.01 per share   STND   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 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 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 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 x
Non-accelerated filer ¨   Smaller reporting company x
    Emerging growth company ¨

 

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

 

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

YES   ¨     NO   x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes   x    No ¨

 

As of November 5, 2019, the registrant had 4,686,940 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

  

Standard AVB Financial Corp.

Table of Contents

 

  Part I – Financial Information  
     
ITEM 1. Financial Statements (Unaudited) 1-27
     
  Consolidated Statements of Financial Condition as of September 30, 2019 and December 31, 2018  
     
  Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018  
     
  Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018  
     
  Consolidated Statement of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018  
     
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018  
     
  Notes to Consolidated Statements  
     
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 28-36
    
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 36
     
ITEM 4. Controls and Procedures 36
     
  PART II – Other Information  
     
ITEM 1. Legal Proceedings 37
     
ITEM 1A. Risk Factors 37
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
     
ITEM 3. Defaults Upon Senior Securities 37
     
ITEM 4. Mine Safety Disclosures 37
     
ITEM 5. Other Information 37
     
ITEM 6. Exhibits 38
     
  Signatures 39

 

 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1.  Financial Statements

Standard AVB Financial Corp.

Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data)

 

   September 30,     
   2019   December 31, 
   (Unaudited)   2018 
ASSETS          
Cash on hand and due from banks  $3,275   $3,371 
Interest-earning deposits in other institutions   26,002    12,836 
Cash and Cash Equivalents   29,277    16,207 
           
Investment securities available for sale, at fair value   69,730    66,169 
Equity securities, at fair value   2,880    2,725 
Mortgage-backed securities available for sale, at fair value   92,883    81,794 
Certificate of deposit   249    249 
Federal Home Loan Bank and other restricted stock, at cost   7,665    7,900 
Loans receivable, net of allowance for loan losses of $4,743 and $4,414   724,254    728,982 
Loans held for sale   96    - 
Foreclosed real estate   459    486 
Office properties and equipment, net   7,715    7,794 
Bank-owned life insurance   23,238    22,572 
Goodwill   25,836    25,836 
Core deposit intangible   2,026    2,508 
Accrued interest receivable and other assets   5,180    8,574 
           
TOTAL ASSETS  $991,488   $971,796 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities          
Deposits:          
Demand, savings and club accounts  $491,758   $471,177 
Certificate accounts   245,205    246,697 
           
Total Deposits   736,963    717,874 
           
Federal Home Loan Bank short-term borrowings   -    4,524 
Long-term borrowings   105,738    104,963 
Securities sold under agreements to repurchase   2,925    2,137 
Advance deposits by borrowers for taxes and insurance   33    45 
Accrued interest payable and other liabilities   4,546    4,363 
           
TOTAL LIABILITIES   850,205    833,906 
           
Stockholders' Equity          
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued   -    - 
Common stock, $0.01 par value per share, 40,000,000 shares authorized, 4,696,107 and 4,812,991 shares outstanding, respectively   47    48 
Additional paid-in-capital   72,327    75,571 
Retained earnings   68,963    65,301 
Unearned Employee Stock Ownership Plan (ESOP) shares   (1,571)   (1,686)
Accumulated other comprehensive gain (loss)   1,517    (1,344)
           
TOTAL STOCKHOLDERS' EQUITY   141,283    137,890 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $991,488   $971,796 

 

See accompanying notes to the consolidated financial statements.

 

1

 

  

Standard AVB Financial Corp.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

  

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2019   2018   2019   2018 
Interest and Dividend Income                    
Loans, including fees  $8,239   $8,007   $24,426   $23,919 
Mortgage-backed securities   572    504    1,690    1,477 
Investments:                    
Taxable   112    101    345    308 
Tax-exempt   402    343    1,170    1,057 
Federal Home Loan Bank and other restricted stock   147    134    476    455 
Interest-earning deposits and federal funds sold   90    112    268    218 
Total Interest and Dividend Income   9,562    9,201    28,375    27,434 
                     
Interest Expense                    
Deposits   1,818    1,335    5,202    3,456 
Federal Home Loan Bank short-term borrowings   7    -    44    226 
Long-term borrowings   570    599    1,640    1,688 
Securities sold under agreements to repurchase   3    2    13    6 
Total Interest Expense   2,398    1,936    6,899    5,376 
                     
Net Interest Income   7,164    7,265    21,476    22,058 
                     
Provision for Loan Losses   254    223    544    398 
                     
Net Interest Income after Provision for Loan Losses   6,910    7,042    20,932    21,660 
                     
Noninterest Income                    
Service charges   794    736    2,197    2,208 
Earnings on bank-owned life insurance   136    134    401    398 
Net losses on sales of securities   -    -    (1)   (17)
Net gains on sales of equities   -    331    -    394 
Net equity securities fair value adjustment gains (losses)   120    (218)   155    (13)
Net loan sale gains   78    20    160    47 
Investment management fees   172    141    541    469 
Other income   187    17    266    60 
Total Noninterest Income   1,487    1,161    3,719    3,546 
                     
Noninterest Expenses                    
Compensation and employee benefits   3,161    2,956    9,595    9,351 
Data processing   177    164    530    472 
Premises and occupancy costs   565    645    1,834    1,983 
Automatic teller machine expense   160    126    445    380 
Federal deposit insurance   (32)   72    104    220 
Core deposit amortization   144    193    482    643 
Other operating expenses   1,051    1,154    3,093    3,396 
Total Noninterest Expenses   5,226    5,310    16,083    16,445 
                     
Income before Income Tax Expense   3,171    2,893    8,568    8,761 
                     
Income Tax Expense                    
Federal   509    357    1,351    1,370 
State   198    156    486    357 
Total Income Tax Expense   707    513    1,837    1,727 
                     
Net Income  $2,464   $2,380   $6,731   $7,034 
Earnings Per Share:                    
Basic earnings per common share  $0.54   $0.51   $1.45   $1.52 
Diluted earnings per common share  $0.53   $0.50   $1.42   $1.48 
                     
Cash dividends paid per common share  $0.22   $0.22   $0.66   $0.66 
Basic weighted average shares outstanding   4,573,856    4,635,129    4,628,308    4,628,983 
Diluted weighted average shares outstanding   4,665,801    4,759,026    4,725,186    4,752,487 

 

See accompanying notes to the consolidated financial statements.  

 

2

 

 

Standard AVB Financial Corp.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2019   2018   2019   2018 
Net Income  $2,464   $2,380   $6,731   $7,034 
                     
Other comprehensive income (loss):                    
   Change in unrealized gain (loss) on securities available for sale   324    (918)   3,613    (3,772)
   Tax effect   (68)   193    (759)   791 
   Reclassification adjustment for security losses realized in income   -    -    1    17 
   Tax effect   -    -    -    (4)
   Change in pension obligation for defined benefit plan   2    3    7    29 
   Tax effect   -    (1)   (1)   (6)
Total other comprehensive income (loss)   258    (723)   2,861    (2,945)
                     
Total Comprehensive Income  $2,722   $1,657   $9,592   $4,089 

 

See accompanying notes to the consolidated financial statements.

 

3

 

 

Standard AVB Financial Corp.

Consolidated Statement of Changes in Stockholders' Equity

(Dollars in thousands, except per share data)

(Unaudited)

 

                   Accumulated     
       Additional       Unearned   Other   Total 
   Common   Paid-In   Retained   ESOP   Comprehensive   Stockholders' 
   Stock   Capital   Earnings   Shares   Income (Loss)   Equity 
Three Months Ended:                              
Balance, June 30, 2019  $48   $74,340   $67,508   $(1,609)  $1,259   $141,546 
Net income   -    -    2,464    -    -    2,464 
Other comprehensive income   -    -         -    258    258 
Stock repurchases (76,039 shares)   (1)   (2,096)   -    -    -    (2,097)
Cash dividends ($0.22 per share)   -    -    (1,009)   -    -    (1,009)
Compensation expense on stock awards   -    23    -    -    -    23 
Compensation expense on ESOP   -    60    -    38    -    98 
Balance, September 30, 2019  $47   $72,327   $68,963   $(1,571)  $1,517   $141,283 
                               
                               
Balance, June 30, 2018  $48   $75,275   $63,124   $(1,763)  $(2,110)  $134,574 
Net income   -    -    2,380    -    -    2,380 
Other comprehensive loss   -    -    -    -    (723)   (723)
Stock repurchases (6,064 shares)   -    (206)   -    -    -    (206)
Cash dividends ($0.22 per share)   -    -    (1,062)   -    -    (1,062)
Stock options exercised (13,910 shares)   -    238    -    -    -    238 
Compensation expense on ESOP   -    74    -    39    -    113 
Balance, September 30, 2018  $48   $75,381   $64,442   $(1,724)  $(2,833)  $135,314 
                               
Nine Months Ended:                              
Balance, December 31, 2018  $48   $75,571   $65,301   $(1,686)  $(1,344)  $137,890 
Net income   -    -    6,731    -    -    6,731 
Other comprehensive income   -    -         -    2,861    2,861 
Stock repurchases (133,096 shares)   (1)   (3,700)   -    -    -    (3,701)
Cash dividends ($0.66 per share)   -    -    (3,069)   -    -    (3,069)
Stock options exercised (11,665 shares)   -    206    -    -    -    206 
Compensation expense on stock awards   -    58    -    -    -    58 
Compensation expense on ESOP   -    192    -    115    -    307 
Balance, September 30, 2019  $47   $72,327   $68,963   $(1,571)  $1,517   $141,283 
                               
                               
Balance, December 31, 2017  $48   $75,063   $60,172   $(1,839)  $528   $133,972 
Net income   -    -    7,034    -    -    7,034 
Other comprehensive loss   -    -    -    -    (2,945)   (2,945)
Change in accounting principle for adoption of ASU 2016-01   -    -    416    -    (416)   - 
Stock repurchases (10,739 shares)   -    (346)   -    -    -    (346)
Cash dividends ($0.66 per share)   -    -    (3,180)   -    -    (3,180)
Stock options exercised (24,794 shares)   -    448    -    -    -    448 
Compensation expense on ESOP   -    216    -    115    -    331 
Balance, September 30, 2018  $48   $75,381   $64,442   $(1,724)  $(2,833)  $135,314 

 

See accompanying notes to the consolidated financial statements.

 

4

 

 

Standard AVB Financial Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

   Nine Months Ended September 30, 
   2019   2018 
Cash Flows From Operating Activities          
Net income  $6,731   $7,034 
Adjustments to reconcile net income to net cash  provided by operating activities:          
Depreciation and amortization   1,401    990 
Provision for loan losses   544    398 
Amortization of core deposit intangible   482    643 
Net loss on sale of securities available for sale   1    17 
Net gain on sale of equity securities   -    (394)
Net gain on sale of office properties and equipment   (29)   - 
Net equity securities fair value adjustment (gains) losses   (155)   13 
Origination of loans held for sale   (9,070)   (4,193)
Proceeds from sale of loans held for sale   9,230    4,240 
Net loan sale gains   (160)   (47)
Compensation expense on ESOP   307    331 
Compensation expense on stock awards   58    - 
Deferred income taxes   (126)   (258)
Increase in accrued interest receivable   (78)   (208)
Earnings on bank-owned life insurance   (401)   (398)
(Decrease) increase in accrued interest payable   (134)   56 
Other, net   3,085    1,108 
          Net Cash Provided by Operating Activities   11,686    9,332 
Cash Flows Used In Investing Activities          
Net decrease in loans   4,122    18,585 
Purchases of investment securities   (10,776)   (4,937)
Purchases of equity securities   -    (554)
Purchases of mortgage-backed securities   (24,720)   (25,946)
Proceeds from maturities of certificates of deposits   -    250 
Proceeds from maturities/principal repayments/calls of investment securities   2,535    115 
Proceeds from maturities/principal repayments/calls of mortgage-backed securities   13,752    8,661 
Proceeds from sales of investment securities   6,328    4,830 
Proceeds from sales of equity securities   -    1,900 
Proceeds from sales of mortgage-backed securities   1,286    - 
Purchase of Federal Home Loan Bank stock   (2,969)   (3,219)
Redemption of Federal Home Loan Bank stock   3,204    4,703 
Proceeds from sales of foreclosed real estate   45    - 
Purchase of bank-owned life insurance   (265)   - 
Proceeds from sales of office properties and equipment   997    - 
Net additions of office properties and equipment   (527)   (274)
          Net Cash (Used) Provided by Investing Activities   (6,988)   4,114 
Cash Flows From Financing Activities          
Net increase in demand, savings and club accounts   20,581    2,074 
Net (decrease) increase in certificate accounts   (1,492)   28,444 
Net increase (decrease) in securities sold under agreements to repurchase   788    (134)
Repayments of Federal Home Loan Bank short-term borrowings   (108,719)   (165,490)
Proceeds from Federal Home Loan Bank short-term borrowing   104,195    138,469 
Repayments of Federal Home Loan Bank advances   (25,308)   (24,600)
Proceeds from Federal Home Loan Bank advances   25,208    30,000 
Lease liabilities payments   (305)   - 
Net decrease in advance deposits by borrowers for taxes and insurance   (12)   (775)
Exercise of stock options   206    448 
Dividends paid   (3,069)   (3,180)
Stock repurchases   (3,701)   (346)
          Net Cash Provided by Financing Activities   8,372    4,910 
          Net Increase in Cash and Cash Equivalents   13,070    18,356 
Cash and Cash Equivalents - Beginning   16,207    16,265 
Cash and Cash Equivalents - Ending  $29,277   $34,621 
Supplementary Cash Flows Information:          
Interest paid  $7,033   $5,320 
Income taxes paid  $2,061   $1,194 
Investment securities purchased not settled  $-   $596 
Right-of-use asset  $(1,132)  $- 
Lease liability  $1,158   $- 
Prepaid lease payments  $(26)  $- 

 

  See accompanying notes to the consolidated financial statements.

 

5

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(1) Consolidation

 

The accompanying consolidated financial statements include the accounts of Standard AVB Financial Corp. (the “Company”) and its direct and indirect wholly owned subsidiaries, Standard Bank, PaSB (the “Bank”), and Westmoreland Investment Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Standard AVB Financial Corp. owns all of the outstanding shares of common stock of the Bank.

 

(2) Basis of Presentation

 

The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States. All adjustments (consisting of normal recurring adjustments), which, in the opinion of management are necessary for a fair presentation of the financial statements and to make the financial statements not misleading have been included. The unaudited consolidated financial statements and other financial information contained in this quarterly report on Form 10-Q should be read in conjunction with the audited financial statements of Standard AVB Financial Corp. at and for the year ended December 31, 2018 contained in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on March 18, 2019. The results for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any future interim period. Certain amounts in the 2018 financial statements have been reclassified to conform to the 2019 presentation format. These reclassifications had no effect on stockholders’ equity or net income.

 

(3) Earnings per Share

 

Basic earnings per share (“EPS”) 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 could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The following table sets forth the computation of basic and diluted EPS for the three and nine months ended September 30, 2019 and September 30, 2018 (dollars in thousands, except per share data):

 

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2019   2018   2019   2018 
Net income available to common stockholders  $2,464   $2,380   $6,731   $7,034 
                     
Basic EPS:                    
   Weighted average shares outstanding   4,573,856    4,635,129    4,628,308    4,628,983 
   Basic EPS  $0.54   $0.51   $1.45   $1.52 
                     
Diluted EPS:                    
   Weighted average shares outstanding   4,573,856    4,635,129    4,628,308    4,628,983 
   Dilutive effect of common stock equivalents   91,945    123,897    96,878    123,504 
   Total diluted weighted average shares outstanding   4,665,801    4,759,026    4,725,186    4,752,487 
   Diluted EPS  $0.53   $0.50   $1.42   $1.48 

  

(4) Recent Accounting Pronouncements

 

Accounting Standards Adopted in 2019

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) – Targeted Improvements, which, among other things, provided an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted ASU 2016-02 and its related amendments as of January 1, 2019, which resulted in the recognition of finance right-of-use assets and finance lease liabilities totaling $1.1 million and $1.2 million, respectively. The Company elected to adopt the transition relief provisions from ASU 2018-11 and recorded the impact of adoption as of January 1, 2019, without restating any prior-year amounts or disclosures. Additional lease disclosures can be found in Note 10 contained herein. There was no cumulative effect adjustment to the opening balance of retained earnings required.

 

6

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(4) Recent Accounting Pronouncements (Continued)

 

Accounting Standards Pending Adoption

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The Company has been working with a third party to evaluate the various CECL methodologies and decided to utilize the vintage method. The Company is continuing to work through implementation of that method and determine what impact it will have on the consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

 

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions. The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only). The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company’s financial statements.

 

7

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(4) Recent Accounting Pronouncements (Continued)

 

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis. For all other entities, this Update is effective for fiscal years ending after December 15, 2021. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This Update addresses customers’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. On October 16, 2019, the FASB voted to defer the effective date for ASC 350, Intangibles – Goodwill and Other, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Company’s financial statements.

 

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

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. This Update is not expected to have a significant impact on the Company’s financial statements.

 

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final ASU is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Company’s financial statements.

 

8

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(5) Investment Securities

 

Investment securities available for sale at September 30, 2019 and December 31, 2018 are as follows (dollars in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
September 30, 2019:                    
U.S. government and agency obligations due:                    
Within 1 year  $3,486   $4   $-   $3,490 
Beyond 1 year but within 5 years   3,963    26    -    3,989 
Beyond 5 year but within 10 years   946    44    -    990 
Corporate bonds due:                    
Beyond 1 year but within 5 years   2,475    106    -    2,581 
Municipal obligations due:                    
Within 1 year   260    2    -    262 
Beyond 1 year but within 5 years   6,076    266    -    6,342 
Beyond 5 years but within 10 years   18,946    484    -    19,430 
Beyond 10 years   31,905    743    (2)   32,646 
                     
   $68,057   $1,675   $(2)  $69,730 
                     
December 31, 2018:                    
U.S. government and agency obligations due:                    
Beyond 1 year but within 5 years  $7,428   $-   $(81)  $7,347 
Beyond 5 year but within 10 years   940    -    (17)   923 
Corporate bonds due:                    
Within 1 year   1,758    -    (15)   1,743 
Beyond 1 year but within 5 years   1,472    2    (10)   1,464 
Beyond 5 years but within 10 years   996    -    (2)   994 
Municipal obligations due:                    
Beyond 1 year but within 5 years   6,658    298    -    6,956 
Beyond 5 years but within 10 years   22,384    132    (81)   22,435 
Beyond 10 years   24,504    82    (279)   24,307 
                     
   $66,140   $514   $(485)  $66,169 

 

For the three months ended September 30, 2019, there were no sales of investment securities. For the nine months ended September 30, 2019, proceeds from the sales of investment securities were $6.3 million, with total gains of $7,000 offset by total losses of $7,000 during the period. There were no sales of investment securities for the three months ended September 30, 2018. For the nine months ended September 30, 2018, losses on sales of investment securities were $17,000 and proceeds from such sales were $4.8 million.

 

Investment securities with a carrying value of $11.7 million and $11.6 million were pledged to secure repurchase agreements and public funds accounts at September 30, 2019 and December 31, 2018, respectively.

 

9

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(5) Investment Securities (Continued)

 

The following table shows the fair value and gross unrealized losses on investment securities and the length of time that the securities have been in a continuous unrealized loss position at September 30, 2019 and December 31, 2018 (dollars in thousands):

 

   Less than 12 Months   12 Months or More   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
September 30, 2019:                        
Municipal obligations   1,001    (2)   -    -    1,001    (2)
                               
Total  $1,001   $(2)  $-   $-   $1,001   $(2)
                               
December 31, 2018:                              
U.S. government and agency obligations  $-   $-   $8,270   $(98)  $8,270   $(98)
Corporate bonds   1,490    (12)   1,743    (15)   3,233    (27)
Municipal obligations   10,049    (55)   11,730    (305)   21,779    (360)
                               
Total  $11,539   $(67)  $21,743   $(418)  $33,282   $(485)

 

 

At September 30, 2019, the Company held 2 investment securities in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery. Additionally, the Company believes the collection of the investment principal and related interest is probable. Based on the above, the Company considers all of the unrealized losses to be temporary impairment losses.

 

(6) Equity Securities

 

The following table presents the net gains and losses on equity investments recognized in earnings during the three and nine months ended September 30, 2019 and September 30, 2018, and the portion of unrealized gains and losses for those periods that relate to equity investments held (dollars in thousands):

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2019   2018   2019   2018 
Net equity securities fair value adjustment gains (losses)  $120   $(218)  $155   $(13)
Net gains realized on the sale of equity securities during the period   -    331    -    394 
Gains recognized on equity securities during the period  $120   $113   $155   $381 

 

There were no sales of equity securities during the three or nine months ended September 30, 2019. During the three months ended September 30, 2018, gains on sales of equity securities were $331,000 and proceeds from such sales were $1.6 million. For the nine months ended September 30, 2018, gains on sales of equity securities were $394,000 and proceeds from such sales were $1.9 million.

 

10

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(7) Mortgage-Backed Securities

 

Mortgage-backed securities available for sale at September 30, 2019 and December 31, 2018 are as follows (dollars in thousands):

 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
September 30, 2019:                    
Government pass-throughs:                    
Ginnie Mae  $18,531   $194   $(52)  $18,673 
Fannie Mae   22,502    549    -    23,051 
Freddie Mac   13,346    105    (25)   13,426 
Private pass-throughs   23,111    -    (291)   22,820 
Collateralized mortgage obligations   14,848    119    (54)   14,913 
                     
   $92,338   $967   $(422)  $92,883 
                     
December 31, 2018:                    
Government pass-throughs:                    
Ginnie Mae  $19,213   $1   $(324)  $18,890 
Fannie Mae   13,952    7    (339)   13,620 
Freddie Mac   12,662    -    (252)   12,410 
Private pass-throughs   25,064    -    (349)   24,715 
Collateralized mortgage obligations   12,328    11    (180)   12,159 
                     
   $83,219   $19   $(1,444)  $81,794 

 

Private pass-throughs include Small Business Administration (SBA) securities that are each an aggregation of SBA guaranteed portions of loans made by SBA lenders under section 7(a) of the Small Business Act. The guaranty is backed by the full faith and credit of the United States.

 

For the three months ended September 30, 2019, there were no sales of mortgage-backed securities. For the nine months ended September 30, 2019, losses on sales of mortgage-backed securities were $1,000 and proceeds from such sales were $1.3 million. There were no sales of mortgage-backed securities during the three or nine months ended September 30, 2018.

 

The amortized cost and fair value of mortgage-backed securities at September 30, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to repay obligations with or without prepayment penalties (dollars in thousands):

 

   Amortized
Cost
   Fair Value 
Due after one year through five years  $704   $702 
Due after five years through ten years   6,384    6,368 
Due after ten years   85,250    85,813 
Total Mortgage-Backed Securities  $92,338   $92,883 

 

11

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(7) Mortgage-Backed Securities (Continued)

 

The following table shows the fair value and gross unrealized losses on mortgage-backed securities and the length of time that the securities have been in a continuous unrealized loss position at September 30, 2019 and December 31, 2018 (dollars in thousands):

 

   Less than 12 Months   12 Months or More   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
September 30, 2019:                              
Government pass-throughs:                              
Ginnie Mae  $-   $-   $3,900   $(52)  $3,900   $(52)
Freddie Mac   2,489    (25)   -    -    2,489    (25)
Private pass-throughs   2,115    (11)   20,478    (280)   22,593    (291)
Collateralized mortgage obligations   2,021    (7)   3,947    (47)   5,968    (54)
                               
Total  $6,625   $(43)  $28,325   $(379)  $34,950   $(422)
                               
December 31, 2018:                              
Government pass-throughs:                              
Ginnie Mae  $4,850   $(26)  $13,794   $(298)  $18,644   $(324)
Fannie Mae   403    (2)   12,152    (337)   12,555    (339)
Freddie Mac   680    (24)   11,699    (228)   12,379    (252)
Private pass-throughs   14,436    (134)   9,359    (215)   23,795    (349)
Collateralized mortgage obligations   4,091    (40)   6,048    (140)   10,139    (180)
                               
Total  $24,460   $(226)  $53,052   $(1,218)  $77,512   $(1,444)

 

At September 30, 2019, the Company held 34 mortgage-backed securities in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery. Additionally, the Company believes the collection of the investment principal and related interest is probable. Based on the above, the Company considers all of the unrealized loss to be temporary impairment loss.

 

Mortgage-backed securities with a carrying value of $15.1 million and $10.4 million were pledged to secure repurchase agreements and public funds accounts at September 30, 2019 and December 31, 2018, respectively.

 

12

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses

 

The following table summarizes the primary segments of the loan portfolio, and the related allowance for loan losses, as of September 30, 2019 and December 31, 2018 (dollars in thousands):

 

   Real Estate Loans             
   One-to-four-       Home             
   family   Commercial   Equity Loans             
   Residential and   Real   and Lines   Commercial   Other     
   Construction   Estate   of Credit   Business   Loans   Total 
September 30, 2019:                              
Collectively evaluated for impairment  $242,000   $321,956   $114,517   $49,952   $572   $728,997 
Individually evaluated for impairment   -    -    -    -    -    - 
Total loans before allowance for loan losses  $242,000   $321,956   $114,517   $49,952   $572   $728,997 
                               
December 31, 2018:                              
Collectively evaluated for impairment  $253,913   $308,775   $123,373   $46,196   $1,139   $733,396 
Individually evaluated for impairment   -    -    -    -    -    - 
Total loans before allowance for loan losses  $253,913   $308,775   $123,373   $46,196   $1,139   $733,396 

 

Total loans at September 30, 2019 and December 31, 2018 were net of deferred loan fees of $251,000 and $226,000, respectively. The Company’s primary business activity is with customers located within its local trade area. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area.

 

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The three segments are: real estate, commercial business and other. The real estate loan segment is further disaggregated into three classes. One-to-four family residential mortgages (including residential construction loans) includes loans to individuals secured by residential properties having maturities up to 30 years. Commercial real estate consists of loans to commercial borrowers secured by commercial or residential real estate. The repayment of commercial real estate loans is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Home equity loans and lines of credit include loans having maturities up to 20 years. The commercial business loan segment consists of loans to finance the activities of commercial business customers. The other loan segment consists primarily of consumer loans and overdraft lines of credit. The portfolio segments utilized in the calculation of the allowance for loan losses are disaggregated at the same level that management uses to monitor risk in the portfolio. Therefore the portfolio segments and classes of loans are the same.

 

There are various risks associated with lending to each portfolio segment. One-to-four family residential mortgage loans are typically longer-term loans which generally entail greater interest rate risk than consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are insufficient. Commercial real estate loans generally present a higher level of risk than loans secured by residences. This greater risk is due to several factors including but not limited to concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty in monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon successful operation of the related real estate project. If the cash flow from the project is reduced by such occurrences as leases not being obtained, renewed or not entirely fulfilled, the borrower’s ability to repay the loan may be impaired. Commercial business loans are primarily secured by business assets, inventories and accounts receivable which present collateral risk. The other loan segment generally has higher interest rates and shorter terms than one-to-four family residential mortgage loans, however, they can have additional credit risk due to the type of collateral securing the loan.

 

13

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

Management evaluates individual loans in all of the commercial segments for possible impairment if the relationship is greater than $200,000, and the loan is in nonaccrual status, risk-rated Substandard or Doubtful, greater than 90 days past due or represents a troubled debt restructuring (“TDR”). Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial business or commercial real estate loan. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loan is part of a larger relationship that is impaired, has a classified risk rating, or is a TDR.

 

Once the decision has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is calculated by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The appropriate method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

 

Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company's objective in offering a TDR is to increase the probability of repayment of the borrower's loan. To be considered a TDR, the borrower must be experiencing financial difficulties and the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would not otherwise be considered. The Company did not modify any loans as TDRs during the three or nine month periods ended September 30, 2019 or 2018 nor did it have any TDRs within the preceding year where a concession had been made that then defaulted during the three or nine month periods ending September 30, 2019 or 2018.

 

There were no impaired loans at September 30, 2019 or December 31, 2018. For both the three and nine months ended September 30, 2019, there was no recorded investment in impaired loans compared to an average recorded investment of $295,000 for both the three and nine months ended September 30, 2018. For both the three and nine months ended September 30, 2019 and September 30, 2018, there was no interest income recognized on impaired loans.

 

Management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently performing but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the collection of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Any loan that has a specific allocation of the allowance for loan losses and is in the process of liquidation of the collateral is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.

 

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolio at origination. Commercial relationships are periodically reviewed internally for credit deterioration or improvement in order to confirm that the relationship is appropriately risk rated. The Audit Committee of the Company also engages an external consultant to conduct loan reviews. The scope of the annual external engagement, which is performed through semi-annual loan reviews, includes reviewing approximately the top 50 to 60 loan relationships, all watchlist loans greater than $100,000, all commercial Reg O loans, and a random sampling of new loan originations between $200,000 and $500,000 during the year. Status reports are provided to management for loans classified as Substandard on a quarterly basis, which results in a proactive approach to resolution. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

 

14

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass rating and the criticized ratings of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of September 30, 2019 and December 31, 2018 (dollars in thousands):

 

       Special             
   Pass   Mention   Substandard   Doubtful   Total 
September 30, 2019:                    
Real estate loans:                         
One-to-four-family residential and construction  $240,316   $-   $1,684   $      -   $242,000 
Commercial real estate   318,923    2,699    334    -    321,956 
Home equity loans and lines of credit   114,141    64    312    -    114,517 
Commercial business loans   49,701    216    35    -    49,952 
Other loans   563    -    9    -    572 
Total  $723,644   $2,979   $2,374   $-   $728,997 
                          
December 31, 2018:                         
Real estate loans:                         
One-to-four-family residential and construction  $252,186   $-   $1,727   $-   $253,913 
Commercial real estate   303,161    4,851    763    -    308,775 
Home equity loans and lines of credit   123,053    62    258    -    123,373 
Commercial business loans   45,902    232    62    -    46,196 
Other loans   1,120    -    19    -    1,139 
Total  $725,422   $5,145   $2,829   $-   $733,396 

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due based on the loans’ contractual due dates. Management considers nonperforming loans to be those loans that are past due 90 days or more and are still accruing as well as all nonaccrual loans. At September 30 2019, there were 16 loans on non-accrual status that were less than 90 days past due totaling $694,000. The following table presents the segments of the loan portfolio summarized by the past due status of the loans still accruing and nonaccrual loans as of September 30, 2019 and December 31, 2018 (dollars in thousands):

 

15

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

       30-59 Days   60-89 Days       90 Days Past   Total 
   Current   Past Due   Past Due   Non-Accrual   Due & Accruing   Loans 
September 30, 2019:                        
Real estate loans:                              
One-to-four-family residential and construction  $239,962   $25   $329   $1,684   $      -   $242,000 
Commercial real estate   321,517    105    -    334    -    321,956 
Home equity loans and lines of credit   113,837    368    -    312    -    114,517 
Commercial business loans   49,869    47    -    36    -    49,952 
Other loans   562    1    -    9    -    572 
Total  $725,747   $546   $329   $2,375   $-   $728,997 
                               
December 31, 2018:                              
Real estate loans:                              
One-to-four-family residential and construction  $250,691   $1,341   $154   $1,727   $-   $253,913 
Commercial real estate   307,740    374    -    661    -    308,775 
Home equity loans and lines of credit   122,929    163    23    258    -    123,373 
Commercial business loans   45,434    690    10    62    -    46,196 
Other loans   1,111    3    3    19    3    1,139 
Total  $727,905   $2,571   $190   $2,727   $3   $733,396 

 

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

 

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL.

 

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. Management tracks the historical net charge-off activity for the loan segments which may be adjusted for qualitative factors. Pass rated credits are segregated from criticized credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

 

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors are evaluated using information obtained from internal, regulatory, and governmental sources such as national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, depth and ability of management; and concentrations of credit from a loan type, industry and/or geographic standpoint.

 

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Management utilizes an internally developed spreadsheet to track and apply the various components of the allowance. During the three and nine months ended September 30, 2019, there was an increase in the provision for the Commercial Real Estate loan class primarily due to charge-offs incurred during the nine month period as well as growth in the loan balances during the periods included in the allowance calculation for that loan class. During the three and nine months ended September 30, 2019, there was a decrease in the provision for the One-to-four family Residential and Construction loan class primarily due to a decline in the loan balances included in the allowance calculation for that loan class as well as a decrease in the qualitative factors. The Home Equity loans and Lines of Credit loan class increased primarily due to the charge-offs incurred during the nine month period.

 

16

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

During the three months ended September 30, 2019 there was a decrease in the provision for the Commercial Business loan class due to a decline in the balances included in the allowance calculation for that loan class. During the nine months ended September 30, 2019 there was an increase in the provision for the Commercial Business loan class due to both an increase in the balance of loans included in the allowance calculation for that loan class as well as an increase in the qualitative factors for the periods.

 

The following tables summarize the activity in the primary segments of the ALL for the three and nine months ended September 30, 2019 and September 30, 2018 as well as the allowance required for loans individually and collectively evaluated for impairment as of September 30, 2019 and December 31, 2018 (dollars in thousands):

 

   Real Estate Loans             
   One-to-four-       Home             
   family   Commercial   Equity Loans             
   Residential and   Real   and Lines   Commercial   Other     
   Construction   Estate   of Credit   Business   Loans   Total 
Three Months Ended:                              
Balance June 30, 2019  $851   $2,836   $295   $510   $2   $4,494 
Charge-offs   (1)   -    -    -    (8)   (9)
Recoveries   -    -    3    -    1    4 
Provision   (56)   330    3    (30)   7    254 
Balance September 30, 2019  $794   $3,166   $301   $480   $2   $4,743 
                               
Balance at June 30, 2018  $1,183   $2,430   $385   $359   $3   $4,360 
Charge-offs   -    (41)   -    -    (4)   (45)
Recoveries   -    1    -    -    -    1 
Provision   (144)   353    4    5    5    223 
Balance at September 30, 2018  $1,039   $2,743   $389   $364   $4   $4,539 
                               
Nine Months Ended:                              
Balance December 31, 2018  $1,051   $2,761   $312   $286   $4   $4,414 
Charge-offs   (1)   (121)   (59)   -    (41)   (222)
Recoveries   -    -    6    -    1    7 
Provision   (256)   526    42    194    38    544 
Balance September 30, 2019  $794   $3,166   $301   $480   $2   $4,743 
                               
Balance at December 31, 2017  $1,384   $2,003   $400   $333   $7   $4,127 
Charge-offs   -    (50)   -    (11)   (6)   (67)
Recoveries   69    1    11    -    -    81 
Provision   (414)   789    (22)   42    3    398 
Balance at September 30, 2018  $1,039   $2,743   $389   $364   $4   $4,539 

  

17

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(8) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

   Real Estate Loans             
   One-to-four-       Home             
   family   Commercial   Equity Loans             
   Residential and   Real   and Lines   Commercial   Other     
   Construction   Estate   of Credit   Business   Loans   Total 
Evaluated for Impairment:                              
Individually  $-   $-   $-   $-   $-   $- 
Collectively   794    3,166    301    480    2    4,743 
Balance at September 30, 2019  $794   $3,166   $301   $480   $2   $4,743 
                               
Evaluated for Impairment:                              
Individually  $-   $-   $-   $-   $-   $- 
Collectively   1,051    2,761    312    286    4    4,414 
Balance at December 31, 2018  $1,051   $2,761   $312   $286   $4   $4,414 

 

The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the loan portfolio at any given date.

 

In addition, federal regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make changes to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to Management. Based on Management’s comprehensive analysis of the loan portfolio, they believe the current level of the allowance for loan losses is adequate.

 

(9) Foreclosed Assets Held For Sale

 

Foreclosed assets acquired in the settlement of loans are carried at fair value less estimated costs to sell and are included in foreclosed real estate on the Consolidated Statement of Financial Condition. As of September 30, 2019 and December 31, 2018, foreclosed real estate totaled $459,000 and $486,000, respectively. As of September 30, 2019, the $459,000 included three residential properties and one commercial real estate property. As of September 30, 2019, the Company had initiated formal foreclosure procedures on $1.3 million of loans, including $1.0 million in one-to-four family residential loans, $168,000 in commercial real estate loans, and $151,000 in home equity loans.

 

(10) Leases

 

The Company currently has four financing lease agreements for branch offices. In conjunction with the implementation of ASU 2016-02, the Company recognized right-of-use assets totaling $1.1 million and lease liabilities totaling $1.2 million related to those financing leases. One of the leases includes an option to extend which was recognized as part of the Company’s right-of-use asset and corresponding lease liability for that property because the Company believes that it is more likely than not to exercise the extension option.

 

The right-of-use assets are included with office properties and equipment while lease liabilities are included in long-term borrowings on the September 30, 2019 Consolidated Statements of Financial Condition. Amortization of right-of-use assets is included in premises and occupancy costs while interest expense on the lease liabilities is included in the interest expense on long-term borrowings on the Consolidated Statements of Income. The following table presents the financing lease costs during the three and nine months ended September 30, 2019 (dollars in thousands):

  

   Three Months Ended   Nine Months Ended 
   September 30, 2019   September 30, 2019 
Financing lease costs          
Amortization of right-of-use asset  $94   $283 
Interest expense   7    22 
Total financing lease costs  $101   $305 

 

18

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(10) Leases (continued)

 

The discount rates utilized to determine the interest expense portion of the lease liability were obtained by utilizing FHLB advance rates for a similar term borrowings as of January 1, 2019. The following table presents the weighted-average remaining term and discount rates for financing leases outstanding as of September 30, 2019:

 

   Financing 
Weighted-average term (years)   4.7 
Weighted-average discount rate   2.80%

  

The following table presents the undiscounted cash flows due related to financing leases as of September 30, 2019, along with a reconciliation to the discounted amount recorded on the September 30, 2019 Consolidated Statements of Financial Condition (dollars in thousands):

 

   Financing 
Undiscounted cash flows due within:     
2019  $102 
2020   292 
2021   124 
2022   102 
2023   102 
2024 and thereafter   212 
Total undiscounted cash flows   934 
      
Impact of present value discount   (59)
Amount reported on balance sheet  $875 

 

(11) Stock Based Compensation

 

The Company currently has two stock plans that allow for the issuance of stock based compensation, the Allegheny Valley Bancorp, Inc. 2011 Stock Incentive Plan (the “2011 Plan”) and the Standard Financial Corp. 2012 Equity Incentive Plan (the “2012 Plan”). On February 26, 2019, 1,820 shares of restricted stock were awarded to directors out of the 2011 Plan. The awards vest quarterly through December 31, 2019 and the related compensation expense is being recognized straight line over the 11 month vesting period. On March 12, 2019, 2,727 shares of restricted stock were awarded to employees out of the 2011 Plan. The awards vest over 34 months and the related compensation expense is being recognized straight line over the vesting period. At September 30, 2019, there were 72,588 and 101,144 shares available to be issued under the 2011 Plan and the 2012 Plan, respectively.

 

For both the three months and nine months ended September 30, 2019 and September 30, 2018, there was no recorded compensation expense related to stock options. As of September 30, 2019, all outstanding stock options were fully vested and there was no unrecognized compensation cost.

 

The following table summarizes transactions regarding the options under the Plans:

 

   Options   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Term
 
Outstanding at December 31, 2018   266,695   $17.12    3.32 
   Granted   -    -      
   Exercised   (11,665)   17.64      
   Forfeited   -    -      
Outstanding at September 30, 2019   255,030   $17.09    2.67 
Exercisable at September 30, 2019   255,030   $17.09      

 

For the three months ended September 30, 2019, there was $23,000 of compensation expense recorded on restricted stock grants. For the nine months ended September 30, 2019, there was $58,000 of compensation expense recorded on restricted stock grants. For the three and nine months ended September 30, 2018, there was no recorded compensation expense on restricted stock. As of September 30, 2019, there was $81,000 of unrecognized compensation expense that will be recognized over the remaining vesting periods.

 

19

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(11) Stock Based Compensation (continued)

 

The following table summarizes transactions regarding the restricted stock under the Plans:

 

   Number of Restricted Shares   Weighted Average Grant Date Price Per Share 
Non-vested shares at December 31, 2018   250   $31.10 
   Granted   4,547    29.13 
   Vested   1,490    29.83 
   Forfeited   -    - 
Non-vested shares at September 30, 2019   3,307   $28.97 

  

(12) Employee Stock Ownership Plan

 

The Company established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees in conjunction with the stock conversion on October 6, 2010. Eligible employees begin to participate in the plan after one year of service and become 20% vested in their accounts after two years of service, 40% after three years of service, 60% after four years of service, 80% after five years of service and 100% after six years of service, or earlier, upon death, disability or attainment of normal retirement age.

 

In connection with the stock conversion, the purchase of the 278,254 shares of the Company stock by the ESOP was funded by a loan from the Company through the Bank. Unreleased ESOP shares collateralize the loan payable, and the cost of the shares is recorded as a contra-equity account in the stockholders’ equity of the Company. Shares are released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan can include dividends, if any, on the unallocated stock held by the ESOP and discretionary contributions from the Company to the ESOP and earnings thereon.

 

Compensation expense is equal to the fair value of the shares committed to be released and unallocated ESOP shares are excluded from outstanding shares for purposes of computing earnings per share. Compensation expense related to the ESOP of $98,000 and $113,000 was recognized during the three months ended September 30, 2019 and 2018, respectively. Compensation expense related to the ESOP of $307,000 and $331,000 was recognized during the nine months ended September 30, 2019 and 2018, respectively. Dividends on unallocated shares are not treated as ordinary dividends and are instead used to repay the ESOP loan and recorded as compensation expense.

 

As of September 30, 2019, the ESOP held a total of 253,590 shares of the Company’s stock. Of the 253,590 shares, there were 159,003 unallocated as of September 30, 2019 with a fair market value of $4.3 million.

 

(13) Pension Information

 

The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Effective August 1, 2005, the annual benefit provided to employees under this defined benefit pension plan was frozen by the Bank. Freezing the plan eliminated all future benefit accruals; however, the accrued benefit as of August 1, 2005 remained.

 

The net periodic pension cost for the three and nine months ended September 30, 2019 and September 30, 2018 are as follows (dollars in thousands):

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2019   2018   2019   2018 
                 
Interest Cost  $31   $33   $93   $99 
Expected return on plan assets   (32)   (41)   (96)   (123)
Amortization of net loss   2    3    6    9 
Settlement obligation   -    -    -    30 
Net periodic pension cost  $1   $(5)  $3   $15 

 

20

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(14) Fair Value of Assets and Liabilities

 

Fair Value Hierarchy

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date.  GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

  Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.  A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.  A contractually binding sales price also provides reliable evidence of fair value.

 

  Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that utilize model-based techniques for which all significant assumptions are observable in the market.

 

  Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement; inputs to the valuation methodology that utilize model-based techniques for which significant assumptions are not observable in the market; or inputs to the valuation methodology that requires significant management judgment or estimation, some of which may be internally developed.

 

Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements.  Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities on a quarterly basis.

 

Assets Measured at Fair Value on a Recurring Basis

 

Investment, Mortgage-Backed and Equity Securities

 

Fair values of investment and mortgage-backed securities were primarily measured using information from a third-party pricing service.  This service provides pricing information by utilizing evaluated pricing models supported with market data information.  Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications.  Level 1 securities are comprised of equity securities.  As quoted prices were available, unadjusted, for identical securities in active markets, these securities were classified as Level 1 measurements.  Level 2 securities were primarily comprised of debt securities issued by government agencies, states and municipalities, corporations, as well as mortgage-backed securities issued by government agencies.  Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models.  In cases where there may be limited or less transparent information provided by the Company’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

 

On a quarterly basis, management reviews the pricing information received from the Company’s third-party pricing service.  This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Company’s third-party pricing service.  Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs.  As of September 30, 2019 and December 31, 2018, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.  On a quarterly basis, management also reviews a sample of securities priced by the Company’s third-party pricing service to review significant assumptions and valuation methodologies used.  Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted.

 

21

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(14) Fair Value of Assets and Liabilities (continued)

 

The following table presents the assets measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 by level within the fair value hierarchy (dollars in thousands):

 

   Level 1   Level 2   Level 3   Total 
September 30, 2019:                    
Investment securities available for sale:                    
  U.S. government and agency obligations  $       -   $8,469   $         -   $8,469 
  Corporate bonds   -    2,581    -    2,581 
  Municipal obligations   -    58,680    -    58,680 
Total investment securities available for sale   -    69,730    -    69,730 
Equity securities   2,880    -    -    2,880 
Mortgage-backed securities available for sale   -    92,883    -    92,883 
                     
Total recurring fair value measurements  $2,880   $162,613   $-   $165,493 
                     
December 31, 2018:                    
Investment securities available for sale:                    
  U.S. government and agency obligations  $-   $8,270   $-   $8,270 
  Corporate bonds   -    4,201    -    4,201 
  Municipal obligations   -    53,698    -    53,698 
Total investment securities available for sale   -    66,169    -    66,169 
Equity securities   2,725    -    -    2,725 
Mortgage-backed securities available for sale   -    81,794    -    81,794 
                     
Total recurring fair value measurements  $2,725   $147,963   $-   $150,688 

 

 

Assets Measured at Fair Value on a Nonrecurring Basis

 

The following table presents the assets measured at fair value on a nonrecurring basis as of September 30, 2019 and December 31, 2018 by level within the fair value hierarchy (dollars in thousands):

 

   Level 1   Level 2   Level 3   Total 
September 30, 2019:                    
Foreclosed real estate  $          -   $               -   $459   $459 
Total nonrecurring fair value measurements  $-   $-   $459   $459 
                     
December 31, 2018:                    
Foreclosed real estate  $-   $-   $486   $486 
Total nonrecurring fair value measurements  $-   $-   $486   $486 

 

22

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(14) Fair Value of Assets and Liabilities (continued)

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

  

           Quantitative Information about Level 3 Fair Value Measurements
   September 30,   December 31,   Valuation  Unobservable    
   2019   2018   Techniques  Input  Range 
Foreclosed real estate  $459   $486   Appraisal of collateral (1)  Appraisal adjustments (2)   0% to 30% 
             Liquidation expenses (2)        

 

(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

 

23

 

 

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2019

 

(14) Fair Value of Assets and Liabilities (Continued)

 

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and December 31, 2018 (dollars in thousands): 

 

   Carrying Value   Estimated Fair Value   Level 1   Level 2   Level 3 
September 30, 2019:                         
Financial Instruments - Assets:                         
  Cash on hand and due from banks (1)  $3,275   $3,275   $3,275   $-   $- 
  Interest-earning deposits in other institutions (1)   26,002    26,002    26,002    -    - 
  Investment securities (2)   69,730    69,730    -    69,730    - 
  Equity Securities (3)   2,880    2,880    2,880    -    - 
  Mortgage-backed securities (2)   92,883    92,883    -    92,883    - 
  Certificate of deposit (1)   249    249    249    -    - 
Federal Home Loan Bank and other restricted stocks (1)   7,665    7,665    7,665    -    - 
  Loans receivable (1)   724,254    733,965    -    -    733,965 
  Bank-owned life insurance (1)   23,238    23,238    23,238    -    - 
  Accrued interest receivable (1)   2,901    2,901    2,901    -    - 
Financial Instruments - Liabilities: