Company Quick10K Filing
Wellesley Bancorp
Price31.68 EPS2
Shares3 P/E17
MCap81 P/FCF-72
Net Debt-4 EBIT17
TEV78 TEV/EBIT4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-27
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-29
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-10
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-24
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-25
10-Q 2015-09-30 Filed 2015-11-10
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-12
10-K 2014-12-31 Filed 2015-03-26
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-24
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-11
10-K 2011-12-31 Filed 2012-03-26
10-Q 2011-09-30 Filed 2011-12-29
8-K 2020-05-29
8-K 2020-04-23
8-K 2020-03-12
8-K 2020-03-06
8-K 2020-02-26
8-K 2020-01-23
8-K 2019-12-05
8-K 2019-11-20
8-K 2019-10-24
8-K 2019-08-28
8-K 2019-07-25
8-K 2019-05-22
8-K 2019-04-25
8-K 2019-03-31
8-K 2019-03-11
8-K 2019-02-27
8-K 2019-01-29
8-K 2019-01-24
8-K 2018-11-28
8-K 2018-10-25
8-K 2018-08-22
8-K 2018-08-13
8-K 2018-07-26
8-K 2018-05-23
8-K 2018-05-09
8-K 2018-04-26
8-K 2018-03-27
8-K 2018-03-05
8-K 2018-02-28
8-K 2018-01-25

WEBK 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Consolidation
Note 2 - Loan Policies
Note 3 - Comprehensive Income
Note 4 - Recent Accounting and Regulatory Pronouncements
Note 5 - Securities Available for Sale
Note 6 - Loans and Allowance for Loan Losses
Note 7 - Derivative Instruments
Note 8 - Fair Values of Financial Instruments
Note 9 - Employee Stock Ownership Plan
Note 10 - Equity Incentive Plans
Note 11 - Earnings per Common Share
Note 12 - Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosure 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 tm2014659d1_ex31-1.htm
EX-31.2 tm2014659d1_ex31-2.htm
EX-32 tm2014659d1_ex32.htm

Wellesley Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.00.80.60.40.20.02012201420172020
Assets, Equity
0.10.10.10.00.00.02016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 tm2014659d1_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark one)

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

 

For the quarterly period ended March 31, 2020

 

OR

 

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

 

For the transition period from ______________ to _____________

 

Commission file number: 001-35352

 

                  WELLESLEY BANCORP, INC.                   

(Exact name of registrant as specified in its charter)

 

                       Maryland                                                45-3219901                      
(State or other jurisdiction of incorporation or  (I.R.S. Employer Identification No.)
organization)   

 

100 Worcester Street, Suite 300, Wellesley, Massachusetts         02481       
(Address of principal executive offices)  (Zip Code)

 

                              (781) 235-2550                                

(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 WEBK The NASDAQ Stock Market LLC

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated, 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,” and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial 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

 

As of April 30, 2020, there were 2,625,899 shares of the registrant’s common stock outstanding.

 

 

 

 

 

 

WELLESLEY BANCORP, INC.

 

Table of Contents

 

          Page
No.
Part I.   Financial Information
         
Item 1.   Financial Statements (Unaudited)    
         
    Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019   1
         
    Consolidated Statements of Comprehensive Income for the Three  Months Ended March 31, 2020 and 2019   2
         
    Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019   3
         
    Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019   4
         
    Notes to Consolidated Financial Statements   5
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   22
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   30
         
Item 4.   Controls and Procedures   31
         
Part II.   Other Information
         
Item 1.   Legal Proceedings   32
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   34
         
Item 3.   Defaults Upon Senior Securities   34
         
Item 4.   Mine Safety Disclosures   34
         
Item 5.   Other Information   34
         
Item 6.   Exhibits   34
     
Signatures   35

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2020   December 31, 2019 
   (Dollars in thousands) 
Assets          
           
Cash and due from banks  $20,595   $7,886 
Short-term investments   14,331    34,208 
Total cash and cash equivalents   34,926    42,094 
           
Certificates of deposit   100    100 
Securities available for sale, at fair value   24,369    29,815 
Federal Home Loan Bank of Boston stock, at cost   6,202    4,906 
Loans held for sale   2,089    3,354 
           
Loans   863,735    842,113 
Less allowance for loan losses   (8,208)   (7,653)
Loans, net   855,527    834,460 
           
Bank-owned life insurance   8,063    8,005 
Operating lease,right-of-use asset   7,489    6,473 
Premises and equipment, net   3,228    3,508 
Accrued interest receivable   2,595    2,525 
Net deferred tax asset   2,911    2,713 
Other assets   13,416    7,265 
           
Total assets  $960,915   $945,218 
           
Liabilities and Stockholders’ Equity          
           
Deposits:          
Non-interest-bearing  $152,887   $139,969 
Interest-bearing   582,139    612,498 
Total deposits   735,026    752,467 
Short-term borrowings   45,000    20,000 
Long-term borrowings   72,859    74,196 
Subordinated debt   9,868    9,861 
Lease liability   7,578    6,543 
Accrued expenses and other liabilities   15,278    8,700 
Total liabilities   885,609    871,767 
           
Commitments and contingencies          
           
Stockholders' equity:          
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued   --    -- 
Common stock, $0.01 par value; 14,000,000 shares authorized, 2,608,872 and 2,599,105 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively   26    26 
Additional paid-in capital   28,447    28,169 
Retained earnings   47,011    45,625 
Accumulated other comprehensive income (loss)   492    530 
Unearned compensation – ESOP   (867)   (899)
Total stockholders' equity   75,109    73,451 
           
Total liabilities and stockholders' equity  $960,915   $945,218 

 

See accompanying notes to consolidated financial statements.

 

 1 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

  

Three Months

Ended March 31,

 
   2020   2019 
   (Dollars in thousands,
except per share data)
 
Interest and dividend income:          
    Interest and fees on loans and loans held for sale  $9,703   $8,727 
    Debt securities:          
       Taxable   162    378 
       Tax-exempt   55    82 
    Short-term investments and certificates of deposit   107    164 
    FHLB stock   74    79 
              Total interest and dividend income   10,101    9,430 
Interest expense:          
    Deposits   2,053    2,489 
    Short-term borrowings   171    110 
    Long-term debt   480    243 
    Subordinated debt   157    157 
             Total interest expense   2,861    2,999 
           
Net interest income   7,240    6,431 
Provision for loan losses   555    240 
Net interest income, after provision for loan losses   6,685    6,191 
           
Non-interest income:          
    Customer service fees   54    39 
    Mortgage banking activities   7    28 
    Income on bank-owned life insurance   58    58 
    Wealth management fees   365    434 
    Miscellaneous   572    123 
            Total non-interest income   1,056    682 
           
Non-interest expense:          
    Salaries and employee benefits   3,196    3,040 
    Occupancy and equipment   915    804 
    Data processing   302    297 
    FDIC insurance   180    135 
    Professional fees   498    190 
    Other general and administrative   472    629 
           Total non-interest expense   5,563    5,095 
           
Income before income taxes   2,178    1,778 
Provision for income taxes   637    476 
           
Net income   1,541    1,302 
           
Other comprehensive income:          
    Net unrealized holding (loss) gain  on available-for-sale securities   (52)   858 
    Income tax benefit (expense)   14    (215)
           
Total other comprehensive (loss) gain income   (38)   643 
           
Comprehensive income  $1,503   $1,945 
Earnings per common share:          
  Basic  $0.61   $0.54 
  Diluted  $0.60   $0.52 
Weighted average shares outstanding:          
  Basic   2,510,907    2,431,324 
  Diluted   2,587,643    2,523,907 

 

See accompanying notes to consolidated financial statements.

 

 2 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2020 and 2019

 

    Common Stock     Additional
Paid-in
    Retained     Accumulated
Other
Comprehensive
    Unearned
Compensation-
    Total
Stockholders’
 
    Shares     Amount     Capital     Earnings     Income (Loss)     ESOP     Equity  
    (Dollars in thousands)  
Balance at December 31, 2018     2,525,611     $ 25     $ 26,462     $ 40,203     $ (533 )   $ (1,027 )   $ 65,130  
                                                         
Comprehensive income     --       --       --       1,302       643       --       1,945  
Restricted stock awards grant     11,500       --       --       --       --       --       --  
Stock options exercised     2,553       --       48       --       --       --       48  
Restricted stock forfeitures     (2,000 )     --       --       --       --       --       --  
Dividends paid to common stockholders ($0.055 per share)     --       --       --       (140 )     --       --       (140 )
Share-based compensation- equity incentive plan     --       --       102       --       --       --       102  
ESOP shares committed to be allocated (3,209)     ---       --       64       --       --       32       96  
                                                         
Balance at March 31, 2019     2,537,664     $ 25     $ 26,676     $ 41,365     $ 110     $ (995 )   $ 67,181  
                                                         
Balance at December 31, 2019     2,599,105       26     $ 28,169     $ 45,625     $ 530     $ (899 )   $ 73,451  
                                                         
Comprehensive income     --       --       --       1,541       (38 )     --       1,503  
Stock options exercised     10,527       --       162       --       --       --       162  
Common stock repurchased for restricted stock awards     (760 )     --       (34 )     --       --       --       (34 )
Dividends paid to common stockholders ($0.06 per share)     --       --       --       (155 )     --       --       (155 )
Share-based compensation- equity incentive plan     --       --       61       --       --       --       61  
ESOP shares committed to be allocated (3,209)     ---       --       89       --       --       32       121  
                                                         
Balance at March 31, 2020     2,608,872     $ 26     $ 28,447     $ 47,011     $ 492     $ (867 )   $ 75,109  

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Three  Months Ended March 31, 
   2020   2019 
   (In thousands) 
Cash flows from operating activities:          
Net income  $1,541   $1,302 
Adjustments to reconcile net income to net cash provided (used) by operating activities:          
Provision for loan losses   555    240 
Depreciation and amortization   211    187 
Net amortization of securities   15    42 
Gains on sales of securities, net   --    -- 
Principal balance of loans sold   6,129    1,228 
Loans originated for sale   (4,864)   (1,228)
Accretion of net deferred loan fees   (162)   (142)
Amortization of subordinated debt issuance costs   7    8 
Income on bank-owned life insurance   (58)   (58)
Deferred income tax provision   (111)   96 
ESOP expense   121    96 
Share-based compensation   61    102 
Net change in other assets and liabilities   579    (1,524)
Net cash provided by operating activities   4,024    349 
           
           
Cash flows from investing activities:          
Activity in securities available for sale:          
Maturities, prepayments and calls   5,379    3,563 
Purchase (redemption) of Federal Home Loan Bank stock   (1,296)   905 
Net loan originations   (21,460)   (41,599)
Additions to premises and equipment   (10)   (116)
Net cash used by investing activities   (17,387)   (37,247)
           
Cash flows from financing activities:          
Net increase (decrease) in deposits   (17,441)   32,992 
Proceeds from issuance of long-term debt   7,000    3,000 
Repayments of long-term debt   (8,337)   (8,331)
Increase in short-term borrowings   25,000    3,000 
Stock options exercised   162    48 
Common stock repurchased   (34)   -- 
Cash dividends paid on common stock   (155)   (140)
Net cash provided by financing activities   6,195    30,569 
           
Net change in cash and cash equivalents   (7,168)   (6,329)
Cash and cash equivalents at beginning period   42,094    42,650 
Cash and cash equivalents at end of period  $34,926   $36,321 
           
Supplementary information:          
Interest paid  $2,486   $2,718 
Income taxes paid   --    330 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

 

WELLESLEY BANCORP, INC. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

 

On December 5, 2019, Cambridge Bancorp (“Cambridge”) and Wellesley Bancorp, Inc. (the “Company”) issued a joint press release announcing that Cambridge and the Company have entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Company will merge with and into Cambridge, with Cambridge as the surviving entity (the “Merger”).  Under the terms of the Merger Agreement, which has been approved by the boards of directors and stockholders of both companies, stockholders of the Company will receive 0.580 shares of Cambridge common stock for each share of Wellesley common stock.  The transaction is subject to customary closing conditions and is expected to close during the second quarter of 2020.

 

The accompanying unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Wellesley Bank (the “Bank”), the principal operating entity, and its wholly-owned subsidiaries: Wellesley Securities Corporation, which engages in the business of buying, selling and dealing in securities exclusively on its own behalf; Wellesley Investment Partners, LLC, formed to provide investment management services for individuals, not-for-profit entities and businesses; and Central Linden, LLC, to hold, manage and sell foreclosed real estate. All significant intercompany balances and transactions have been eliminated in consolidation. Assets under management at Wellesley Investment Partners, LLC are not included in these consolidated financial statements because they are not assets of the Company. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

 

In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K. The results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any other period.

 

NOTE 2 – LOAN POLICIES

 

The loan portfolio consists of real estate, commercial and other loans to the Company’s customers in our primary market areas in eastern Massachusetts. The ability of the Company’s debtors to honor their contracts is dependent upon the economy in general and the state of real estate and construction sectors within our markets.

 

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred loan origination fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

 

Interest is generally not accrued on loans that are identified as impaired or loans which are ninety days or more past due. Past due status is based on the contractual terms of the loan. Interest income previously accrued on such loans is reversed against current period interest income. Interest income on non-accrual loans is recognized only to the extent of interest payments received and is first applied to the outstanding principal balance when collectibility of principal is in doubt. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured through sustained payment performance for at least six months.

 

Allowance for loan losses

 

The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to occur. Loan losses are charged against the allowance when management believes the uncollectibility of the loan balance is confirmed. Subsequent recoveries are credited to the allowance.

 

5 

 

 

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

 

General component

 

The general component is based on the following loan segments: residential real estate, commercial real estate, construction, commercial, home equity lines of credit and other consumer. Management considers a rolling average of historical losses for each segment based on a time frame appropriate to capture relevant loss data for each loan segment, generally three and 10 years. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume, concentrations and terms of loans; level of collateral protection; effects of changes in risk selection and underwriting standards; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no significant changes to the Company’s policies or methodology pertaining to the general component of the allowance during 2020 or 2019.

 

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

 

Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not originate subprime loans. Most loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality of this segment.

 

Commercial real estate – Loans in this segment are primarily income-producing properties in the Company’s primary market areas in eastern Massachusetts. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which, in turn, will have an effect on the credit quality in this segment. Management typically obtains rent rolls annually and continually monitors the cash flows of these loans.

 

Construction – Loans in this segment include speculative construction loans primarily on residential properties for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.    Residential construction loans in this segment also include loans to build one-to-four family owner-occupied properties which are subject to the same credit quality factors as residential real estate.

 

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

 

Home equity lines of credit – Loans in this segment are collateralized by one-to-four family residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

 

Other consumer – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

 

Allocated component

 

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the loan or, if the loan is collateral dependent, by the fair value of the collateral less estimated costs to sell. An allowance is established when the discounted cash flows or collateral value of the impaired loan are lower than the carrying value of that loan. Large groups of smaller-balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify performing individual residential and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

 

6 

 

 

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

 

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

 

Unallocated component

 

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

 

NOTE 3 COMPREHENSIVE INCOME

 

Accounting principles generally require that recognized revenue, expenses, and gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the stockholders’ equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income/loss.

 

The components of accumulated other comprehensive income (loss) and related tax effects are as follows:

 

   March 31,   December 31, 
   2020   2019 
   (In thousands) 
Unrealized holding  gains (losses)  on securities available for sale  $644   $696 
Tax effect   (152)   (166)
Net-of tax amount  $492   $530 

 

NOTE 4 RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Entities will now use forward-looking information to better form their credit loss estimates. Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP; however, recognized credit losses will be presented as an allowance rather than as a write-down. This ASU was scheduled to be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. However, the FASB recently voted to propose delaying the standard by three years for smaller reporting companies, which included Wellesley Bank. The Board of Directors voted to delay implementation of the standard.

 

7 

 

 

NOTE 5 – SECURITIES AVAILABLE FOR SALE

 

The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses, follows:

 

   Amortized   Gross
Unrealized
   Gross
Unrealized
   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
March 31, 2020                    
Residential mortgage-backed securities:                    
Government National Mortgage Association  $2,694   $88   $(44)  $2,738 
Government-sponsored enterprises   1,181    20    (4)   1,197 
SBA and other asset-backed securities   3,805    138    (25)   3,918 
State and municipal bonds   7,433    355    --    7,788 
Government-sponsored enterprise obligations   1,864    40    --    1,904 
Corporate bonds   6,748    113    (37)   6,824 
                     
   $23,725   $754   $(110)  $24,369 

 

   Amortized   Gross
Unrealized
   Gross
Unrealized
   Fair 
   Cost   Gains   Losses   Value 
   (In thousands) 
December 31, 2019                    
Residential mortgage-backed securities:                    
Government National Mortgage Association  $2,770   $61   $(16)  $2,815 
Government-sponsored enterprises   2,224    51    (9)   2,266 
SBA and other asset-backed securities   4,082    112    (2)   4,192 
State and municipal bonds   7,446    375    --    7,821 
Government-sponsored enterprise obligations   4,000    --    (6)   3,994 
Corporate bonds   8,597    139    (9)   8,727 
                     
   $29,119   $738   $(42)  $29,815 

 

There were no sales of available-for-sale securities for the three months ended March 31, 2020 and 2019.

 

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2020 are as follows:

 

   Amortized
Cost
  

Fair

Value

 
   (In thousands) 
Within 1 year  $--   $-- 
After 1 year to 5 years   6,654    6,723 
After 5 years to 10 years   7,019    7,316 
After 10 years   2,372    2,477 
    16,045    16,516 
Mortgage- and asset-backed securities   7,680    7,853 
           
   $23,725   $24,369 

 

Expected maturities may differ from contractual maturities because the issuer, in certain instances, has the right to call or prepay obligations with or without call or prepayment penalties.

 

8 

 

 

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

 

   Less Than Twelve Months   Over Twelve Months 
  

Gross

Unrealized

Losses

  

Fair

Value

  

Gross

Unrealized

Losses

  

Fair

Value

 
   (In thousands) 
March 31, 2020                    
Residential mortgage-backed securities:                    
Government National Mortgage Association  $--   $--   $(44)  $876 
Government-sponsored enterprises   (4)   359    --    -- 
SBA and other asset-backed securities   (5)   856    (20)   259 
Corporate bonds   (3)   997    (34)   974 
                     
   $(12)  $2,212   $(98)  $2,109 

 

   Less Than Twelve Months   Over Twelve Months 
  

Gross

Unrealized

Losses

  

Fair

Value

  

Gross

Unrealized

Losses

  

Fair

Value

 
   (In thousands) 
December 31, 2019                    
Residential mortgage-backed securities:                    
Government National Mortgage Association  $--   $--   $(16)  $908 
Government-sponsored enterprises   --    --    (9)   342 
SBA and other asset-backed securities   --    --    (2)   290 
Government-sponsored enterprise obligations   (6)   2,994    --    -- 
Corporate bonds   --    --    (9)   1,000 
                     
   $(6)  $2,994   $(36)  $2,540 

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluations. At March 31, 2020, various debt securities have unrealized losses with aggregate depreciation of 2.5% from their aggregate amortized cost basis. These unrealized losses relate principally to the effect of interest rate changes on the fair value of debt securities and not an increase in credit risk of the issuers. As the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

 

9 

 

 

NOTE 6 – LOANS AND ALLOWANCE FOR LOAN LOSSES

 

A summary of the ending balances of loans is as follows:

 

   March 31,   December 31, 
   2020   2019 
   (In thousands) 
Real estate loans:          
Residential – fixed  $89,954   $77,679 
Residential – variable   311,826    310,646 
Commercial   180,393    181,928 
Construction   139,265    138,007 
    721,438    708,260 
           
Commercial loans:          
Secured   100,276    92,347 
Unsecured   4,818    4,934 
    105,094    97,281 
           
Consumer loans:          
Home equity lines of credit   37,456    36,693 
Other   126    171 
    37,582    36,864 
           
Total loans   864,114    842,405 
Net deferred originations costs   (379)   (292)
Total loans, net of deferred fees   863,735    842,113 
           
Less:          
Allowance for loan losses   (8,208)   (7,653)
           
Loans, net  $855,527   $834,460 

 

10 

 

 

The following table summarizes the changes in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020 and 2019:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Construction   Commercial  

Home

Equity

  

Other

Consumer

   Unallocated   Total 
   (In thousands) 
Three Months Ended March 31, 2020                                        
                                         
Allowance at December 31, 2019  $2,100   $1,626   $1,823   $1,864   $235   $4   $1   $7,653 
                                         
Provision (credit) for loan losses   239    162    266    (147)   27    (1)   9    555 
                                         
Allowance at March 31, 2020  $2,339   $1,788   $2,089   $1,717   $262   $3   $10   $8,208 
                                         
Three Months Ended March 31, 2019                                        
                                         
Allowance at December 31, 2018  $2,216    1,602   $1,462   $1,124   $257   $3   $74   $6,738 
                                         
Provision (credit) for loan losses   (14)   (241)   347    157    5    --    (14)   240 
                                         
Allowance at March 31, 2019  $2,202   $1,361   $1,809   $1,281   $262   $3   $60   $6,978 

 

Further information pertaining to the allowance for loan losses is as follows:

 

  

Residential

Real Estate

  

Commercial

Real Estate

   Construction   Commercial  

Home

Equity

  

Other

Consumer

   Unallocated   Total 
   (In thousands) 
March 31, 2020                                        
                                         
Allowance related to impaired loans  $--   $--   $--   $--   $--   $--   $--   $-- 
Allowance related to non-impaired loans   2,339    1,788    2,089    1,717    262    3    10    8,208 
                                         
Total allowance  $2,339   $1,788   $2,089   $1,717   $262   $3   $10   $8,208 
                                         
Impaired loan balances  $715   $548   $--   $553   $500   $--   $--   $2,316 
Non-impaired loan balances   401,065    179,845    139,265    104,541    36,956    126    --    861,798 
                                         
Total loans  $401,780   $180,393   $139,265   $105,094   $37,456   $126   $--   $864,114 
                                         
December 31, 2019                                        
                                         
Allowance related to impaired loans  $--   $--   $--   $350   $--   $--   $--   $350 
Allowance related to non-impaired loans   2,100    1,626    1,823    1,514    235    4    1    7,303 
                                         
Total allowance  $2,100   $1,626   $1,823   $1,864   $235   $4   $1   $7,653 
                                         
Impaired loan balances  $721    2,565   $--   $1,993   $500   $--   $--   $5,779 
Non-impaired loan balances   387,604    179,363    138,007    95,288    36,193    171    --    836,626 
                                         
Total loans  $388,325   $181,928   $138,007   $97,281   $36,693   $171   $--   $842,405 

 

11 

 

 

The following is a summary of past due and non-accrual loans at March 31, 2020 and December 31, 2019:

 

  

30-59 Days

Past Due

  

60-89 Days

Past Due

  

Past Due 90

Days or

More

  

Total

Past Due

  

Past Due 90

Days or More

and Still Accruing

  

Non-accrual

Loans

 
   (In thousands) 
March 31, 2020                        
                         
Residential real estate  $532   $--   $--   $532   $--   $558 
Commercial real estate   3,434    --    548    3,982    --    548 
Home equity lines of credit   118             --    500    618                    --      500 
                               
Total  $4,084   $--   $1,048   $5,132   $--   $1,606 

 

December 31, 2019                              
                               
Residential real estate  $--   $--   $--   $--   $--   $562 
Commercial real estate   --    --    548    548    --    548 
Commercial loans   --    --    --    --    --    883 
Home equity lines of credit   --    --    500    500    --    500 
                               
Total  $--   $--   $1,048   $1,048   $--   $2,493 

 

The following is a summary of impaired loans:

 

   March 31, 2020   December 31, 2019 
  

Recorded

Investment

  

Unpaid

Principal

Balance

  

 

Related Allowance

  

Recorded

Investment

  

Unpaid

Principal

Balance

  

 

Related Allowance

 
       (In thousands)     
Impaired  loans without a valuation allowance:                              
Residential real estate  $715   $732   $--   $721   $738   $-- 
Commercial real estate   548    674    --    2,565    2,691    -- 
Commercial loans   553    553    --    1,110    1,110    -- 
Home equity lines of credit   500    500    --    500    500    -- 
                               
Total   2,316    2,459    --    4,896    5,039    -- 
                               
Impaired  loans with a valuation allowance:                              
Commercial loans   --    --    --    883    883    350 
                               
Total impaired loans  $2,316   $2,459   $--   $5,779   $5,922   $350 

 

12

 

 

Further information pertaining to impaired loans follows:

 

   Three Months Ended March 31, 2020   Three  Months Ended March 31, 2019 
  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

Interest

Income

Recognized

on Cash Basis

  

Average

Recorded

Investment

  

Interest

Income

Recognized

  

Interest

Income

Recognized

on Cash Basis

 
   (In thousands) 
Residential real estate  $718   $9   $6   $744   $6   $4 
Commercial real estate   1,053    8    --    2,809    33    8 
Commercial loans   1,386    27    15    --    --    -- 
Home equity lines of credit   500    --    --    --    --    -- 
                               
Total  $3,657   $44   $21   $3,553   $39   $12 

 

There were no new troubled debt restructurings recorded during the three months ended March 31, 2020 and 2019.

 

There were no TDRs that defaulted, generally considered 90 days past due or longer, during the three months ended March 31, 2020 and 2019, and for which default was within one year of the restructure date. TDRs did not have a material impact on the allowance for loan losses for the three months ended March 31, 2020 and 2019.

 

Credit Quality Information

 

The Company utilizes an eleven-grade internal loan rating system for commercial real estate, construction and commercial loans.

 

Loans rated 1-4: Loans in these categories are considered “pass” rated loans with low to average risk.

 

Loans rated 5: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

 

Loans rated 6: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

 

Loans rated 7: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

 

Loans rated 8: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

 

Loans rated 9: Loans in this category only include commercial loans under $25 thousand with no other outstandings or relationships with the Company.

 

Loans rated 10: Loans in this category include loans which otherwise require rating but which have not been rated, or loans for which the Company’s loan policy does not require rating.

 

Loans rated 11: Loans in this category include credit commitments/relationships that cannot be rated due to a lack of financial information or inaccurate financial information. If within 60 days of the assignment of an 11 rating, information is still not available to allow a standard rating, the credit will be rated 6.

 

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans. During each calendar year, the Company engages an independent third party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. On a monthly basis, the Company reviews the residential real estate and consumer loan portfolio for credit quality primarily through the use of delinquency reports.

 

13

 

 

The following table presents the Company’s loans by risk rating:

 

   March 31, 2020   December 31, 2019 
  

Commercial

Real Estate

   Construction   Commercial   Total  

Commercial

Real Estate

   Construction   Commercial   Total 
   (In thousands) 
Loans rated 1-4  $178,979   $139,265   $104,541   $422,785   $178,488   $138,007   $95,287   $411,782 
Loans rated 5   866    --    --    866    875    --    --    875 
Loans rated 6   --    --    553    553    2,017    --    1,994    4,011 
Loans rated 7   548    --    --    548    548    --    --    548 
                                         
Total  $180,393   $139,265   $105,094   $424,752   $181,928   $138,007   $97,281   $417,216 

 

NOTE 7 - DERIVATIVE INSTRUMENTS

 

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments. These undesignated derivative instruments are recognized on the consolidated balance sheet at fair value, with changes in the fair value recorded in miscellaneous income.

 

Derivative Loan Commitments

 

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

 

Outstanding derivative loan commitments expose the Company to the potential for changes in the fair value of the underlying loans as interest rates change, along with the value of the loan commitment. If interest rates increase, the value of these loan commitments will decrease. Conversely, if interest rates decrease, the value of these loan commitments will increase. The notional amount of undesignated derivative loan commitments was $320 thousand at March 31, 2020. The fair value of these commitments was a liability of $9 thousand. The notional amount of undesignated derivative loan commitments was $350 thousand at December 31, 2019. The fair value of these commitments was a liability of $1 thousand at December 31, 2019.

 

Forward Loan Sale Commitments

 

To protect against the price risk inherent in derivative loan commitments, the Company utilizes “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded.

 

The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments. The notional amount of undesignated forward loan sale commitments was $2.5 million at March 31, 2020. The fair value of these commitments was an asset of $34 thousand at March 31, 2020. . The notional amount of undesignated forward loan sale commitments was $3.7 million at December 31, 2019. The fair value of these commitments was a liability of $4 thousand at December 31, 2019.

 

14

 

 

Interest Rate Swap Agreements

 

The Company has entered into derivative financial instruments in the normal course of business to manage exposure to fluctuations in interest rates for its commercial customers. Typically these agreements have generally been limited to loan level interest rate swap agreements, which are entered into with borrowers and a third party. Typically, the Company enters into a floating-rate loan and a fixed-rate swap directly with a loan customer. The Company offsets the fixed-rate interest rate risk with an identical offsetting swap with a swap dealer. This is referred to as a “back-to-back” swap structure. As this structure has equal and offsetting interest rate contracts, fair value gains and losses recorded each month are offsetting.

 

The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based. Notional amounts do not represent direct credit exposures. The primary risk associated with these transactions is the ability of the counterparties to meet the terms of the contract. The fair value of the derivative instruments is reflected on the Company’s consolidated balance sheet as other assets and other liabilities as appropriate. At March 31, 2020, cash in the amount of $11.7 million is pledged as collateral by the Company to its third-party financial institution counterparty. Changes in fair values are recorded in miscellaneous income in the consolidated statements of comprehensive income. There is no credit valuation adjustment at March 31, 2020.

 

A summary of the interest rate swaps is as follows:

 

   With commercial   With  third-party 
   loan borrowers   financial institutions 
   March 31,   December 31,   March 31,   December 31, 
   2020   2019   2020   2019 
   (dollars in thousands) 
Notional amount   $88,152    $71,941    $88,152    $71,941 
Receive (pay) fixed rate weighted average   4.25%    4.43%    (4.25%)    (4.43%) 
Receive (pay) variable rate weighted average   (3.01%)    (3.79%)    3.01%    3.79% 
Weighted average remaining years   12.6 years    11.0 years    12.6 years    11.0 years 
Unrealized fair value gain (loss)   $10,181    $3,472    $(10,181)    $(3,472) 

 

NOTE 8 – FAIR VALUES OF FINANCIAL INSTRUMENTS

 

Fair value hierarchy

 

The Company groups its assets measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

 

Level 1 – Valuation is based on quoted market prices in active exchange markets for identical assets and liabilities. Valuations are obtained from readily available pricing sources.

 

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. Valuations are obtained from readily available pricing sources.

 

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as those for which the determination of fair value requires significant management judgment or estimation.

 

Transfers between levels are recognized at the end of a reporting period, if applicable.

 

15

 

 

Determination of fair value

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the assets and liabilities.

 

Assets and liabilities measured at fair value on a recurring basis

 

Assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 are summarized below.

 

   Level 1   Level 2   Level 3  

Total

Fair Value

 
   (In thousands) 
March 31, 2020                
                 
Assets                    
Securities available for sale  $--   $22,841   $1,528   $24,369 
Interest rate swap agreements   --    10,181    --    10,181 
Forward loan sale commitments   --    --    34    34 
   $--   $33,022   $1,562   $34,584 
                     
Liabilities                    
Interest rate swap agreements  $--   $10,181   $--   $10,181 
Derivative loan commitments   --    --    9    9 
   $--   $10,181   $9   $10,190 
                     
December 31, 2019                    
                     
Assets                    
Securities available for sale  $--   $28,293   $1,522   $29,815 
Interest rate swap agreements   --    3,472    --    3,472 
   $--   $31,765   $1,522   $33,287 
                     
Liabilities                    
Derivative loan commitments  $--   $--   $1   $1 
Forward loan sale commitments   --    --    4    4 
Interest rate swap agreements   --    3,472    --    3,472 
   $--   $3,472   $5   $3,477 

 

Fair value measurements for securities available for sale are obtained from a third-party pricing service and are not adjusted by management. All securities are measured at fair value in Level 2 based on valuation models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

 

The fair values of interest rate swap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also the value associated with the counterparty risk. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposure and remaining contractual life.

 

16

 

 

The fair value of forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans, including servicing values as applicable. The fair value of derivative loan commitments also considers the probability of such commitments being exercised.

 

Assets measured at fair value on a non-recurring basis

 

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market (“LOCOM”) accounting or write-downs of individual assets. Fair values for loans held for sale are based on commitments in effect from investors or prevailing market rates.

 

   March 31, 2020   December 31, 2019 
   Level 1   Level 2   Level 3   Level 1   Level 2   Level 3 
   (In thousands) 
Loans held for sale  $--   $--   $2,089   $--   $--   $3,354 

 

There were no liabilities measured at fair value on a non-recurring basis at March 31, 2020 and December 31, 2019.

 

Summary of fair values of financial instruments

 

The estimated fair values and related carrying amounts of the Company’s financial instruments are outlined in the table below. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

 

   Fair Value 
   Carrying Amount   Level 1   Level 2   Level 3   Total 
  (In thousands)
March 31, 2020
                     
Financial assets:                         
Cash and cash equivalents  $34,926   $34,926   $--   $--   $34,926 
Certificates of deposit   100    100    --    --    100 
Securities available for sale   24,369    --    22,841    1,528    24,369 
FHLB stock   6,202    --    --    6,202    6,202 
Loans held for sale   2,089    --    --    2,089    2,089 
Loans, net   855,527    --    --    857,026    857,026 
Accrued interest receivable   2,595    --    --    2,595    2,595 
Interest rate swap agreements   10,181    --    10,181    --    10,181 
Forward loan sale commitments   34    --    --    34    34 
                          
Financial liabilities:                         
Deposits  $735,026   $--   $--   $736,809   $736,809 
Short-term borrowings   45,000    --    45,000    --    45,000 
Long-term debt   72,859    --    74,716    --    74,716 
Subordinated debt   9,868    --    --    9,812    9,812 
Accrued interest payable   506    --    --    506    506 
Interest rate swap agreements   10,181    --    10,181    --    10,181 
Derivative loan commitments   9    --    --    9    9 
                          

 

17

 

 

       Fair Value 
   Carrying Amount   Level 1   Level 2   Level 3   Total 
  (In thousands)
December 31, 2019
                     
Financial assets:                         
Cash and cash equivalents  $42,094   $42,094   $--   $--   $42,094 
Certificates of deposit   100    100    --    --    100 
Securities available for sale   29,815    --    28,293    1,522    29,815 
FHLB stock   4,906    --    --    4,906    4,906 
Loans held for sale   3,354    --    --    3,354    3,354 
Loans, net   834,460    --    --    839,084    839,084 
Accrued interest receivable   2,525    --    --    2,525    2,525 
Interest rate swap agreements   3,472    --    3,472    --    3,472 
                          
Financial liabilities:                         
Deposits  $752,467   $--   $--   $752,699   $752,699 
Short-term borrowings   20,000    --    20,000    --    20,000 
Long-term debt   74,196    --    75,256    --    75,256 
Subordinated debt   9,861    --    --    9,788    9,788 
Interest rate swap agreements   3,472    --    3,472    --    3,472 
Accrued interest payable   692    --    --    692    692 
Derivative loan commitments   1    --    --    1    1 
Forward loan sale commitments   4    --    --    4    4 

 

NOTE 9 EMPLOYEE STOCK OWNERSHIP PLAN

 

The Bank maintains an Employee Stock Ownership Plan (the “ESOP”) to provide eligible employees the opportunity to own Company stock. This plan is a tax-qualified retirement plan for the benefit of all Company employees. Contributions are allocated to eligible participants on the basis of compensation, subject to federal tax limits.

 

The Company granted a loan to the ESOP to purchase shares of the Company’s common stock on the closing date of the Company’s mutual-to-stock conversion in 2012. As of March 31, 2020, the ESOP held 174,852 shares or 6.7% of the common stock outstanding on that date. The loan is payable annually over 15 years at the rate of 3.25% per annum. The loan can be prepaid without penalty. Loan payments are expected to be funded by cash contributions from the Bank. The loan is secured by the shares purchased, which are held in a suspense account for allocation among participants as the loan is repaid. Cash dividends paid on allocated shares are reinvested into shares to participants and cash dividends paid on unallocated shares will be used to repay the outstanding debt of the ESOP. Shares used as collateral to secure the loan are released and available for allocation to eligible employees as the principal and interest on the loan is paid.

 

18

 

 

Shares held by the ESOP at March 31, 2020 include the following:

 

Allocated   84,984 
Committed to be allocated   3,209 
Unallocated   86,659 
      
    174,852 

 

The fair value of unallocated shares was $2.4 million at March 31, 2020.

 

Total compensation expense recognized in connection with the ESOP for the three months ended March 31, 2020 and 2019 was $121 thousand and $96 thousand, respectively.

 

NOTE 10 EQUITY INCENTIVE PLANS

 

Under the Company’s 2016 Equity Incentive Plan, the Company may grant restricted stock awards to its employees and directors for up to 75,000 shares of its common stock. A restricted stock award (the “award”) is a grant of shares of Company common stock for no consideration, subject to a vesting schedule or the satisfaction of market conditions or performance criteria. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and will be issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, will be recognized over the five-year vesting period. At March 31, 2020, there remain 20,550 shares available to award under the Plan.

 

Under the Company’s 2012 Equity Incentive Plan the Company granted stock options to its employees and directors in the form of incentive stock options and non-qualified stock options totaling 231,894 shares of its common stock. The exercise price of each stock option was not less than the fair market value of the Company’s common stock on the date of grant, and the maximum term of each option is 10 years from the date of each award. The vesting period was five years from the date of grant, with vesting at 20% per year.

 

Under the 2012 Equity Incentive Plan, the Company also granted stock awards to management, employees and directors. Awarded shares are held in reserve for each grantee by the Company’s transfer agent, and were issued from previously authorized but unissued shares upon vesting. The fair value of the stock awards, based on the market price at the grant date, is recognized over the five-year vesting period. The Company’s 2012 Equity Incentive Plan was terminated upon approval of the 2016 Equity Incentive Plan.

 

Stock Options

 

A summary of option activity under the 2012 Equity Incentive Plan for the three months ended March 31, 2020 is presented below:

 

    Outstanding 
    Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 
    (In thousands)       (In years)   (In thousands) 
Balance at January 1, 2020    124   $16.09           
Exercised    (10)   15.35           
                      
Balance at March 31, 2020    114   $15.82    2.77   $1,324 
Exercisable at  March 31, 2020    112   $15.78    2.73   $1,337 

 

 19 

 

 

   Non-vested 
   Shares   Weighted
Average
Grant Date
Fair Value
 
   (In thousands)     
Balance at January 1, 2020   1   $19.14 
           
Balance at March 31, 2020   1   $19.14 

 

For the three months ended March 31, 2020 and 2019, compensation expense applicable to the stock options was $1 thousand and $7 thousand, respectively. There was no recognized tax benefit related to this expense for the period ended March 31, 2020 and March 31, 2019, respectively.

 

Unrecognized compensation expense for non-vested stock options totaled $3 thousand as of March 31, 2020, which will be recognized over the remaining weighted average vesting period of 0.5 years.

 

Stock Awards

 

There were no restricted stock awards granted for the three months ended March 31, 2020.

 

The following table presents the activity in non-vested stock awards under the equity incentive plans for the three months ended March 31, 2020:

 

  

Number of Shares

  

Grant-date

Fair Value

 
   (In thousands)     
Balance at January 1, 2020   28   $23.97 
Restricted shares vested   (6)   28.25 
           
Balance at March 31, 2020   22   $26.48 

 

For the three months ended March 31, 2019, there were 11,500 restricted stock awards granted with a weighted average grant date fair value of $28.25

 

For the three months ended March 31, 2020 and 2019, compensation expense applicable to the stock awards was $60 thousand and $95 thousand, respectively, and the recognized tax benefit related to this expense was $17 thousand and $27 thousand, respectively.

 

Unrecognized compensation expense for non-vested restricted stock totaled $484 thousand as of March 31, 2020, which will be recognized over the remaining weighted average vesting period of 2.24 years.

 

 20 

 

 

NOTE 11 EARNINGS PER COMMON SHARE

 

Basic earnings per share represents net income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. Under the Company’s 2012 and 2016 Equity Incentive Plans, stock awards contain non-forfeitable dividend rights. Accordingly, these shares are considered outstanding for computation of basic earnings per share. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method.

 

  

Three Months Ended

March 31,

 
   2020   2019 
   (In thousands) 
Net income applicable to common stock  $1,541   $1,302 
           
Average number of common shares issued   2,599    2,532 
Less: Average unallocated ESOP shares   (88)   (101)
           
Average number of common shares outstanding used to calculate basic earnings per common share   2,511    2,431 
Effect of  dilutive stock options   77    93 
           
Average number of common shares outstanding used to calculate diluted earnings per share   2,588    2,524 
Earnings per common share:          
Basic  $0.61   $0.54 
Diluted  $0.60   $0.52 

 

There were no anti-dilutive options that would have been excluded from the computations of diluted earnings per share for the three months ended March 31, 2020 and 2019. Anti-dilutive shares are common stock equivalents with exercise prices in excess of the strike price of the Company’s stock for the periods presented.

 

NOTE 12 LEASES

 

Effective January 1, 2019, operating leases are included in operating lease right-of-use (“ROU”) asset and liabilities in our consolidated balance sheet. These operating leases provide the physical facilities for our sales and service locations, administration and operations offices, and ATMs. The Company recorded an increase in assets of $7.8 million and an increase in liabilities of $7.8 million on the Consolidated Balance Sheets as a result of recognizing the right-of-use assets and lease liabilities.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were recognized at the accounting adoption date based on the present value of lease payments over the remaining lease term. As the Company’s leases do not provide an implicit rate, the Company used the Federal Home Loan Bank borrowing rates that best align with the lease term in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease, which we include when it is reasonably certain that we will exercise that option. For operating leases, the lease expense is recognized on a straight-line basis over the lease term. The operating lease expense for the three months ended March 31, 2020 was $464 thousand.

 

 21 

 

 

The table below summarizes other information related to our operating leases as of March 31, 2020:

 

Cash flows from operating leases, in thousands, year to date 2020  $459 
Weighted average remaining lease term, in years   5.2 
Weighted average discount rate   3.13%

 

The table below summarizes the maturity of the operating lease liabilities as of March 31, 2020:

 

   (In thousands) 
2020  $1,400 
2021   1,714 
2022   1,417 
2023   1,340 
2024   1,136 
Thereafter   1,309 
Total lease payments   8,316 
Less imputed interest   (738)
Present value of lease liabilities  $7,578 

 

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

 

Safe Harbor Statement for Forward-Looking Statements

 

This report contains certain forward-looking statements about the Company and the Bank. The words or phrases "will likely result," "are expected to," "will continue," "intends," "believes," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, changes in legislation or accounting policies, fluctuations in interest rates, demand for loans in the Company's market area, competition and information provided by third-party vendors. Management's ability to predict results or the effect of future plans or strategies is inherently uncertain.

 

Factors that could affect actual results include, but are not limited to, our ability to complete our previously announced business combination with Cambridge Bancorp, interest rate trends, the general economic climate in our market area, as well as nationwide, the COVID-19 (coronavirus) pandemic or the outbreak of other highly infectious or contagious diseases, our ability to control costs and expenses, competitive products and pricing, loan delinquency rates and changes in federal and state legislation and regulation and tax laws. Further, statements about the potential effects of the COVID-19 pandemic on our business and financial results and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties and us. Additional factors that may affect our results that could cause actual results to differ materially from historical results and those presently anticipated or projected are discussed in the Company’s 2019 Annual Report on Form 10-K under the section titled “Item 1A.–Risk Factors.”

 

Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

 

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Critical Accounting Policies

 

We consider critical accounting policies to be accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.

 

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are the following: the likelihood of loan default; the loss exposure at default; the amount and timing of future cash flows on impaired loans; the value of collateral; and, the determination of loss factors to be applied to the various qualitative elements of the portfolio. All of these estimates are susceptible to significant change.

 

Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio.

 

Although we believe that we use the best information available to establish the allowance for loan losses at a level that represents management’s best estimate of losses in the loan portfolio at the balance sheet date, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with accounting principles generally accepted in the United States of America, there can be no assurance that the FDIC or the Massachusetts Commissioner of Banks, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses based on judgments different from ours. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. The spread of a highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S. economy, which could in turn disrupt the business, activities, and operations of our customers, as well our business and operations. Moreover, since the beginning of January 2020, the coronavirus outbreak has caused significant disruption in the financial markets both globally and in the United States. The spread of COVID-19, or an outbreak of another highly infectious or contagious disease, may result in a significant decrease in business and/or cause our customers to be unable to meet existing payment or other obligations to us, particularly in the event of a spread of COVID-19 or an outbreak of an infectious disease in our market area. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operation.

 

COVID-19. In response to the rapidly evolving COVID-19 pandemic, the Company focused first on the well-being of its people, customers and communities. Preventative health measures were put in place including work from home for all employees able to do so, social distancing precautions for all employees in the office and customers visiting branches, and preventative cleaning at offices and branches. The Company also focused on business continuity measures, including monitoring potential business interruptions, making improvements to our remote working technology, and conducting regular discussions with our technology vendors.

 

The Company has also taken measures to both support customers affected by the pandemic and to maintain strong asset quality, including the following: helping business customers through the Small Business Administration’s Paycheck Protection Program (the “PPP”); offering flexible repayment options for consumer and business clients through a streamlined loan modification process, when appropriate; maintaining prudent underwriting standards; and, monitoring portfolio risk and related mitigation strategies.

 

The Company is participating in the PPP, which provides forgivable loans to small businesses to enable them to maintain payroll, rehire employees who have been laid-off, and cover applicable overhead. After the PPP was announced, the Company mobilized resources to maximize the ability of clients to access this program. As of April 30, 2020, the Company had processed and approved 164 loans under the PPP for a total of $35.0 million.

 

As a further relief to qualified commercial and residential mortgage and consumer loan clients, the Company has developed guidelines to provide for forbearance of certain loan payments for up to 90 days. As of April 30, 2020, the Company had granted approvals for payment deferrals on seven commercial loans with an aggregate balance of $3.0 million, and five residential mortgage loans with an aggregate balance of $3.5 million.

 

 23 

 

 

Comparison of Financial Condition at March 31, 2020 and December 31, 2019

 

General. Total assets increased $15.7 million, or 1.7%, from $945.2 million at December 31, 2019 to $960.9 million at March 31, 2020. Total asset growth was primarily related to an increase in the net loan portfolio of $21.1 million or 2.5%, along with the quarterly mark-to-market increase of $6.7 million on client swaps, partially offset by a reduction in short-term investments and cash of $7.2 million and investments of $5.4 million.

 

Loans. The net loan portfolio increased $21.1 million. We have had continued success growing our commercial loan portfolio. Commercial and industrial loans increased $7.8 million, or 12.2%, to $105.1 million. Construction loans increased $1.3 million to $139.3 million. Commercial real estate loans decreased $1.5 million to $180.4 million. Residential real estate loans increased $13.5 million, or 3.5%, to $401.8 million, compared to $388.3 million at December 31, 2019.

 

At March 31, 2020, past due loans totaled $5.1 million as compared to $1.0 million at December 31, 2019. The increase is exclusively due to borrowers who have recently become 30-59 days past due. All delinquent loans are secured by real estate collateral with values exceeding outstanding loan principal. As of April 15, 2020, $2.7 million of the past due loans at March 31, 2020 had been brought current. There were no charge-offs on delinquent loans during the three months ended March 31, 2020 and March 31, 2019.

 

Securities. Total securities decreased from $29.8 million at December 31, 2019 to $24.4 million at March 31, 2020 primarily due to maturities and calls on securities in the current, low interest rate environment.

 

Deposits. Total deposits decreased $17.4 million, or 2.3%, from $752.5 million at December 31, 2019 to $735.0 million at March 31, 2020. Demand deposits and NOW accounts increased $17.4 million, or 9.7%, to $196.2 million as growth was realized in both retail and commercial accounts. Money market accounts decreased $24.3 million, or 8.8% as depositors moved funds to more liquid alternatives in these uncertain markets. Certificates of deposit decreased $6.1 million, to $230.2 million, which included a decrease of $3.0 million in brokered accounts. Savings account balances also decreased $4.5 million to $73.5 million at March 31, 2020.

 

Borrowings. We use borrowings, primarily from the FHLB, to supplement our supply of funds for loans and securities, and to support short-term liquidity needs of the institution. Long-term debt, consisting entirely of FHLB advances, decreased $1.3 million, or 1.8%, for the three months ended March 31, 2020. Short-term borrowings also consist entirely of advances from the FHLB with initial maturities less than one year. Balances of short-term borrowings increased $25.0 million, or 125.0%, from December 31, 2019 to meet liquidity needs. Subordinated debt was $9.8 million at March 31, 2020 and December 31, 2019.

 

Stockholders’ Equity. Stockholders’ equity increased $1.7 million, or 2.3%, from $73.5 million at December 31, 2019 to $75.1 million at March 31, 2020. The increase was primarily due to retained earnings and the exercise of stock options, partially offset by a decrease in the fair values of available-for-sale securities and by dividends paid. At March 31, 2020, the Company’s ratio of stockholders’ equity-to-total assets was 7.82%, compared to 7.77% at December 31, 2019.

 

Results of Operations for the Three Months Ended March 31, 2020 and 2019

 

Overview. Net income for the three months ended March 31, 2020 was $1.5 million, compared to net income of $1.3 million for the three months ended March 31, 2019, an increase of $239 thousand or 18.4%. The increase in net income was due to increases in net interest income and non-interest income, partially offset by an increase in the provision for loan losses and an increase in non-interest expense. Net interest income increased $809 thousand to $7.2 million and non-interest income increased $374 thousand to $1.1 million. The provision for loan loss increased $315 thousand to $555 thousand in the 2020 quarter. Non-interest expense increased $468 thousand and totaled $5.6 million for the three months ended March 31, 2020. Income tax expense increased $161 thousand to $637 thousand, as compared to the 2019 period.

 

Net Interest Income. Net interest income for the three months ended March 31, 2020 increased $809 thousand, or 12.6%, as compared to the three months ended March 31, 2019. The increase in interest income was due to increases in the average balances of loans offset by a decreasing yield. Interest expense decreased, driven by overall deposit decreases, lower rates offered on certificates of deposit and money market accounts, and lower rates on borrowings. The net interest margin improved from 3.02% in the first quarter of 2019 to 3.15% in the first quarter of 2020.

 

 24 

 

 

Interest and dividend income increased $671 thousand, or 7.1%, from $9.4 million for the three months ended March 31, 2019 to $10.1 million for the three months ended March 31, 2020. The average balance of interest-earning assets increased 6.9%, while the average rate earned on these assets decreased by three basis points (“bps”). Interest and fees on loans increased $976 thousand, or 11.2%, due, in part, to an 11.3% increase in the average balance of loans. The average rate earned on loans decreased four bps to 4.55%. Interest income from debt securities decreased $243 thousand, or 52.8%, due primarily to a decrease in the average balances associated with a sale of almost half of the portfolio in late 2019.

 

Interest expense decreased $138 thousand, or 4.6% primarily due to a decrease in average balances of interest-bearing deposits and a decrease in rates. Our funding costs have responded more quickly than loan income to the change in interest rates. Deposit expense decreased $436 thousand or 17.5%. The average balance of interest-bearing deposits decreased $17.5 million, or 2.9%, in the three months ended March 31, 2020, compared to the same period in 2019 and the average rate paid on interest bearing deposits decreased 26 bps. The cost of term certificates of deposit decreased $387 thousand to $1.1 million as average balances decreased $73.1 million. Rates paid on certificates of deposit balances decreased to 2.10%, down from 2.12% in the same period last year. In the 2020 period, interest expense on money market accounts decreased by $26 thousand to $849 thousand. The rate paid on money market accounts decreased 37 bps primarily due to lower interest rates offered on these accounts. The average balance of money market accounts of $274.3 million is compared to $220.8 million in the prior year period.

 

Interest expense increased for borrowings. Interest expense on short-term borrowings totaled $171 thousand in the three month period ended March 31, 2020, compared to $110 thousand in the three months ended March 31, 2019, primarily due to increases in average balances. Rates paid on short-term borrowings decreased by 103 bps during the 2020 period. Long-term debt expense totaled $480 thousand in the three month period ended March 31, 2020 compared to $243 thousand in the three months ended March 31, 2019. The average balance of long-term FHLB advances increased from $56.2 million to $73.3 million, while rates paid on long-term FHLB advances increased from 1.75% to 2.63%.

 

 25 

 

 

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Loan fees are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

 

   For the Three Months Ended March 31, 
   2020   2019 
(Dollars in thousands)  Average
Outstanding
Balance
   Interest
Earned/
Paid
   Average
Yield/
Rate (1)
   Average
Outstanding
Balance
   Interest
Earned/
Paid
   Average
Yield/
Rate (1)
 
Interest-earning assets:                              
Short-term investments  $32,810   $107    1.32%  $24,151   $164    2.76%
Debt securities:                              
Taxable   19,589    162    3.31    52,043    378    2.94 
Tax-exempt   7,900    55    2.78    12,993    82    2.55 
Total loans and loans held for sale   858,249    9,703    4.55    770,975    8,727    4.59 
FHLB stock   5,445    74    5.45    3,882    79    8.27 
Total interest-earning assets   923,993    10,101    4.40    864,044    9,430    4.43 
Allowance for loan losses   (7,724)             (6,831)          
Total interest-earning assets less allowance for loan losses   916,269              857,213           
Non-interest-earning assets   35,987              30,626           
Total assets  $952,256             $887,839           
Interest-bearing liabilities:                              
Regular savings accounts  $75,604    90    0.48   $79,201    119    0.61 
NOW checking accounts   39,199    34    0.35    33,574    28    0.34 
Money market accounts   274,268    849    1.24    220,764    875    1.61 
Certificates of deposit   207,168    1,080    2.10    280,242    1,467    2.12 
Total interest-bearing deposits   596,239    2,053    1.38    613,781    2,489    1.64 
Short-term borrowings   37,255    171    1.84    15,592    110    2.87 
Long-term debt   73,262    480    2.63    56,232    243    1.75 
Subordinated debt   9,864    157    6.40    9,835    157    6.49 
Total interest-bearing liabilities   716,620    2,861    1.61    695,440    2,999    1.75 
Non-interest-bearing demand deposits   142,607              115,629           
Other non-interest-bearing liabilities   17,837              10,269           
Total liabilities   877,064              821,338           
Stockholders’ equity   75,192              66,501           
Total liabilities and stockholders’ equity  $952,256             $887,839           
Net interest income       $7,240             $6,431      
Net interest rate spread (2)             2.79%             2.68%
Net interest-earning assets (3)  $207,374             $168,604           
Net interest margin (4)             3.15%             3.02%
Average total interest-earning assets to average total interest-bearing liabilities   128.94%             124.24%          

 

 

(1)Ratios for the three month period have been annualized.
(2)Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3)Represents total average interest-earning assets less total average interest-bearing liabilities.
(4)Represents net interest income as a percent of average interest-earning assets.

 

 26 

 

 

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

 

   Three Months Ended March 31, 2020
Compared to
Three Months Ended March 31, 2019
 
   Increase (Decrease)
Due to
   Total Increase 
(In thousands)  Volume   Rate   (Decrease) 
Interest-earning assets:               
Short-term investments  $130   $(187)  $(57)
Debt securities:               
Taxable   (281)   65    (216)
Tax-exempt   (37)   10    (27)
Total loans and loans held for sale   918    58    976 
FHLB stock   (30)   25    (5)
Total interest-earning assets   700    (29)   671 
                
Interest-bearing liabilities:               
Regular savings   (5)   (23)   (28)
NOW checking   5    1    6 
Money market   (218)   191    (27)
Certificates of deposit   (393)   7    (386)
Total interest-bearing deposits   (611)   176    (435)
Short-term borrowings   80    (20)   60 
Long-term debt   86    151    237 
Subordinated debt   --    --    -- 
Total interest-bearing liabilities