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BCB BANCORP INC - Quarter Report: 2018 June (Form 10-Q)

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

(Mark One)

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

For the quarterly period ended June  30, 2018

Or

 

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

For the transition period from                      to                     

Commission File Number: 0-50275



BCB Bancorp, Inc.

(Exact name of registrant as specified in its charter)



 

New Jersey

 

26-0065262

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

I.D. No.)

 

 

104-110 Avenue C Bayonne, New Jersey

 

07002

(Address of principal executive offices)

 

(Zip Code)

(201) 823-0700

(Registrant’s telephone number, including area code)

 



Not Applicable

(Former name, former address and former fiscal year if changed since last report)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).       Yes       No

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

 

 

 

 

 

 

 

Large Accelerated Filer

 

  

Accelerated Filer

 

 

 

 

 

 

Non-Accelerated Filer

 

 (Do not check if a smaller reporting company)

  

Smaller Reporting Company   

 

 



 

 

 

 

 

 



 

 

 

Emerging Growth Company

 

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

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).      Yes      No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 1st, 2018, BCB Bancorp, Inc., had 15,782,713 shares of common stock, no par value, outstanding.



 

 

 


 

BCB BANCORP INC. AND SUBSIDIARIES

INDEX

 



 

 

 

 

 

 

 

 

 

 

  

Page

 

PART I. CONSOLIDATED FINANCIAL INFORMATION

  

 

 

 

 

 

Item 1. Consolidated Financial Statements

  

 

 

 

 

 

Consolidated Statements of as of June 30, 2018 (unaudited) and December 31, 2017 (unaudited)

  

 

1

  

 

 

Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017 (unaudited)

  

 

2

  



 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (unaudited)

 

 

3

 

 

 

Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2018 and 2017 (unaudited)

  

 

4

  



Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)

  

 

5

  



Notes to Unaudited Consolidated Financial Statements

  

 

  

 

 

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

  

 

39 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

  

 

46 

 

 

 

Item 4. Controls and Procedures

  

 

47

  

 

 

PART II. OTHER INFORMATION

  

 

47

 

 

 

Item 1. Legal Proceedings

  

 

47 

  

 

 

Item 1A. Risk Factors

  

 

48

  

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

 

48

  

 

 

Item 3. Defaults Upon Senior Securities

  

 

48

  

 

 

Item 4. Mine Safety Disclosures

  

 

48

  

 

 

Item 5. Other Information

  

 

48

  

 

 

Item 6. Exhibits

 

 

48 

 







 

 

 


 

PART I. CONSOLIDATED FINANCIAL INFORMATION

ITEM I. CONSOLIDATED FINANCIAL STATEMENTS

BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(In Thousands, Except Share and Per Share Data, Unaudited)



 



 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,



2018

 

2017



 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and amounts due from depository institutions

$

23,125 

 

$

16,460 

Interest-earning deposits

 

157,320 

 

 

107,775 

  Total cash and cash equivalents

 

180,445 

 

 

124,235 



 

 

 

 

 

Interest-earning time deposits

 

980 

 

 

980 

Debt securities available for sale

 

127,291 

 

 

114,295 

Equity investments

 

8,134 

 

 

8,294 

Loans held for sale

 

1,405 

 

 

1,295 

Loans receivable, net of allowance for loan losses

 

 

 

 

 

  of $20,640 and $17,375 respectively

 

2,119,829 

 

 

1,643,677 

Federal Home Loan Bank of New York stock, at cost

 

16,744 

 

 

10,211 

Premises and equipment, net

 

21,055 

 

 

18,768 

Accrued interest receivable

 

7,563 

 

 

6,153 

Other real estate owned

 

1,178 

 

 

532 

Deferred income taxes

 

11,451 

 

 

5,144 

Goodwill

 

5,281 

 

 

 -

Other assets

 

15,208 

 

 

9,253 

   Total Assets

$

2,516,564 

 

$

1,942,837 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 



 

 

 

 

 

LIABILITIES

 

 

 

 

 

Non-interest bearing deposits

$

229,292 

 

$

201,043 

Interest bearing deposits

 

1,755,584 

 

 

1,368,327 

 Total deposits

 

1,984,876 

 

 

1,569,370 

FHLB advances

 

320,005 

 

 

185,000 

Subordinated debentures

 

4,124 

 

 

4,124 

Other liabilities and accrued interest payable

 

13,483 

 

 

7,889 

   Total Liabilities

 

2,322,488 

 

 

1,766,383 



 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

Preferred stock: $0.01 par value, 10,000,000 shares authorized;

 

 

 

 

 

   issued and outstanding 7,807 shares of series C 6%, series D 4.5%, (liquidation value $10,000 per share)

 

 

 

 

 

  and series F 6% (liquidation value $1,000 per share) noncumulative perpetual preferred stock

 

 

 

 

 

  at June 30, 2018 and 1,342 shares of series C 6% and series D 4.5% (liquidation value $10,000 per share)

 

 

 

 

 

   noncumulative perpetual preferred stock at December 31, 2017

 

 -

 

 

 -

Additional paid-in capital preferred stock

 

19,706 

 

 

13,241 

Common stock: no par value; 20,000,000 shares authorized; issued 18,313,476 and 17,572,942

 

 

 

 

 

 at June 30, 2018 and December 31, 2017, respectively, outstanding 15,782,713 shares and

 

 

 

 

 

   15,042,179 shares, at June 30, 2018 and December 31, 2017, respectively

 

 -

 

 

 -

Additional paid-in capital common stock

 

175,716 

 

 

164,230 

Retained earnings

 

33,570 

 

 

31,241 

Accumulated other comprehensive (loss)

 

(5,800)

 

 

(3,142)

Treasury stock, at cost, 2,530,763 shares at June 30, 2018 and December 31, 2017

 

(29,116)

 

 

(29,116)

   Total Stockholders' Equity

 

194,076 

 

 

176,454 



 

 

 

 

 

    Total Liabilities and Stockholders' Equity

$

2,516,564 

 

$

1,942,837 



 

 

 

 

 



See accompanying notes to unaudited consolidated financial statements.



1

 


 



BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In Thousands, Except for Per Share Amounts, Unaudited)





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



 

2018

 

 

2017

 

 

2018

 

 

2017



 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 Loans, including fees

$

24,048 

 

$

18,026 

 

$

43,569 

 

$

35,568 

 Mortgage-backed securities

 

837 

 

 

603 

 

 

1,536 

 

 

1,131 

 Municipal bonds and other debt

 

196 

 

 

159 

 

 

300 

 

 

264 

 FHLB stock and other interest earning assets

 

615 

 

 

281 

 

 

1,233 

 

 

561 

    Total interest income

 

25,696 

 

 

19,069 

 

 

46,638 

 

 

37,524 



 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 Deposits:

 

 

 

 

 

 

 

 

 

 

 

    Demand

 

975 

 

 

677 

 

 

1,772 

 

 

1,350 

    Savings and club

 

105 

 

 

100 

 

 

202 

 

 

199 

    Certificates of deposit

 

3,405 

 

 

2,142 

 

 

6,135 

 

 

4,153 



 

4,485 

 

 

2,919 

 

 

8,109 

 

 

5,702 

    Borrowings

 

1,221 

 

 

1,087 

 

 

2,099 

 

 

2,154 

      Total interest expense

 

5,706 

 

 

4,006 

 

 

10,208 

 

 

7,856 



 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

19,990 

 

 

15,063 

 

 

36,430 

 

 

29,668 

Provision for loan losses

 

2,060 

 

 

776 

 

 

3,402 

 

 

1,274 



 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

17,930 

 

 

14,287 

 

 

33,028 

 

 

28,394 



 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

  Fees and service charges

 

971 

 

 

838 

 

 

1,681 

 

 

1,634 

  Gain on sales of loans

 

576 

 

 

733 

 

 

1,159 

 

 

1,071 

  Loss on bulk sale of impaired loans held in portfolio

 

 -

 

 

 -

 

 

(24)

 

 

 -

 (Loss) gain on sales of other real estate owned

 

(10)

 

 

197 

 

 

(10)

 

 

1,348 

  Unrealized loss on equity investments

 

(33)

 

 

 -

 

 

(160)

 

 

 -

  Other

 

59 

 

 

254 

 

 

2,303 

 

 

282 

     Total non-interest income

 

1,563 

 

 

2,022 

 

 

4,949 

 

 

4,335 



 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

  Salaries and employee benefits

 

7,125 

 

 

5,878 

 

 

13,392 

 

 

11,968 

  Occupancy and equipment

 

2,476 

 

 

1,989 

 

 

4,538 

 

 

4,147 

  Data processing and service fees

 

828 

 

 

678 

 

 

1,557 

 

 

1,331 

  Professional fees

 

533 

 

 

1,383 

 

 

1,038 

 

 

1,746 

  Director fees

 

201 

 

 

198 

 

 

402 

 

 

378 

  Regulatory assessments

 

290 

 

 

331 

 

 

529 

 

 

692 

  Advertising and promotional

 

100 

 

 

115 

 

 

185 

 

 

258 

  Other real estate owned, net

 

160 

 

 

13 

 

 

191 

 

 

55 

  Merger related costs

 

2,039 

 

 

 -

 

 

2,184 

 

 

 -

  Other

 

2,228 

 

 

1,563 

 

 

3,975 

 

 

3,135 

     Total non-interest expense

 

15,980 

 

 

12,148 

 

 

27,991 

 

 

23,710 



 

 

 

 

 

 

 

 

 

 

 

Income before income tax provision

 

3,513 

 

 

4,161 

 

 

9,986 

 

 

9,019 

Income tax provision

 

1,200 

 

 

1,648 

 

 

3,041 

 

 

3,593 



 

 

 

 

 

 

 

 

 

 

 

Net Income

$

2,313 

 

$

2,513 

 

$

6,945 

 

$

5,426 

Preferred stock dividends

 

262 

 

 

165 

 

 

428 

 

 

283 

Net Income available to common stockholders

$

2,051 

 

$

2,348 

 

$

6,517 

 

$

5,143 



 

 

 

 

 

 

 

 

 

 

 

Net Income per common share-basic and diluted

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.13 

 

$

0.21 

 

$

0.43 

 

$

0.46 

Diluted

$

0.13 

 

$

0.21 

 

$

0.42 

 

$

0.45 



 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

15,610 

 

 

11,295 

 

 

15,329 

 

 

11,287 

Diluted

 

15,748 

 

 

11,405 

 

 

15,465 

 

 

11,383 

See accompanying notes to unaudited consolidated financial statements.

 

2

 


 

BCB BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In Thousands, Unaudited)







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Net Income

$

2,313 

 

$

2,513 

 

$

6,945 

 

$

5,426 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains arising during the period (a)

 

(821)

 

 

524 

 

 

(2,532)

 

 

1,383 

Other comprehensive (loss) income

 

(821)

 

 

524 

 

 

(2,532)

 

 

1,383 

Comprehensive income

$

1,492 

 

$

3,037 

 

$

4,413 

 

$

6,809 





(a)

Represents unrealized (losses) gains of (964,000),  885,000,  (3,344,000), and 2,338,000,  respectively, less deferred taxes of (143,000),  361,000,  (812,000) and 955,000, respectively.



See accompanying notes to unaudited consolidated financial statements.





 

3

 


 



BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(In Thousands, Except Share and Per Share Data, Unaudited) 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Preferred Stock

 

Common Stock

 

Additional             Paid-In Capital

 

Retained Earnings

 

Treasury Stock

 

Accumulated Other Comprehensive Loss

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

$

 -

 

$

 -

 

$

177,471 

 

$

31,241 

 

$

(29,116)

 

$

(3,142)

 

$

176,454 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Stock Options (200 shares)

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 -

 

 

 -

 

 

164 

 

 

 -

 

 

 -

 

 

 -

 

 

164 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends payable on Series C 6%, Series D 4.5%, and Series F 6% noncumulative perpetual preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(428)

 

 

 -

 

 

 -

 

 

(428)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends on common stock ($0.14 per share declared)

 

 -

 

 

 -

 

 

 -

 

 

(4,151)

 

 

 -

 

 

 -

 

 

(4,151)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Reinvestment Plan

 

 -

 

 

 -

 

 

163 

 

 

(163)

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Purchase Plan

 

 -

 

 

 -

 

 

217 

 

 

 -

 

 

 -

 

 

 -

 

 

217 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

6,945 

 

 

 -

 

 

 -

 

 

6,945 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of unrealized gains on AFS equity securities

 

 -

 

 

 -

 

 

 -

 

 

126 

 

 

 -

 

 

(126)

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,532)

 

 

(2,532)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of IA Bancorp

 

 -

 

 

 -

 

 

17,405 

 

 

 -

 

 

 -

 

 

 -

 

 

17,405 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

$

 -

 

$

 -

 

$

195,422 

 

$

33,570 

 

$

(29,116)

 

$

(5,800)

 

$

194,076 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Preferred Stock

 

Common Stock

 

Additional             Paid-In Capital

 

Retained Earnings

 

Treasury Stock

 

Accumulated Other Comprehensive Income (Loss)

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

$

 -

 

$

 -

 

$

135,881 

 

$

28,159 

 

$

(29,103)

 

$

(3,856)

 

$

131,081 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of Series A and B Preferred Stock

 

 -

 

 

 -

 

 

(11,720)

 

 

 -

 

 

 -

 

 

 -

 

 

(11,720)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series D Preferred Stock

 

 -

 

 

 -

 

 

9,497 

 

 

 -

 

 

 -

 

 

 -

 

 

9,497 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Stock Options (200 shares)

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 -

 

 

 -

 

 

78 

 

 

 -

 

 

 -

 

 

 -

 

 

78 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock purchases

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(8)

 

 

 

 

 

(8)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends payable on Series C 6% and Series D 4.5% noncumulative perpetual preferred stock

 

 -

 

 

 -

 

 

 -

 

 

(283)

 

 

 -

 

 

 -

 

 

(283)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends on common stock ($0.14 per share declared)

 

 -

 

 

 -

 

 

 -

 

 

(3,012)

 

 

 -

 

 

 -

 

 

(3,012)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend Reinvestment Plan

 

 -

 

 

 -

 

 

146 

 

 

(146)

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Purchase Plan

 

 -

 

 

 -

 

 

337 

 

 

 -

 

 

 -

 

 

 -

 

 

337 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

 -

 

 

5,426 

 

 

 -

 

 

 -

 

 

5,426 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,383 

 

 

1,383 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2017

$

 -

 

$

 -

 

$

134,221 

 

$

30,144 

 

$

(29,111)

 

$

(2,473)

 

$

132,781 

See accompanying notes to unaudited consolidated financial statements.

4

 


 



BCB BANCORP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In Thousands, Unaudited)





 

 

 

 

 



Six Months Ended June 30,



2018

 

2017

Cash Flows from Operating Activities :

 

 

 

 

 

  Net Income

$

6,945 

 

$

5,426 

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

 

 

 

 

 

        Depreciation of premises and equipment

 

1,284 

 

 

1,326 

        Amortization and accretion, net

 

(943)

 

 

(872)

        Provision for loan losses

 

3,402 

 

 

1,274 

        Deferred income tax (benefit)

 

(284)

 

 

584 

        Loans originated for sale

 

(13,230)

 

 

(13,257)

        Proceeds from sales of loans

 

14,279 

 

 

17,945 

        Gain on sales of loans originated for sale

 

(1,159)

 

 

(1,071)

        (Loss) gains on sales of other real estate owned

 

10 

 

 

(1,348)

        Fair value adjustment of OREO

 

101 

 

 

 -

        Loss on equity investments

 

160 

 

 

 -

        Loss on bulk sale of impaired loans held in portfolio

 

24 

 

 

 -

        Stock-based compensation expense

 

164 

 

 

78 

        Increase in interest receivable

 

(798)

 

 

(93)

        (Increase) decrease in other assets

 

(4,147)

 

 

376 

        Increase (decrease) in accrued interest payable

 

263 

 

 

(50)

        Increase in other liabilities

 

2,567 

 

 

2,930 

Net Cash Provided by Operating Activities

 

8,638 

 

 

13,248 

Cash flows from investing activities:

 

 

 

 

 

        Proceeds from calls on securities available for sale

 

13,400 

 

 

16,715 

        Purchases of securities available for sale

 

(16,336)

 

 

(25,489)

        Proceeds from sales of other real estate owned

 

408 

 

 

3,375 

        Proceeds from bulk sale of impaired loans held

 

250 

 

 

 -

        Net increase in loans receivable

 

(296,800)

 

 

(93,478)

        Additions to premises and equipment

 

(737)

 

 

(1,623)

        (Purchase) of Federal Home Loan Bank of New York stock

 

(5,370)

 

 

(607)

        Cash acquired in acquisition

 

7,597 

 

 

 -

        Cash paid in acquisition

 

(2,550)

 

 

 -

Net Cash Used In Investing Activities

 

(300,138)

 

 

(101,107)

Cash flows from financing activities:

 

 

 

 

 

        Net increase in deposits

 

237,070 

 

 

104,055 

        Proceeds from Federal Home Loan Bank of New York advances

 

175,000 

 

 

28,000 

        Repayments of Federal Home Loan Bank of New York advances

 

(60,000)

 

 

(20,000)

        Purchases/adjustments of treasury stock

 

 -

 

 

(9,008)

        Cash dividends paid on common stock

 

(4,151)

 

 

(3,012)

        Cash dividends paid on preferred stock

 

(428)

 

 

(283)

        Net proceeds from issuance of common stock

 

217 

 

 

337 

        Net proceeds from issuance of preferred stock

 

 -

 

 

9,497 

        Net payment on redemption of preferred stock

 

 -

 

 

(11,720)

        Exercise of stock options

 

 

 

Net Cash Provided by Financing Activities

 

347,710 

 

 

97,868 



 

 

 

 

 

Net Increase In Cash and Cash Equivalents

 

56,210 

 

 

10,009 

Cash and Cash Equivalents-Beginning

 

124,235 

 

 

65,038 



 

 

 

 

 

Cash and Cash Equivalents-Ending

$

180,445 

 

$

75,047 



 

 

 

 

 

Supplementary Cash Flow Information:

 

 

 

 

 

     Cash paid during the year for:

 

 

 

 

 

        Income taxes

$

5,933 

 

$

2,960 

        Interest

$

9,945 

 

$

7,905 

Non-cash items:

 

 

 

 

 

        Transfer of loans to other real estate owned

$

837 

 

$

1,128 

See accompanying notes to unaudited consolidated financial statements









5

 


 

BCB Bancorp Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation



The accompanying unaudited consolidated financial statements include the accounts of BCB Bancorp, Inc. (the “Company”) and the Company’s wholly owned subsidiaries, BCB Community Bank (the “Bank”), BCB Holding Company Investment Company, BCB New York Asset Management, Inc. and Pamrapo Service Corporation. The Company’s business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.



The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and, therefore, do not necessarily include all information that would be included in audited consolidated financial statements. The information furnished reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of consolidated financial condition and results of operations. All such adjustments are of a normal recurring nature. These results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2018 or any other future period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.



These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2017, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred between June 30, 2018, and the date these consolidated financial statements were issued.



Recent Accounting Pronouncements



In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. The scope of ASC 606 excludes net interest income and other revenues associated with financial assets and liabilities, including loans, leases, securities and derivatives, which would then exclude the majority of the Company's revenues. However, the recognition and measurement of certain non-interest income items such as gain on sale of other real estate owned and deposit-related fees, could be affected by ASC 606. The Company adopted the guidance effective January 1, 2018, using the modified retrospective method. Implementation of the guidance did not have a material impact on the Company's consolidated financial statements.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance will be effective for the Company in 2019. Once effective, the standard will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The Company is currently assessing the impacts this new standard will have on its consolidated financial statements.



In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the consolidated financial statements. The amendments are effective for the Company in 2020. The Company has begun evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations. The effect of this change cannot be ascertained at this point, and will depend upon factors including asset components, asset quality and market conditions at the adoption date.



In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this update require that an entity account for the effects of a modification unless the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The Company adopted ASU 2017-09 on a prospective basis in January 2018. Due to prospective application, the impact on the Company’s consolidated financial statements will be dependent upon the terms of future modifications.



In March, 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 was issued to enhance the accounting for the amortization of premiums for purchased callable debt securities. This amendment requires that the amortization of the premium be shortened to the earliest call date. The Company adopted ASU 2017-08 as of January 1, 2018 with no effect on the Company’s consolidated financial statements.



In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance amends existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company recorded a cumulative effect adjustment to the balance sheet as of January 1, 2018 in the amount of $126,000, representing the unrealized gain of $175,000 at December 31, 2017 net of taxes of $49,000. For the six months ended June 30, 2018, the Company recorded a loss to the income statement in the amount of $160,000. In addition to the change noted above, adoption of this standard will impact the fair value disclosures included in Note 10. 



In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU required a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate as a result of the Tax Cuts and Jobs Act. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted twenty-one percent corporate income tax rate. The Company chose to early adopt the new standard

6

 


 

for the year ending December 31, 2017, as allowed under the new standard. The amount of the reclassification for the Company was $557,000, as shown in the Consolidated Statement of Changes in Shareholders’ Equity in the Company’s Form 10-K filing for the year ended December 31, 2017, subject to Staff Accounting Bulletin 118, Income Tax Implications of the Tax Cuts and Jobs Act (“SAB 118”). SAB 118 provides a measurement period not to extend beyond one year of the enactment date to adjust the accounting for certain elements of the tax reform. The Company does not anticipate a material adjustment to tax expense during the measurement period. 



Note 2 – Acquisition of IA Bancorp, Inc.



On April 17, 2018, the Company completed its acquisition of IA Bancorp, Inc. (“IAB”) and its wholly-owned subsidiary, Indus-American Bank, of Edison, New Jersey. IAB shareholders received 0.189 shares of the Company’s common stock for each share of IAB common stock they owned as of the effective date of the acquisition. In addition, the Company issued two series of preferred stock, Series E and F, in exchange for two outstanding series, Series C and D, respectively, of IAB preferred stock. The two series of Company preferred shares have terms substantially similar to the terms of the two series of IAB preferred stock. The aggregate consideration paid to IAB shareholders was $20.0 million. The results of IAB’s operations are included in the Company’s unaudited consolidated statements of income beginning April 17, 2018, the date of the acquisition.



Indus-American Bank was founded primarily to meet the banking needs of the South Asian-American community. The Company plans to operate BCB-Indus-American Bank, a division of BCB Community Bank, and it will continue to specialize in core business banking products for small- to medium-sized companies, with an emphasis on real estate-based lending. This transaction will allow the combined entities to further develop our existing markets in Jersey City and Edison, and will provide further opportunities in Parsippany, Plainsboro and Hicksville, New York, three new, attractive markets for the Company.

The acquisition of IAB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The $5.3 million excess consideration paid over the fair value of net assets acquired has been reported as goodwill in the Company’s consolidated statements of financial condition as of June 30, 2018. 

The assets acquired and liabilities assumed and consideration paid in the acquisition of IAB were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition. 

In connection with the acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:





 

 



Estimated Fair Value



At June 30, 2018



(in thousands)

Consideration paid:

 

 

   Common stock issued in acquisition

$

9,952 

   Cash paid for exchange of IAB shares

 

2,550 

   Preferred stock

 

7,453 

    Total consideration paid

 

19,955 



 

 

Assets acquired:

 

 

   Cash and cash equivalents

 

7,597 

   Investment securities available for sale

 

13,811 

   Restricted investment in bank stocks

 

1,163 

   Loans

 

182,527 

   Premises and equipment, net

 

2,834 

   Other real estate owned, net

 

328 

   Accrued interest receivable

 

612 

   Core deposit intangible

 

430 

   Deferred tax asset

 

5,212 

   Other assets

 

1,273 

          Total assets acquired

 

215,787 



 

 

Liabilities assumed:

 

 

   Deposits

 

178,436 

   Borrowings

 

20,015 

   Accrued interest payable

 

120 

   Other liabilities

 

2,542 

           Total liabilities assumed

 

201,113 

                       Net assets acquired

 

14,674 



 

 

Goodwill recorded in acquisition

$

5,281 



7

 


 







Note 2 – Acquisition of IA Bancorp, Inc. (continued)



Acquired loans (impaired and non-impaired) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believes a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three separate fair valuation methodologies employed are: (i) an interest rate loan fair value adjustment, (ii) a general credit fair value adjustment, and (iii) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 provisions. The acquired loans were recorded at fair value at the acquisition date without carryover of IAB’s previously established allowance for loan losses.

The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired.





 

 



At June 30, 2018



(in thousands)



 

 

Gross principal balance

$

191,997 

Fair value adjustment on pools of homogeneous loans

 

(5,895)

Fair value adjustment on acquired impaired loans

 

(3,575)

Fair value of acquired loans

$

182,527 



The credit adjustment on acquired impaired loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that have been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.





 

 



At June 30, 2018



(in thousands)



 

 

Contractually required principal and interest at acquisition

$

21,177 

Contractual cash flows not expected to be collected (non-accretable

 

 

    discount, includes principal and interest)

 

(4,892)

Expected cash flows at acquisition

 

16,285 

Interest component of expected cash flows (accretable discount)

 

(1,399)

Fair value of loans acquired accounted for under ASC 310-30

 

14,886 



For loans acquired without evidence of credit quality deterioration, the Company prepared interest rate loan fair value and credit fair value adjustments. Loans were grouped into homogeneous pools by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various internal and external data sources and reviewed for reasonableness. A present value approach was utilized to calculate the interest rate fair value discount of $1.9 million. Additionally, for loans acquired without credit deterioration, a credit fair value adjustment was calculated using a two-part credit fair value analysis: (i) expected lifetime credit migration losses, and (ii) estimated fair value adjustment for certain qualitative credit factors. The expected lifetime losses were calculated using historical losses observed at IAB. The environmental factor represents potential discount which may arise due to general credit and economic factors. A credit fair value discount of $3.9 million was determined. The fair value adjustment related to loans acquired without evidence of credit quality deterioration will be substantially recognized as interest income over the expected life of the loans. 

In connection with the acquisition of IAB, the Company recorded a net deferred income tax asset of $5.2 million related to IAB’s net operating loss carryforward, as well as other tax attributes of the acquired company, along with the effects of fair value adjustments resulting from applying the acquisition method of accounting.

The fair value of savings and transaction deposit accounts acquired from IAB provide value to the Company as a source of below market rate funds. The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate based on the estimated cost of capital for a market participant. To calculate cash flows, the sum of deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available to the Company. The expected cash-flows of the deposit base included estimated attrition rates. The core deposit intangible was valued at $430,000. The core deposit intangible asset is being amortized on an accelerated basis over ten years. Amortization from the April 17, 2018 acquisition date through June 30, 2018 was $20,000.

The fair value of certificate of deposit accounts was determined by compiling individual account data into groups of equal remaining maturities with corresponding calculated weighted average rates. Each maturity group’s weighted average rate was compared to market rates for similar maturities and then priced to yield market rates. This valuation adjustment was determined to be a $751,000 premium and is being amortized in line with the expected cash flows driven by the maturities of these deposits, primarily over the next five years.

Direct costs related to the merger were accrued and expensed as incurred. During the six months ended June 30, 2018, the Company incurred $2.2 million in merger-related expenses, including $2.0 million of early termination fees from IAB’s core system provider. The Company had also incurred merger costs in 2017 of $800,000 including legal and professional fees.











8

 


 



Note 2 – Acquisition of IA Bancorp, Inc.



Supplemental Pro Forma Financial Information

The following table presents unaudited financial information regarding the former IAB operations included in the consolidated statements of income from April 17, 2018, the date of the acquisition, through June 30, 2018. In addition, the table provides unaudited condensed pro forma financial information assuming the IAB acquisition had been completed as of January 1, 2018 and for the six months ended June 30, 2018 and as of January 1, 2017 and for the six months ended June 30, 2017. The table has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred at the beginning of the periods presented, nor is it indicative of future results. 

Furthermore, the unaudited pro forma financial information includes merger-related expenses but does not reflect management’s estimate of any revenue-enhancing opportunities, cost savings or the impact of conforming certain accounting policies of IAB to the Company’s policies that may have occurred as a result of the integration and consolidation of IAB’s operations. The combined pro forma information reflects adjustments related to certain purchase accounting fair value adjustments and amortization of the core deposit intangibles. 





 

 

 

 

 

 

 

 



 

IAB Actual from

 

 

Pro forma Combined

 

 

Pro forma Combined



 

April 17, 2018 to

 

 

Six Months Ended

 

 

Six Months Ended



 

June 30, 2018

 

 

June 30, 2018

 

 

June 30, 2017



 

(in thousands, except for share data)



 

 

 

 

 

 

 

 

Interest income

$

2,195 

 

$

49,740 

 

$

42,821 

Interest Expense

 

519 

 

 

10,942 

 

 

9,109 

Provision for loan losses

 

 -

 

 

3,402 

 

 

1,274 

Non-interest income

 

99 

 

 

5,089 

 

 

4,574 

Non-interest expense

 

1,385 

 

 

29,948 

 

 

27,052 

Income Taxes

 

118 

 

 

3,208 

 

 

3,969 

Net Income

 

272 

 

 

7,329 

 

 

5,991 



 

 

 

 

 

 

 

 

Earnings per diluted share

$

0.01 

 

$

0.45 

 

$

0.50 



Fair Value Measurement of Assets Acquired and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and the liabilities assumed in the IAB acquisition were as follows. Refer to Note 10, Fair Value Measurements, for a discussion of the fair value hierarchy.

Investment Securities

The estimated fair values of investment securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. 

Note 3 – Reclassification

Certain amounts as of December 31, 2017 and for the three and six month period ended June 30, 2017, respectively have been reclassified to conform to the current period’s presentation. These changes had no effect on the Company’s results of operations or financial position.



Note 4 – Pension and Other Postretirement Plans

The Company assumed, through the merger with Pamrapo Bancorp, Inc., a non-contributory defined benefit pension plan covering all eligible employees of Pamrapo Savings Bank. Effective January 1, 2010, the defined benefit pension plan (“Pension Plan”), was frozen by Pamrapo Savings Bank. All benefits for eligible participants accrued in the Pension Plan to the freeze date have been retained. Accordingly, no employees are permitted to commence participation in the Pension Plan and future salary increases and future years of service are not considered when computing an employee’s benefits under the Pension Plan. The Pension Plan is funded in conformity with the funding requirements of applicable government regulations. The Company also acquired through the merger with Pamrapo Bancorp, Inc. a supplemental executive retirement plan (“SERP”) in which certain former employees of Pamrapo Savings Bank are covered. A SERP is an unfunded non-qualified deferred retirement plan. Participants who retire at the age of 65 (the “Normal Retirement Age”), are entitled to an annual retirement benefit equal to 75% of compensation reduced by their retirement plan annual benefits. Participants retiring before the Normal Retirement Age receive the same benefits reduced by a percentage based on years of service to the Company and the number of years prior to the Normal Retirement Age that participants retire.



Net periodic pension benefit for the three and six months ended June 30, 2018 and June 30, 2017 was $10,000, $20,000,  $9,000, and $18,000 respectively. Net periodic postretirement cost for the SERP plan for the three and six months ended June 30, 2018 and June 30, 2017 was $3,000,  $6,000,  $4,000, and $8,000 respectively.    



Share – Based Compensation



The Company, under the plan approved by its stockholders on April 26, 2018 (“2018 Equity Incentive Plan”), authorized the issuance of up to 1,000,000 shares of common stock of the Company pursuant to grants of stock options, restricted stock or restricted stock units. Employees and directors of the Company and the Bank are eligible to participate in the 2018 Equity Incentive Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code. Only employees are permitted to receive incentive stock options. Restricted stock units are similar to restricted stock awards, except that no share of stock is actually awarded on the date of grant of a restricted stock unit. A restricted stock unit will be settled in shares of Common Stock, provided, however, that in the sole discretion of the Committee, a restricted stock unit may be settled in cash. Shares of stock issued pursuant to the exercise of stock options will count against the share limit as one share of stock for every one share of stock to which such exercise relates. Shares of stock issued pursuant to restricted stock awards or restricted stock units will count against the Share Limit as two shares of stock for every one share of stock issued in connection with the award.



9

 


 

The Company, under the plan approved by its stockholders on April 28, 2011 (“2011 Stock Plan”), authorized the issuance of up to 900,000 shares of common stock of the Company pursuant to grants of stock options. Employees and directors of the Company and the Bank are eligible to participate in the 2011 Stock Plan. All stock options will be granted in the form of either "incentive" stock options or "non-qualified" stock options. Incentive stock options have certain tax advantages that must comply with the requirements of Section 422 of the Internal Revenue Code. Only employees are permitted to receive incentive stock options.



On September 13, 2017, a grant of 350,000 options was declared for members of the Board of Directors and Executive Officers which vest at a rate of 10% per year and 20% per year, respectively, commencing on the first anniversary of the grant date. On September 16, 2016, a grant of 160,000 options was declared for members of the Board of Directors and the Chief Executive Officer, which vest at a rate of 10% per year and 33% per year, respectively, commencing on the first anniversary of the grant date. On December 2, 2015, a grant of 120,000 options and on March 7, 2014, a grant of 110,000 options was declared for certain members of the Board of Directors which vest at a rate of 10% per year, over ten years commencing on the first anniversary of the grant date.







 

 

 

 

 

 

 

 



 

Number of  Option

 

 

 

 

 

 



  

Shares

 

 

Range of Exercise Prices

 

 

Weighted Average Exercise Price



 

 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

889,300 

 

$

8.93-13.32

 

$

11.42 



 

 

 

 

 

 

 

 

Options granted                                         

 

 -

 

 

 -

 

 

 -

Options exercised                                        

 

(200)

 

 

10.55 

 

 

10.55 

Options forfeited                                    

 

 -

 

 

 -

 

 

 -

Options expired                                      

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

Outstanding at June 30, 2018

 

889,100 

 

$

8.93-13.32

 

$

10.91 



As of June 30, 2018, stock options which were granted and were exercisable totaled 183,867 stock options.



It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to the 705,233 shares of unvested options outstanding as of June 30, 2018 was $1.2 million over a weighted average period of 7.00 years.







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Number of  Option

 

 

 

 

 

 



  

Shares

 

 

Range of Exercise Prices

 

 

Weighted Average Exercise Price



 

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

575,000 

 

$

8.93-13.32

 

$

10.78



 

 

 

 

 

 

 

 

Options granted                                         

 

 -

 

 

 

 

 

 

Options exercised                                        

 

(700)

 

 

10.55

 

 

0.00

Options forfeited                                    

 

(35,000)

 

 

8.93-13.32

 

 

 -

Options expired                                      

 

 -

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Outstanding at June 30, 2017

 

539,300 

 

$

8.93-13.32

 

$

10.78



As of June 30, 2017, stock options which were granted and were exercisable totaled 107,700 stock options.



It is Company policy to issue new shares upon share option exercise. Expected future compensation expense relating to 431,600 shares of unvested options outstanding as of June 30, 2017 was $1.0 million over a weighted average period of 6.80 years.   















































10

 


 







Note 5 – Net Income per Common Share



Basic net income per common share is computed by dividing net income less dividends on preferred stock by the weighted average number of shares of common stock outstanding. The diluted net income per common share is computed by adjusting the weighted average number of shares of common stock outstanding to include the effects of outstanding stock options, if dilutive, using the treasury stock method. Dilution is not applicable in periods of net loss. For the three and six months ended June 30, 2018 and 2017, the difference in the weighted average number of basic and diluted common shares was due solely to the effects of outstanding stock options. No adjustments to net income were necessary in calculating basic and diluted net income per share. For the three months ended June 30, 2018 and 2017 the weighted average number of outstanding options considered to be anti-dilutive were 636 and 1,280 respectively. For the six months ended June 30, 2018 and 2017 the weighted average number of outstanding options considered to be anti-dilutive were 1,012 and 5,019 respectively. At June 30, 2018, the Company has 6,465 shares of its Series F 6% noncumulative perpetual preferred stock (“Series F shares”) issued and outstanding, which are convertible into the Company’s common stock. The conversion of Series F shares to common shares was not included in the computation of diluted earnings per share as they would be anti-dilutive.





The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations: 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended June 30,



 

2018

 

2017



 

 

Income

 

Shares

 

 

Per Share

 

 

Income

 

Shares

 

 

Per Share



 

 

(Numerator)

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

(Denominator)

 

 

Amount



 

(In Thousands, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

2,051 

 

 

 

 

 

 

$

2,348 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders

 

$

2,051 

 

15,610 

 

$

0.13 

 

$

2,348 

 

11,295 

 

$

0.21 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 -

 

138 

 

 

 

 

 

 -

 

110 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders

 

$

2,051 

 

15,748 

 

$

0.13 

 

$

2,348 

 

11,405 

 

$

0.21 

















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Six Months Ended June 30,



 

2018

 

2017



 

 

Income

 

Shares

 

 

Per Share

 

 

Income

 

Shares

 

 

Per Share



 

 

(Numerator)

 

(Denominator)

 

 

Amount

 

 

(Numerator)

 

(Denominator)

 

 

Amount



 

(In Thousands, except per share data)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

6,517 

 

 

 

 

 

 

$

5,143 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders

 

$

6,517 

 

15,329 

 

$

0.43 

 

$

5,143 

 

11,287 

 

$

0.46 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

 -

 

136 

 

 

 

 

 

 -

 

96 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stockholders

 

$

6,517 

 

15,465 

 

$

0.42 

 

$

5,143 

 

11,383 

 

$

0.45 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 















11

 


 







Note 6  –Debt Securities Available for Sale 



The following tables present by maturity the amortized cost, gross unrealized gains and losses on, and fair value of, securities available for sale as of June  30, 2018 and December 31, 2017:









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



June 30, 2018



 

 

  

Gross

  

Gross

  

 



Amortized

 

Unrealized

 

Unrealized

 

 

 



Cost

 

Gains

 

Losses

 

Fair Value



(In Thousands)

Mortgage-backed securities:

 

 

  

 

 

  

 

 

  

 

 

  Due after one year through five years

$

5,210 

 

$

 -

 

$

160 

 

$

5,050 

  Due after five years through ten years

 

4,170 

  

 

 -

  

 

30 

  

 

4,140 

  Due after ten years

 

119,842 

 

 

57 

 

 

5,471 

 

 

114,428 



 

 

 

 

 

 

 

 

 

 

 

Municipal obligations:

 

 

 

 

 

 

 

 

 

 

 

  Due after one year through five years

 

493 

 

 

 -

 

 

 -

 

 

493 

  Due after five years through ten years

 

2,140 

 

 

 -

 

 

 

 

2,135 

  Due after ten years

 

1,045 

  

 

 -

  

 

 -

  

 

1,045 



$

132,900 

  

$

57 

  

$

5,666 

  

$

127,291 









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



December 31, 2017



 

 

  

Gross

  

Gross

  

 



Amortized

 

Unrealized

 

Unrealized

 

 

 



Cost

 

Gains

 

Losses

 

Fair Value



(In Thousands)

Mortgage-backed securities:

 

 

  

 

 

  

 

 

  

 

 

   Due after one year through five years

$

3,276 

 

$

 

$

76 

 

$

3,203 

Due after five years through ten years

 

622 

 

 

 -

 

 

10 

 

 

612 

Due after ten years

 

110,156 

 

 

44 

 

 

2,222 

 

 

107,978 



 

 

 

 

 

 

 

 

 

 

 

Municipal obligations:

 

 

 

 

 

 

 

 

 

 

 

Due within one year

 

2,506 

 

 

 -

  

 

 

 

2,502 



$

116,560 

 

$

47 

 

$

2,312 

 

$

114,295 

The unrealized losses, categorized by the length of time of continuous loss position, and fair value of related securities available for sale were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Less than 12 Months

  

More than 12 Months

  

Total



Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized



Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses



(In Thousands)

June 30, 2018

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

Residential mortgage-backed securities

$

74,704 

  

$

2,228 

  

$

41,934 

  

$

3,433 

  

$

116,638 

  

$

5,661 

Municipal obligations

 

3,180 

 

 

 

 

 -

 

 

 -

 

 

3,180 

 

 



$

77,884 

  

$

2,233 

  

$

41,934 

  

$

3,433 

  

$

119,818 

  

$

5,666 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

Residential mortgage-backed securities

$

94,909 

  

$

1,951 

  

$

12,309 

  

$

357 

  

$

107,218 

  

$

2,308 

Municipal obligations

 

2,502 

 

 

 

 

 -

 

 

 -

 

 

2,502 

 

 



$

97,411 

  

$

1,955 

  

$

12,309 

  

$

357 

  

$

109,720 

  

$

2,312 



Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) whether the Company intends to sell the security or more likely than not will be required to sell the security before its anticipated recovery. At June  30, 2018 and December 31, 2017, management performed an assessment for possible OTTI of the Company’s residential mortgage-backed securities on an issue-by-issue basis, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. The extent of individual analysis applied to each security depended on the size of the Company’s investment, as well as management’s perception of the

12

 


 

credit risk associated with each security. Based on the results of the assessment, management believes impairment of these securities, at June  30, 2018 and December 31, 2017, to be temporary.







Note 7 - Loans Receivable and Allowance for Loan Losses

The following table presents the recorded investment in loans receivable as of June 30, 2018 and December 31, 2017 by segment and class:







 

 

 

 

 



 

 

 

 

 



June 30, 2018

 

December 31, 2017



 

(In Thousands)

Originated loans:

 

 

 

 

 

Residential one-to-four family

$

203,661 

 

$

182,544 

Commercial and multi-family

 

1,452,907 

 

 

1,213,390 

Construction

 

51,599 

 

 

50,497 

Commercial business(1) 

 

105,101 

 

 

66,775 

Home equity(2) 

 

52,382 

 

 

38,725 

Consumer

 

645 

 

 

1,183 



 

 

 

 

 

Sub-total

 

1,866,295 

 

 

1,553,114 



 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

Residential one-to-four family

 

44,933 

 

 

47,808 

Commercial and multi-family

 

158,094 

 

 

46,609 

Construction

 

1,798 

 

 

 -

Commercial business(1) 

 

31,680 

 

 

4,057 

Home equity(2) 

 

21,725 

 

 

8,955 

Consumer

 

199 

 

 

122 



 

 

 

 

 

Sub-total

 

258,429 

 

 

107,551 



 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 

 

 

Residential one-to-four family

 

1,402 

 

 

1,413 

Commercial and multi-family

 

11,880 

 

 

731 

Construction

 

2,670 

 

 

 -

Commercial business(1) 

 

986 

 

 

 -

Home equity(2) 

 

400 

 

 

 -

Consumer

 

54 

 

 

 -



 

 

 

 

 

Sub-total

 

17,392 

 

 

2,144 



 

 

 

 

 

Total Loans

 

2,142,116 

 

 

1,662,809 



 

 

 

 

 

Less:

 

 

 

 

 

Deferred loan fees, net

 

(1,647)

 

 

(1,757)

Allowance for loan losses

 

(20,640)

 

 

(17,375)



 

 

 

 

 

Sub-total

 

(22,287)

 

 

(19,132)



 

 

 

 

 

Total Loans, net

$

2,119,829 

 

$

1,643,677 



 

 

 

 

 

_____________________________

 

 

 

 

 

(1) Includes business lines of credit.

 

 

 

 

 

(2) Includes home equity lines of credit.

 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



13

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Purchased Credit Impaired Loans



The carrying value of loans acquired in the IAB acquisition and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $14.9 million at June 30, 2018, which was $803,000 less than the balance at the time of acquisition on April 17, 2018. Under ASC Subtopic 310-30, these loans, referred to as purchased credit impaired (“PCI”) loans, may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non- accretable difference,” are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance.



Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan and lease losses. Valuation allowances (recognized in the allowance for loan and lease losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).



The following table presents changes in the accretable yield for PCI loans:











 

 



 

Six months ended June 30, 2018

(Dollars in thousands)

 

 

Accretable yield, beginning balance

$

 -

Acquisition of impaired loans

 

1,399 

Accretable yield amortized to interest income

 

(208)

Reclassification from non-accretable difference

 

 -

Accretable yield, ending balance

$

1,191 



14

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

Allowance for Loan Losses



The allowance for loan loss is evaluated regularly by management and reflects consideration of all significant factors that affect the collectability of the loan portolio. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements. These elements include a general allocated reserve for performing loans, a specific reserve for impaired loans and an unallocated portion.  



The Company consistently applies the following comprehensive methodology. During the quarterly review of the allowance for loan losses, the Company considers a variety of qualitative factors that include:



"

Lending Policies and Procedures

"

Personnel responsible for the particular portfolio - relative to experience and ability of staff

"

Trend for past due, criticized and classified loans

"

Relevant economic factors

"

Quality of the loan review system

"

Value of collateral for collateral dependent loans

"

The effect of any concentrations of credit and the changes in the level of such concentrations

"

Other external factors

The methodology includes the segregation of the loan portfolio into two divisions. Loans that are performing and loans that are impaired. Loans which are performing are evaluated homogeneously by loan class or loan type. The allowance for performing loans is evaluated based on historical loan experience with an adjustment for qualitative factors referred to above. Impaired loans are loans which are more than 90 days delinquent, troubled debt restructured, or adversely classified. These loans are individually evaluated for loan loss either by current appraisal, or net present value. Management reviews the overall estimate for feasibility and bases the loan loss provision accordingly.



The loan portfolio is segmented into the following loan classes, where the risk level for each class is analyzed when determining the allowance for loan losses:



Residential single family real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential family real estate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying properties may be adversely affected by higher interest rates. Repayment risk may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower.



Commercial and multi-family real estate lending entails significant additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as economic conditions generally.



Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.



Commercial business lending, including lines of credit, is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In most cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.



Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. Home equity line of credit lending entails securing an equity interest in the borrower’s home. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s superior lien. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default.



Other consumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely effected by job loss, divorce, illness and personal bankruptcy. In most cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan.



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



15

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended June 30, 2018. The table also details the amount of total loans receivable, loans receivable that are evaluated individually and collectively for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class, as of June 30, 2018. (In Thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Residential

 

 

Commercial & Multi-family

 

Construction

 

Commercial Business (1)

 

Home Equity (2)

 

Consumer

 

Unallocated

 

Total

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

$

2,245 

 

$

11,880 

 

$

492 

 

$

2,676 

 

$

384 

 

$

 

$

198 

 

$

17,879 

Acquired loans initially recorded at fair value:

 

369 

 

 

 -

 

 

 -

 

 

24 

 

 

 -

 

 

 -

 

 

 -

 

 

393 

Acquired loans with deteriorated credit:

 

53 

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

65 

Beginning Balance, March 31, 2018

 

2,667 

 

 

11,892 

 

 

492 

 

 

2,700 

 

 

384 

 

 

 

 

198 

 

 

18,337 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

Acquired loans initially recorded at fair value:

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Acquired loans with deteriorated credit:

 

 -

 

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Sub-total:

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

Acquired loans initially recorded at fair value:

 

85 

 

 

 -

 

 

 -

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

97 

Acquired loans with deteriorated credit:

 

 -

 

 

 -

 

 

 -

 

 

144 

 

 

 -

 

 

 -

 

 

 -

 

 

144 

Sub-total:

 

86 

 

 

 -

 

 

 -

 

 

162 

 

 

 -

 

 

 -

 

 

 -

 

 

248 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

 

1,204 

 

 

24 

 

 

723 

 

 

63 

 

 

37 

 

 

90 

 

 

2,144 

Acquired loans initially recorded at fair value:

 

(36)

 

 

92 

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

60 

Acquired loans with deteriorated credit:

 

 -

 

 

 -

 

 

 -

 

 

(144)

 

 

 -

 

 

 -

 

 

 -

 

 

(144)

Sub-total:

 

(33)

 

 

1,296 

 

 

24 

 

 

583 

 

 

63 

 

 

37 

 

 

90 

 

 

2,060 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

2,249 

 

 

13,084 

 

 

516 

 

 

3,400 

 

 

447 

 

 

41 

 

 

288 

 

 

20,025 

Acquired loans initially recorded at fair value:

 

418 

 

 

92 

 

 

 -

 

 

40 

 

 

 -

 

 

 -

 

 

 -

 

 

550 

Acquired loans with deteriorated credit:

 

53 

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

65 

Ending Balance, June 30, 2018

$

2,720 

 

$

13,188 

 

$

516 

 

$

3,440 

 

$

447 

 

$

41 

 

$

288 

 

$

20,640 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

$

203,661 

 

$

1,452,907 

 

$

51,599 

 

$

105,101 

 

$

52,382 

 

$

645 

 

$

 -

 

$

1,866,295 

Ending Balance Acquired loans initially recorded at fair value:

 

44,933 

 

 

158,094 

 

 

1,798 

 

 

31,680 

 

 

21,725 

 

 

199 

 

 

 -

 

 

258,429 

Ending Balance Acquired loans with deteriorated credit:

 

1,402 

 

 

11,880 

 

 

2,670 

 

 

986 

 

 

400 

 

 

54 

 

 

 -

 

 

17,392 

Total Gross Loans:

$

249,996 

 

$

1,622,881 

 

$

56,067 

 

$

137,767 

 

$

74,507 

 

$

898 

 

$

 -

 

$

2,142,116 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

$

6,255 

 

$

12,848 

 

$

 -

 

$

2,226 

 

$

1,099 

 

$

42 

 

$

 -

 

$

22,470 

Ending Balance Acquired loans initially recorded at fair value:

 

6,534 

 

 

4,384 

 

 

 -

 

 

 -

 

 

329 

 

 

 -

 

 

 -

 

 

11,247 

Ending Balance Acquired loans with deteriorated credit:

 

1,401 

 

 

11,671 

 

 

2,670 

 

 

986 

 

 

400 

 

 

54 

 

 

 -

 

 

17,182 

Ending Balance Loans individually 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

$

14,190 

 

$

28,903 

 

$

2,670 

 

$

3,212 

 

$

1,828 

 

$

96 

 

$

 -

 

$

50,899 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

$

197,406 

 

$

1,440,059 

 

$

51,599 

 

$

102,875 

 

$

51,283 

 

$

603 

 

$

 -

 

$

1,843,825 

Ending Balance Acquired loans initially recorded at fair value:

 

38,399 

 

 

153,710 

 

 

1,798 

 

 

31,680 

 

 

21,396 

 

 

199 

 

 

 -

 

 

247,182 

Ending Balance Acquired loans with deteriorated credit:

 

 

 

209 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

210 

Ending Balance Loans collectively 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

$

235,805 

 

$

1,593,978 

 

$

53,397 

 

$

134,555 

 

$

72,679 

 

$

802 

 

$

 -

 

$

2,091,217 

_____________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes business lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Includes home equity lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table set forth the activity in the Company’s allowance for loan losses for the six months ended June 30, 2018, and the related portion of the allowances for loan losses that is allocated to each loan class (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Residential

 

 

Commercial & Multi-family

 

Construction

 

Commercial Business (1)

 

 

Home Equity (2)

 

Consumer

 

Unallocated

 

Total

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

$

2,368 

 

$

11,656 

 

$

518 

 

$

2,018 

 

$

338 

 

$

 

$

177 

 

$

17,081 

Acquired loans initially recorded at fair value:

 

 

242 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

242 

Acquired loans with deteriorated credit:

 

 

40 

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

52 

Beginning Balance, December 31, 2017

 

 

2,650 

 

 

11,668 

 

 

518 

 

 

2,018 

 

 

338 

 

 

 

 

177 

 

 

17,375 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

302 

 

 -

 -

 

 

 -

 

 -

 

 -

 -

 

 -

 -

 

 -

 -

 

 -

307 

Acquired loans initially recorded at fair value:

 

 

72 

 

 -

 -

 

 

 -

 

 -

 -

 

 -

 

 -

 -

 

 -

 -

 

 -

78 

Acquired loans with deteriorated credit:

 

 

 -

 

 -

 -

 

 

 -

 

 -

 -

 

 -

 -

 

 -

 -

 

 -

 -

 

 -

 -

Sub-total:

 

 

374 

 

 

 -

 

 

 -

 

 

 

 

 

 

 -

 

 

 -

 

 

385 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

Acquired loans initially recorded at fair value:

 

 

85 

 

 

 -

 

 

 -

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

97 

Acquired loans with deteriorated credit:

 

 

 -

 

 

 -

 

 

 -

 

 

144 

 

 

 -

 

 

 -

 

 

 -

 

 

144 

Sub-total:

 

 

86 

 

 

 -

 

 

 -

 

 

162 

 

 

 -

 

 

 -

 

 

 -

 

 

248 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

182 

 

 

1,428 

 

 

(2)

 

 

1,381 

 

 

109 

 

 

35 

 

 

111 

 

 

3,244 

Acquired loans initially recorded at fair value:

 

 

163 

 

 

92 

 

 

 -

 

 

28 

 

 

 

 

 -

 

 

 -

 

 

289 

Acquired loans with deteriorated credit:

 

 

13 

 

 

 -

 

 

 -

 

 

(144)

 

 

 -

 

 

 -

 

 

 -

 

 

(131)

Sub-total:

 

 

358 

 

 

1,520 

 

 

(2)

 

 

1,265 

 

 

115 

 

 

35 

 

 

111 

 

 

3,402 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

2,249 

 

 

13,084 

 

 

516 

 

 

3,400 

 

 

447 

 

 

41 

 

 

288 

 

 

20,025 

Acquired loans initially recorded at fair value:

 

 

418 

 

 

92 

 

 

 -

 

 

40 

 

 

 -

 

 

 -

 

 

 -

 

 

550 

Acquired loans with deteriorated credit:

 

 

53 

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

65 

Ending Balance, June 30, 2018

 

$

2,720 

 

$

13,188 

 

$

516 

 

$

3,440 

 

$

447 

 

$

41 

 

$

288 

 

$

20,640 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_____________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes business lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Includes home equity lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





17

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table details the amount of total loans receivable that are evaluated individually and collectively for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class, as of December 31, 2017. (In Thousands):

____



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Residential

 

 

Commercial & Multi-family

 

 

Construction

 

 

Commercial Business (1)

 

Home Equity (2)

 

Consumer

 

 

Unallocated

 

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

182,544 

 

$

1,213,390 

 

$

50,497 

 

$

66,775 

 

$

38,725 

 

$

1,183 

 

$

 -

 

$

1,553,114 

Ending Balance Acquired Loans:

 

 

47,808 

 

 

46,609 

 

 

 -

 

 

4,057 

 

 

8,955 

 

 

122 

 

 

 -

 

 

107,551 

Ending Balance Acquired loans with deteriorated credit:

 

 

1,413 

 

 

731 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,144 

Total Gross Loans:

 

$

231,765 

 

$

1,260,730 

 

$

50,497 

 

$

70,832 

 

$

47,680 

 

$

1,305 

 

$

 -

 

$

1,662,809 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

7,944 

 

$

12,212 

 

$

 -

 

$

1,780 

 

$

1,042 

 

$

 -

 

$

 -

 

$

22,978 

Ending Balance Acquired Loans:

 

 

7,548 

 

 

5,032 

 

 

 -

 

 

 -

 

 

302 

 

 

 -

 

 

 -

 

 

12,882 

Ending Balance Acquired loans with deteriorated credit:

 

 

1,413 

 

 

513 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,926 

Ending Balance Loans individually evaluated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for impairment:

 

$

16,905 

 

$

17,757 

 

$

 -

 

$

1,780 

 

$

1,344 

 

$

 -

 

$

 -

 

$

37,786 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

174,600 

 

$

1,201,178 

 

$

50,497 

 

$

64,995 

 

$

37,683 

 

$

1,183 

 

$

 -

 

$

1,530,136 

Ending Balance Acquired Loans:

 

 

40,260 

 

 

41,577 

 

 

 -

 

 

4,057 

 

 

8,653 

 

 

122 

 

 

 -

 

 

94,669 

Ending Balance Acquired loans with deteriorated credit:

 

 

 -

 

 

218 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

218 

Ending Balance Loans collectively 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

$

214,860 

 

$

1,242,973 

 

$

50,497 

 

$

69,052 

 

$

46,336 

 

$

1,305 

 

$

 -

 

$

1,625,023 



(1)

Includes business lines of credit.

(2)

Includes home equity lines of credit.



18

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table sets forth the activity in the Company’s allowance for loan losses for the three months ended June 30, 2017. The table also details the amount of total loans receivable that are evaluated individually and collectively for impairment, and the related portion of the allowance for loan losses that is allocated to each loan class, as of June 30, 2017 (In Thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Residential

 

 

Commercial & Multi-family

 

Construction

 

Business (1)

 

Equity (2)

 

Consumer

 

Unallocated

 

Total

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

$

2,151 

 

$

10,850 

 

$

756 

 

$

3,117 

 

$

335 

 

$

 

$

150 

 

$

17,361 

Acquired loans initially recorded at fair value:

 

 

112 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

112 

Acquired loans with deteriorated credit:

 

 

41 

 

 

12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

53 

Beginning Balance, March 31, 2017

 

 

2,304 

 

 

10,862 

 

 

756 

 

 

3,117 

 

 

335 

 

 

 

 

150 

 

 

17,526 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

 -

 

 -

119 

 -

 

 -

 

 

 -

 

 -

 -

 

 -

 -

 

 -

 -

 

 -

119 

Acquired loans initially recorded at fair value:

 

 

219 

 

 -

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 -

 

 -

 -

 

 -

219 

Sub-total:

 

 

219 

 

 

119 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

338 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

(59)

 

 

451 

 

 

(3)

 

 

112 

 

 

12 

 

 

 

 

(51)

 

 

465 

Acquired loans initially recorded at fair value:

 

 

310 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

310 

Acquired loans with deteriorated credit:

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

Sub-total:

 

 

251 

 

 

452 

 

 

(3)

 

 

112 

 

 

12 

 

 

 

 

(51)

 

 

776 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

2,092 

 

 

11,182 

 

 

753 

 

 

3,229 

 

 

347 

 

 

 

 

99 

 

 

17,707 

Acquired loans initially recorded at fair value:

 

 

203 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

203 

Acquired loans with deteriorated credit:

 

 

41 

 

 

13 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

54 

Ending Balance, June 30, 2017

 

$

2,336 

 

$

11,195 

 

$

753 

 

$

3,229 

 

$

347 

 

$

 

$

99 

 

$

17,964 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

164,562 

 

$

1,130,902 

 

$

73,376 

 

$

68,230 

 

$

38,058 

 

$

1,196 

 

$

 -

 

$

1,476,324 

Ending Balance Acquired loans initially recorded at fair value:

 

 

52,382 

 

 

51,933 

 

 

 -

 

 

3,752 

 

 

10,304 

 

 

176 

 

 

 -

 

 

118,547 

Ending Balance Acquired loans with deteriorated credit:

 

 

1,425 

 

 

742 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,167 

Total Gross Loans:

 

$

218,369 

 

$

1,183,577 

 

$

73,376 

 

$

71,982 

 

$

48,362 

 

$

1,372 

 

$

 -

 

$

1,597,038 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans individually

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

9,038 

 

$

12,783 

 

$

 -

 

$

4,180 

 

$

1,093 

 

$

 -

 

$

 -

 

$

27,094 

Ending Balance Acquired loans initially recorded at fair value:

 

 

7,771 

 

 

5,832 

 

 

 -

 

 

 -

 

 

685 

 

 

 -

 

 

 -

 

 

14,288 

Ending Balance Acquired loans with deteriorated credit:

 

 

1,425 

 

 

519 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,944 

Ending Balance Loans individually 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

$

18,234 

 

$

19,134 

 

$

 -

 

$

4,180 

 

$

1,778 

 

$

 -

 

$

 -

 

$

43,326 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance: Loans collectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance Originated Loans:

 

$

155,524 

 

$

1,118,119 

 

$

73,376 

 

$

64,050 

 

$

36,965 

 

$

1,196 

 

$

 -

 

$

1,449,230 

Ending Balance Acquired loans initially recorded at fair value:

 

 

44,611 

 

 

46,101 

 

 

 -

 

 

3,752 

 

 

9,619 

 

 

176 

 

 

 -

 

 

104,259 

Ending Balance Acquired loans with deteriorated credit:

 

 

 -

 

 

223 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

223 

Ending Balance Loans collectively 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

evaluated for impairment:

 

$

200,135 

 

$

1,164,443 

 

$

73,376 

 

$

67,802 

 

$

46,584 

 

$

1,372 

 

$

 -

 

$

1,553,712 

_____________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes business lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Includes home equity lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



19

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table sets forth the activity in the Company’s allowance for loans losses for the six months ended June 30, 2017, and the related portion of the allowance for loan losses that is allocated to each loan class (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Residential

 

 

Commercial & Multi-family

 

Construction

 

Commercial Business (1)

 

 

Home Equity (2)

 

Consumer

 

Unallocated

 

Total

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

$

2,098 

 

$

10,621 

 

$

736 

 

$

3,079 

 

$

374 

 

$

 

$

69 

 

$

16,979 

Acquired loans initially recorded at fair value:

 

 

170 

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

174 

Acquired loans with deteriorated credit:

 

 

43 

 

 

13 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

56 

Beginning Balance, December 31, 2016

 

 

2,311 

 

 

10,634 

 

 

736 

 

 

3,079 

 

 

378 

 

 

 

 

69 

 

 

17,209 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

 -

 

 

190 

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 -

196 

Acquired loans initially recorded at fair value:

 

 

308 

 

 

 -

 

 

 -

 

 

 -

 

 

34 

 

 

 -

 

 

 -

 

 -

342 

Sub-total:

 

 

308 

 

 

190 

 

 

 -

 

 

 -

 

 

34 

 

 

 

 

 -

 

 

538 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 -

 

 

 -

 

 

 -

 

 

19 

 

 

 -

 

 

 -

 

 

 -

 

 

19 

Sub-total:

 

 

 -

 

 

 -

 

 

 -

 

 

19 

 

 

 -

 

 

 -

 

 

 -

 

 

19 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

(6)

 

 

751 

 

 

17 

 

 

150 

 

 

(27)

 

 

 

 

30 

 

 

924 

Acquired loans initially recorded at fair value:

 

 

341 

 

 

 -

 

 

 -

 

 

 -

 

 

30 

 

 

 -

 

 

 -

 

 

371 

Acquired loans with deteriorated credit:

 

 

(2)

 

 

 -

 

 

 -

 

 

(19)

 

 

 -

 

 

 -

 

 

 -

 

 

(21)

Sub-total:

 

 

333 

 

 

751 

 

 

17 

 

 

131 

 

 

 

 

 

 

30 

 

 

1,274 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated Loans:

 

 

2,092 

 

 

11,182 

 

 

753 

 

 

3,229 

 

 

347 

 

 

 

 

99 

 

 

17,707 

Acquired loans initially recorded at fair value:

 

 

203 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

203 

Acquired loans with deteriorated credit:

 

 

41 

 

 

13 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

54 

Ending Balance, June 30, 2017

 

$

2,336 

 

$

11,195 

 

$

753 

 

$

3,229 

 

$

347 

 

$

 

$

99 

 

$

17,964 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

_____________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes business lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Includes home equity lines of credit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



20

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The table below sets forth the amounts and types of non-accrual loans in the Company’s loan portfolio as of June 30, 2018 and December 31, 2017. Loans are placed on non-accrual status when they become more than 90 days delinquent, or when the collection of principal and/or interest become doubtful. As of June 30, 2018 and December 31, 2017, total non-accrual loans differed from the amount of total loans past due greater than 90 days due to troubled debt restructuring of loans which are maintained on non-accrual status for a minimum of six months and until the borrower has demonstrated its ability to satisfy the terms of the restructured loan.   








 

 

 

 

 



 

 

 

 

 



 

As of June 30, 2018

 

 

As of December 31, 2017



 

(In Thousands)

 

 

(In Thousands)

Non-Accruing Loans:

 

 

 

 

 



 

 

 

 

 

Originated loans:

 

 

 

 

 

Residential one-to-four family

$

1,480 

 

$

2,545 

Commercial and multi-family

 

5,578 

 

 

6,762 

Commercial business(1) 

 

163 

 

 

299 

Home equity(2) 

 

397 

 

 

201 

Consumer

 

42 

 

 

 -



 

 

 

 

 

Sub-total:

 

7,660 

 

 

9,807 



 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

Residential one-to-four family

 

2,474 

 

 

2,372 

Commercial and multi-family

 

590 

 

 

850 

Home equity(2) 

 

39 

 

 



 

 

 

 

 

Sub-total:

 

3,103 

 

 

3,229 



 

 

 

 

 

Total

$

10,763 

 

$

13,036 



 

 

 

 

 



 

 

 

 

 



 

 

 

 

 



__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.







Nonaccrual loans in the preceding table do not include loans acquired with deteriorated credit quality which were recorded at their fair value at acquisition and totaled $11.6 million at June 30, 2018.

21

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table summarizes the average recorded investment and interest income recognized on impaired loans with no related allowance recorded by portfolio class for the three months and six months ended June 30, 2018 and 2017 (In Thousands):









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2018

 

 

2018

 

 

2017

 

 

2017

 

2018

 

 

2018

 

 

2017

 

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

Average

 

 

Interest

 

 

Average

 

 

Interest



 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

Originated loans

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,912 

 

$

 

$

3,640 

 

$

24 

 

1,965 

 

$

15 

 

$

4,299 

 

$

49 

Commercial and Multi-family

 

11,973 

 

 

86 

 

 

12,365 

 

 

63 

 

12,052 

 

 

172 

 

 

11,287 

 

 

125 

Commercial business(1) 

 

 -

 

 

43 

 

 

712 

 

 

11 

 

622 

 

 

87 

 

 

1,095 

 

 

21 

Home equity(2) 

 

843 

 

 

 

 

865 

 

 

 

912 

 

 

15 

 

 

941 

 

 

18 

 Consumer

 

926 

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

15,654 

 

$

143 

 

$

17,582 

 

$

107 

 

15,551 

 

$

289 

 

$

17,625 

 

$

213 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

3,385 

 

$

23 

 

$

5,306 

 

$

35 

 

3,630 

 

$

46 

 

$

4,998 

 

$

71 

Commercial and Multi-family

 

3,639 

 

 

54 

 

 

4,127 

 

 

56 

 

3,683 

 

 

109 

 

 

4,845 

 

 

112 

Home equity(2) 

 

245 

 

 

 

 

628 

 

 

 -

 

235 

 

 

 

 

563 

 

 

12 

Consumer

 

 -

 

 

 -

 

 

 -

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

$

7,269 

 

$

80 

 

$

10,061 

 

$

97 

 

7,548 

 

$

162 

 

$

10,406 

 

$

195 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,035 

 

$

16 

 

$

1,430 

 

$

22 

 

1,161 

 

$

33 

 

$

1,434 

 

$

44 

Commercial and Multi-family

 

6,091 

 

 

122 

 

 

520 

 

 

 

4,231 

 

 

244 

 

 

521 

 

 

14 

 Construction

 

1,335 

 

 

213 

 

 

 -

 

 

 -

 

890 

 

 

426 

 

 

 

 

 

 

Commercial business(1) 

 

493 

 

 

135 

 

 

 -

 

 

 -

 

329 

 

 

270 

 

 

 

 

 

 

Home equity(2) 

 

200 

 

 

 

 

 -

 

 

 -

 

133 

 

 

10 

 

 

 

 

 

 

 Consumer

 

27 

 

 

 

 

 -

 

 

 -

 

18 

 

 

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

9,181 

 

$

492 

 

$

1,950 

 

$

29 

 

6,762 

 

$

984 

 

$

1,955 

 

$

58 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

$

32,104 

 

$

715 

 

$

29,593 

 

$

233 

 

29,861 

 

$

1,435 

 

$

29,986 

 

$

466 





__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

22

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table summarizes the average recorded investment and interest income recognized on impaired loans with allowance recorded by portfolio class for the three and six months ended June 30, 2018 and 2017. (In Thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

 

Six Months Ended June 30,



 

2018

 

 

2018

 

 

2017

 

 

2017

 

 

2018

 

 

2018

 

 

2017

 

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest



 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

Originated loans

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

with an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

4,752 

 

$

47 

 

$

6,026 

 

$

48 

 

$

5,125 

 

$

95 

 

$

5,546 

 

$

96 

Commercial and Multi-family

 

485 

 

 

 -

 

 

839 

 

 

10 

 

 

323 

 

 

 -

 

 

1,267 

 

 

19 

Commercial business(1) 

 

1,094 

 

 

20 

 

 

3,427 

 

 

35 

 

 

1,262 

 

 

40 

 

 

3,039 

 

 

69 

Home equity(2) 

 

156 

 

 

 

 

284 

 

 

 

 

156 

 

 

 

 

287 

 

 

Consumer

 

21 

 

 

 -

 

 

 -

 

 

 -

 

 

14 

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

6,508 

 

$

69 

 

$

10,576 

 

$

96 

 

$

6,880 

 

$

138 

 

$

10,139 

 

$

189 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

3,564 

 

$

28 

 

$

2,590 

 

$

21 

 

$

3,519 

 

$

56 

 

$

2,688 

 

$

43 

Commercial and Multi-family

 

923 

 

 

 

 

1,718 

 

 

16 

 

 

1,035 

 

 

 

 

1,249 

 

 

32 

Home equity(2) 

 

85 

 

 

 

 

106 

 

 

 

 

85 

 

 

 

 

313 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

$

4,572 

 

$

34 

 

$

4,414 

 

$

39 

 

$

4,639 

 

$

68 

 

$

4,250 

 

$

78 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

370 

 

$

 

$

 -

 

$

 -

 

$

246 

 

$

10 

 

$

 -

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

370 

 

$

 

$

 -

 

$

 -

 

$

246 

 

$

10 

 

$

 -

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with an allowance recorded:

$

11,450 

 

$

108 

 

$

14,990 

 

$

135 

 

$

11,765 

 

$

216 

 

$

14,389 

 

$

267 





__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

23

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



The following table summarizes the recorded investment and unpaid principal balances where there is no related allowance on impaired loans by portfolio class at

June 30, 2018 and December 31, 2017. (In Thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30, 2018

 

 

As of December 31, 2017



 

Recorded

 

 

Unpaid Principal

 

 

Related

 

 

Recorded

 

 

Unpaid Principal

 

 

Related

Originated loans

 

Investment

 

 

Balance

 

 

Allowance

 

 

Investment

 

 

Balance

 

 

Allowance

with no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,934 

 

$

1,975 

 

$

-

 

$

2,073 

 

$

2,236 

 

$

-

Commercial and multi-family

 

12,363 

 

 

12,819 

 

 

-

 

 

12,212 

 

 

12,763 

 

 

-

Commercial business(1) 

 

1,104 

 

 

3,991 

 

 

-

 

 

181 

 

 

908 

 

 

-

Home equity(2) 

 

944 

 

 

999 

 

 

-

 

 

885 

 

 

932 

 

 

-



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

16,345 

 

$

19,784 

 

$

 -

 

$

15,351 

 

$

16,839 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

value with no related allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

3,138 

 

$

3,302 

 

$

-

 

$

4,119 

 

$

4,285 

 

$

-

Commercial and Multi-family

 

3,464 

 

 

3,464 

 

 

-

 

 

3,772 

 

 

3,773 

 

 

-

Home equity(2) 

 

244 

 

 

244 

 

 

-

 

 

216 

 

 

268 

 

 

-



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

6,846 

 

$

7,010 

 

$

 -

 

$

8,107 

 

$

8,326 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit with no related allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,032 

 

$

1,595 

 

$

-

 

$

1,413 

 

$

2,031 

 

$

-

Commercial and Multi-family

 

11,671 

 

 

12,145 

 

 

-

 

 

513 

 

 

537 

 

 

-

Construction

 

2,670 

 

 

11,886 

 

 

-

 

 

 -

 

 

 -

 

 

-

Commercial business(1) 

 

986 

 

 

7,355 

 

 

-

 

 

 -

 

 

 -

 

 

-

Home equity(2) 

 

400 

 

 

400 

 

 

-

 

 

 -

 

 

 -

 

 

-

Consumer

 

54 

 

 

54 

 

 

-

 

 

 -

 

 

 -

 

 

-



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

16,813 

 

$

33,435 

 

$

 -

 

$

1,926 

 

$

2,568 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with no related allowance recorded:

$

40,004 

 

$

60,229 

 

$

 -

 

$

25,384 

 

$

27,733 

 

$

 -



__________

(1) Includes business lines of credit.
(2) Includes home equity lines of credit.

24

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table summarizes the recorded investment, unpaid principal balance, and the related allowance on impaired loans by portfolio class at June 30, 2018 and December 31, 2017. (In Thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30, 2018

 

 

As of December 31, 2017



 

Recorded

 

 

Unpaid Principal

 

 

Related

 

 

Recorded

 

 

Unpaid Principal

 

 

Related

Originated loans

 

Investment

 

 

Balance

 

 

Allowance

 

 

Investment

 

 

Balance

 

 

Allowance

with an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

4,321 

 

$

4,321 

 

$

252 

 

$

5,871 

 

$

5,871 

 

$

508 

Commercial and Multi-family

 

485 

 

 

526 

 

 

112 

 

 

 -

 

 

 -

 

 

 -

Commercial business(1) 

 

1,122 

 

 

1,420 

 

 

834 

 

 

1,599 

 

 

2,431 

 

 

1,033 

Home equity(2) 

 

155 

 

 

155 

 

 

23 

 

 

157 

 

 

157 

 

 

25 

Consumer

 

42 

 

 

42 

 

 

42 

 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

6,125 

 

$

6,464 

 

$

1,263 

 

$

7,627 

 

$

8,459 

 

$

1,566 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

value with an allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 -

 

 

 

Residential one-to-four family

$

3,396 

 

$

3,547 

 

$

463 

 

$

3,429 

 

$

3,580 

 

$

281 

Commercial and Multi-family

 

920 

 

 

973 

 

 

293 

 

 

1,260 

 

 

1,313 

 

 

179 

Home equity(2) 

 

85 

 

 

85 

 

 

 

 

86 

 

 

86 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

$

4,401 

 

$

4,605 

 

$

762 

 

$

4,775 

 

$

4,979 

 

$

467 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit with an allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

369 

 

$

417 

 

$

13 

 

$

 -

 

$

 -

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

369 

 

$

417 

 

$

13 

 

$

 -

 

$

 -

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with an allowance recorded:

$

10,895 

 

$

11,486 

 

$

2,038 

 

$

12,402 

 

$

13,438 

 

$

2,033 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with no related allowance recorded:

$

40,004 

 

$

60,229 

 

$

 -

 

$

25,384 

 

$

27,733 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impaired Loans:

$

50,899 

 

$

71,715 

 

$

2,038 

 

$

37,786 

 

$

41,171 

 

$

2,033 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

__________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



25

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

A troubled debt restructured (“TDR”) is a loan that has been modified whereby the Company has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Company to maximize the ultimate recovery of a loan. A TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.









 

 

 

 



 

At June 30, 2018

 

At December 31, 2017



 

(In thousands)

Recorded investment in TDRs:

 

 

 

 

Accrual status

$

20,693 

$

20,058 

Non-accrual status

 

7,535 

 

8,408 

      Total recorded investment in TDRs

$

28,228 

$

28,466 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



 

 

\

 

 

 

 

There were no TDRs during the three months ended June 30, 2018

The following table summarizes information with regard to troubled debt restructurings which occurred during the three months ended June 30th, 2017.



 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017 (Dollars in Thousands)

 

 

 

 

Pre-Modification Outstanding

 

 

Post-Modification Outstanding



 

Number of Contracts

 

 

Recorded Investments

 

 

Recorded Investments



 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

Commercial and multi-family

 

 

 

2,804 

 

 

2,851 



 

 

 

 

 

 

 

 

Sub-total:

 

 

$

2,804 

 

$

2,851 



 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

$

767 

 

$

919 



 

 

 

 

 

 

 

 

Sub-total:

 

 

$

767 

 

$

919 



 

 

 

 

 

 

 

 

Total

 

 

$

3,571 

 

$

3,770 



The loans included above are considered TDRs as a result of the Company implementing one or more of the following concessions: granting a material extension of time, issuing a forbearance agreement, adjusting the interest rate to a below market rate and/or accepting interest only for a period of time or a change in amortization period. All TDRs were considered impaired and therefore were individually evaluated for impairment in the calculation of the allowance for loan losses. Prior to their classification as TDRs, certain of these loans had been collectively evaluated for impairment in the calculation of the allowance for loan losses.



26

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued) 

Troubled debt restructurings for which there was a payment default within twelve months of restructuring during the three months ended June 30 totaled $639,000 for one contract in 2018 and $1,358,000 for two contracts in 2017.



The following tables summarize information with regards to troubled debt restructuring which occurred during the six months ended June 30, 2018 and 2017 (dollars in thousands):





 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

Pre-Modification Outstanding

 

 

Post-Modification Outstanding



 

Number of Contracts

 

 

Recorded Investments

 

 

Recorded Investments



 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

$

640 

 

$

640 

Commercial and multi-family

 

 -

 

 

 -

 

 

 -

Commercial business(1) 

 

 -

 

 

 -

 

 

 -

Home equity(2) 

 

-

 

 

-

 

 

-



 

 

 

 

 

 

 

 

Sub-total:

 

 

 

640 

 

 

640 



 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

 

179 

 

 

179 

Commercial and Multi-family

 

-

 

 

-

 

 

 -

Commercial business(1) 

 

-

 

 

-

 

 

-

Home equity(2) 

 

 -

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

Sub-total:

 

 

 

179 

 

 

179 



 

 

 

 

 

 

 

 

Total

 

 

$

819 

 

$

819 

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.









 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

 

Pre-Modification Outstanding

 

 

Post-Modification Outstanding



 

Number of Contracts

 

 

Recorded Investments

 

 

Recorded Investments



 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

$

1,445 

 

$

1,556 

Commercial and multi-family

 

 

 

4,441 

 

 

4,608 



 

 

 

 

 

 

 

 

Sub-total:

 

 

 

5,886 

 

 

6,164 



 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

Residential one-to-four family

 

 

 

840 

 

 

1,023 



 

 

 

 

 

 

 

 

Sub-total:

 

 

 

840 

 

 

1,023 



 

 

 

 

 

 

 

 

Total

 

 

$

6,726 

 

$

7,187 



27

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)



Troubled debt restructurings for which there was a payment default within twelve months of restructuring during the six months ended June 30 totaled $878,000 for two contracts in 2018 and $1,780,000 for three contracts in 2017.



The following table sets forth the delinquency status of total loans receivable as of June 30, 2018:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable



30-59 Days

 

60-90 Days

 

Greater Than

 

Total Past

 

 

 

 

Total Loans

 

>90 Days



Past Due

 

Past Due

 

90 Days

 

Due

 

Current

 

Receivable

 

and Accruing



 

(In Thousands)

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,649 

 

$

406 

 

$

1,217 

 

$

3,272 

 

$

200,389 

 

$

203,661 

 

$

 -

Commercial and multi-family

 

6,980 

 

 

1,531 

 

 

1,294 

 

 

9,805 

 

 

1,443,102 

 

 

1,452,907 

 

 

125 

Construction

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

51,599 

 

 

51,599 

 

 

 -

Commercial business(1) 

 

192 

 

 

66 

 

 

696 

 

 

954 

 

 

104,147 

 

 

105,101 

 

 

599 

Home equity(2) 

 

313 

 

 

44 

 

 

326 

 

 

683 

 

 

51,699 

 

 

52,382 

 

 

122 

Consumer

 

 

 

 

 

42 

 

 

46 

 

 

599 

 

 

645 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

9,137 

 

$

2,048 

 

$

3,575 

 

$

14,760 

 

$

1,851,535 

 

$

1,866,295 

 

$

846 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

315 

 

$

284 

 

$

1,783 

 

$

2,382 

 

$

42,551 

 

 

44,933 

 

$

 -

Commercial and multi-family

 

5,877 

 

 

2,564 

 

 

590 

 

 

9,031 

 

 

149,063 

 

 

158,094 

 

 

 -

Construction

 

643 

 

 

 -

 

 

 -

 

 

643 

 

 

1,155 

 

 

1,798 

 

 

247 

Commercial business(1) 

 

4,456 

 

 

21 

 

 

247 

 

 

4,724 

 

 

26,956 

 

 

31,680 

 

 

 -

Home equity(2) 

 

474 

 

 

128 

 

 

39 

 

 

641 

 

 

21,084 

 

 

21,725 

 

 

 -

Consumer

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

199 

 

 

199 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

11,765 

 

$

2,997 

 

$

2,659 

 

$

17,421 

 

$

241,008 

 

$

258,429 

 

$

247 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

 -

 

$

55 

 

$

115 

 

$

170 

 

$

1,232 

 

 

1,402 

 

$

-

Commercial and multi-family

 

360 

 

 

145 

 

 

9,391 

 

 

9,896 

 

 

1,984 

 

 

11,880 

 

 

 -

 Construction

 

 -

 

 

820 

 

 

987 

 

 

1,807 

 

 

863 

 

 

2,670 

 

 

 -

Commercial business(1) 

 

 -

 

 

 -

 

 

 

 

 

 -

 

 

986 

 

 

986 

 

 

 -

Home equity(2) 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

400 

 

 

400 

 

 

 -

Consumer

 

 -

 

 

 -

 

 

54 

 

 

54 

 

 

 -

 

 

54 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

360 

 

$

1,020 

 

$

10,547 

 

$

11,927 

 

$

5,465 

 

$

17,392 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

21,262 

 

$

6,065 

 

$

16,781 

 

$

44,108 

 

$

2,098,008 

 

$

2,142,116 

 

$

1,093 



 

_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.



28

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table sets forth the delinquency status of total loans receivable at December 31, 2017:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable



30-59 Days

 

60-90 Days

 

Greater Than

 

Total Past

 

 

 

 

Total Loans

 

>90 Days



Past Due

 

Past Due

 

90 Days

 

Due

 

Current

 

Receivable

 

and Accruing



 

(In Thousands)

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

1,358 

 

$

1,604 

 

$

2,273 

 

$

5,235 

 

$

177,309 

 

$

182,544 

 

$

-

Commercial and multi-family

 

20,210 

 

 

887 

 

 

 -

 

 

21,097 

 

 

1,192,293 

 

 

1,213,390 

 

 

 -

Construction

 

5,687 

 

 

 -

 

 

 -

 

 

5,687 

 

 

44,810 

 

 

50,497 

 

 

 -

Commercial business(1) 

 

161 

 

 

640 

 

 

103 

 

 

904 

 

 

65,871 

 

 

66,775 

 

 

 -

Home equity(2) 

 

314 

 

 

215 

 

 

44 

 

 

573 

 

 

38,152 

 

 

38,725 

 

 

 -

Consumer

 

 

 

 -

 

 

 -

 

 

 

 

1,175 

 

 

1,183 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

27,738 

 

$

3,346 

 

$

2,420 

 

$

33,504 

 

$

1,519,610 

 

$

1,553,114 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

643 

 

$

379 

 

$

1,738 

 

$

2,760 

 

$

45,048 

 

 

47,808 

 

$

315 

Commercial and multi-family

 

1,539 

 

 

 -

 

 

850 

 

 

2,389 

 

 

44,220 

 

 

46,609 

 

 

 -

Commercial business(1) 

 

92 

 

 

 -

 

 

 -

 

 

92 

 

 

3,965 

 

 

4,057 

 

 

 -

Home equity(2) 

 

240 

 

 

324 

 

 

 

 

571 

 

 

8,384 

 

 

8,955 

 

 

 -

Consumer

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

122 

 

 

122 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

2,514 

 

$

703 

 

$

2,595 

 

$

5,812 

 

$

101,739 

 

$

107,551 

 

$

315 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

1,413 

 

$

1,413 

 

$

-

Commercial and multi-family

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

731 

 

 

731 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

 -

 

$

 -

 

$

 -

 

$

 -

 

$

2,144 

 

$

2,144 

 

$

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

30,252 

 

$

4,049 

 

$

5,015 

 

$

39,316 

 

$

1,623,493 

 

$

1,662,809 

 

$

315 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(1) Includes business lines of credit.

(2) Includes home equity lines of credit.





Criticized and Classified Assets.    



Our policies provide for a classification system for problem assets. Under this classification system, problem assets are classified as “substandard,” “doubtful,” or “loss.”



When we classify problem assets, we may establish general allowances for loan losses in an amount deemed prudent by management.  General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. A portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining our regulatory capital. Specific valuation allowances for loan losses generally do not qualify as regulatory capital. As of June 30, 2018, we had $36,000 in assets classified as losses, all of which $36,000 were classified as impaired, and $33.6 million in assets classified as substandard, all of which $33.6 million were classified as impaired. The loans classified as substandard represent primarily commercial loans secured either by residential real estate, commercial real estate or heavy equipment. The loans that have been classified substandard were classified as such primarily due to payment status, because updated financial information has not been timely provided, or the collateral underlying the loan is in the process of being revalued.



The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list (risk ratings 1-5) are treated as “pass” for grading purposes. The “criticized” risk rating (6) and the “classified” risk ratings (7-9) are detailed below:



6 – Special Mention- Loans currently performing but with potential weaknesses including adverse trends in borrower’s operations, credit quality, financial strength, or possible collateral deficiency.



7 – Substandard- Loans that are inadequately protected by current sound worth, paying capacity, and collateral support.  Loans on “nonaccrual” status.  The loan needs special and corrective attention.



8 – Doubtful- Weaknesses in credit quality and collateral support make full collection improbable, but pending reasonable factors remain sufficient to defer the loss status.



9 – Loss- Continuance as a bankable asset is not warranted. However, this does not preclude future attempts at partial recovery.





29

 


 



Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of June 30, 2018. (In Thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Pass

 

Special Mention

 

Substandard

 

Doubtful

 

Loss

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

198,623 

 

$

2,919 

 

$

2,119 

 

$

 -

 

$

 -

 

$

203,661 

Commercial and multi-family

 

1,438,487 

 

 

3,838 

 

 

10,582 

 

 

 -

 

 

 -

 

 

1,452,907 

Construction

 

51,599 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

51,599 

Commercial business(1) 

 

101,090 

 

 

1,786 

 

 

2,189 

 

 

 -

 

 

36 

 

 

105,101 

Home equity(2) 

 

51,533 

 

 

399 

 

 

450 

 

 

 -

 

 

 -

 

 

52,382 

Consumer

 

593 

 

 

10 

 

 

42 

 

 

 -

 

 

 -

 

 

645 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

1,841,925 

 

$

8,952 

 

$

15,382 

 

$

 -

 

$

36 

 

$

1,866,295 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

41,818 

 

$

474 

 

$

2,641 

 

$

 -

 

$

 -

 

 

44,933 

Commercial and multi-family

 

155,672 

 

 

393 

 

 

2,029 

 

 

 -

 

 

 -

 

 

158,094 

Construction

 

1,749 

 

 

49 

 

 

 -

 

 

 -

 

 

 -

 

 

1,798 

Commercial business(1) 

 

31,627 

 

 

53 

 

 

 -

 

 

 -

 

 

 -

 

 

31,680 

Home equity(2) 

 

21,638 

 

 

19 

 

 

68 

 

 

 -

 

 

 -

 

 

21,725 

Consumer

 

199 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

199 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

252,703 

 

$

988 

 

$

4,738 

 

$

 -

 

$

 -

 

$

258,429 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

159 

 

$

567 

 

$

676 

 

$

 -

 

$

 -

 

 

1,402 

Commercial and multi-family

 

760 

 

 

507 

 

 

10,613 

 

 

 -

 

 

 -

 

 

11,880 

Construction

 

863 

 

 

 -

 

 

1,807 

 

 

 -

 

 

 -

 

 

2,670 

Commercial business(1) 

 

633 

 

 

 -

 

 

353 

 

 

 -

 

 

 -

 

 

986 

Home equity(2) 

 

400 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

400 

Consumer

 

54 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

54 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

2,869 

 

$

1,074 

 

$

13,449 

 

$

 -

 

$

 -

 

$

17,392 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Loans

$

2,097,497 

 

$

11,014 

 

$

33,569 

 

$

 -

 

$

36 

 

$

2,142,116 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



_________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

30

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the loan portfolio types summarized by the aggregate pass rating and the classified ratings of special mention, substandard, doubtful, and loss within the Company’s internal risk rating system as of December 31, 2017. (In Thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Pass

 

Special Mention

 

Substandard

 

Doubtful

 

Loss

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

174,985 

 

$

5,014 

 

$

2,545 

 

$

 -

 

$

 -

 

$

182,544 

Commercial and multi-family

 

1,199,786 

 

 

2,676 

 

 

10,928 

 

 

 -

 

 

 -

 

 

1,213,390 

Construction

 

50,262 

 

 

235 

 

 

 -

 

 

 -

 

 

 -

 

 

50,497 

Commercial business(1) 

 

63,323 

 

 

1,672 

 

 

1,738 

 

 

 -

 

 

42 

 

 

66,775 

Home equity(2) 

 

38,018 

 

 

451 

 

 

256 

 

 

 -

 

 

 -

 

 

38,725 

Consumer

 

1,177 

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

1,183 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

1,527,551 

 

$

10,054 

 

$

15,467 

 

$

 -

 

$

42 

 

$

1,553,114 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans initially recorded at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

44,472 

 

$

481 

 

$

2,855 

 

$

 -

 

$

 -

 

 

47,808 

Commercial and multi-family

 

43,569 

 

 

402 

 

 

2,638 

 

 

 -

 

 

 -

 

 

46,609 

Commercial business(1) 

 

4,057 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

4,057 

Home equity(2) 

 

8,896 

 

 

20 

 

 

32 

 

 

 -

 

 

 

 

8,955 

Consumer

 

122 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

122 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

101,116 

 

$

903 

 

$

5,525 

 

$

 -

 

$

 

$

107,551 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans with deteriorated credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential one-to-four family

$

153 

 

$

571 

 

$

689 

 

$

 -

 

$

 -

 

 

1,413 

Commercial and multi-family

 

218 

 

 

513 

 

 

 -

 

 

 -

 

 

 -

 

 

731 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total:

$

371 

 

$

1,084 

 

$

689 

 

$

 -

 

$

 -

 

$

2,144 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gross Loans

$

1,629,038 

 

$

12,041 

 

$

21,681 

 

$

 -

 

$

49 

 

$

1,662,809 





________

(1) Includes business lines of credit.

(2) Includes home equity lines of credit.

31

 


 

Note 7 - Loans Receivable and Allowance for Loan Losses (Continued)

The following table presents the unpaid principal balance and the related recorded investment of acquired loans included in our Consolidated Statements of Financial Condition. (In Thousands):









 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,



2018

 

2017



 

 

 

 

 

Unpaid principal balance

$

331,490 

 

$

114,542 

Recorded investment

 

275,821 

 

 

109,695 









The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality for which the Company applies the provisions of ASC 310-30 (In Thousands):







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

Balance, Beginning of Period

$

2,146 

 

$

2,478 

 

$

2,230 

 

$

2,558 

    Additions from acquisition of IAB

 

1,399 

 

 

 -

 

 

1,399 

 

 

 -

    Accretion recorded to interest income

 

(292)

 

 

(80)

 

 

(376)

 

 

(160)

Balance, End of Period

$

3,253 

 

$

2,398 

 

$

3,253 

 

$

2,398 







There were no transfers from non-accretable differences for the periods stated above.









32

 


 

Note 8 – Stockholders’ Equity 

On April 17, 2018, the Company issued 631,896 shares of its common stock as well as 438,889 shares of series E 6% and 6,465 shares of series F 6% non-cumulative perpetual preferred stock in connection with its acquisition of IA Bancorp, Inc.



On May 16, 2018, the Company issued 82,950 shares of its common stock in connection with the conversion of 438,889 shares of Series E preferred stock assumed with the acquisition of IA Bancorp, Inc.



 







Note 9 – Goodwill and Other Intangible Assets









The Company’s intangible assets consist of goodwill and core deposit intangibles in connection with the acquisition of IA Bancorp, Inc. as of April 17, 2018 and goodwill in connection with the acquisition. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is not amortized but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired. The goodwill impairment analysis is generally a two-step test. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company is not required to calculate the fair value of the reporting unit if, based on a qualitative assessment, it is determined that it was more likely than not that the unit’s fair value was not less than its carrying amount. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional step must be performed. That additional step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step above, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses are not permitted.



The Company’s core deposit intangibles are amortized on an accelerated basis using an estimated life of 10 years and in accordance with U.S. GAAP are evaluated annually for impairment. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. 



We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment to intangible assets at June 30, 2018



Amortization expense of the core deposit intangibles was $20,000 for the three and six months ended June 30, 2018. The unamortized balance of the core deposit intangibles and the amount of goodwill at June 30, 2018 were $410,000 and $5.281  million, respectively.









33

 


 



















Note 10 – Fair Values of Financial Instruments



Guidance on fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 



 

The only assets or liabilities that the Company measured at fair value on a recurring basis were as follows. (In Thousands):

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

  

(Level 1)

  

(Level 2)

  

 



 

 

 

 

Quoted Prices in

 

Significant

 

(Level 3)



 

 

 

 

Active Markets

 

Other

 

Significant



 

 

 

 

for Identical

 

Observable

 

Unobservable

Description

 

Total

 

 

Assets

 

Inputs

 

Inputs

As of June 30, 2018:

 

 

 

  

 

 

  

 

 

  

 

 

Securities

 

 

 

  

 

 

  

 

 

  

 

 

    Residential mortgage backed securities

 

$

123,618 

 

$

 -

 

$

123,618 

 

$

 -

    Municipal obligations

 

 

3,673 

 

 

 -

 

 

3,673 

 

 

 -

    Preferred stock

 

 

8,134 

 

 

8,134 

 

 

 -

 

 

 -

Total Securities

 

 

135,425 

 

 

8,134 

 

 

127,291 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017:

 

 

 

  

 

 

  

 

 

  

 

 

Securities

 

 

 

  

 

 

 

 

 

  

 

 

    Residential mortgage backed securities

 

$

111,793 

 

$

 -

 

$

111,793 

 

$

 -

    Municipal obligations

 

 

2,502 

 

 

 -

 

 

2,502 

 

 

 -

    Preferred stock

 

 

8,294 

 

 

8,294 

 

 

 -

 

 

 -

Total Securities

 

 

122,589 

 

 

8,294 

 

 

114,295 

 

 

 -

The Company’s policy is to recognize transfers between levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers of assets or liabilities into or out of Level 1, Level 2, or Level 3 of the fair value hierarchy during the six months ended June 30, 2018 and 2017.

The only assets or liabilities that the Company measured at fair value on a nonrecurring basis were as follows. (In Thousands):

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

  

(Level 1)

  

(Level 2)

  

 

 



 

 

 

 

Quoted Prices in

 

Significant

 

(Level 3)



 

 

 

 

Active Markets

 

Other

 

Significant



 

 

 

 

for Identical

 

Observable

 

Unobservable

Description

 

Total

 

Assets

 

Inputs

 

Inputs

As of June 30, 2018

 

 

 

  

 

 

  

 

 

  

 

 

Impaired Loans

 

$

8,857 

  

$

 -

  

$

 -

  

$

8,857 

Other real estate owned

 

$

1,178 

  

$

 -

  

$

 -

  

$

1,178 



 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017:

 

 

 

  

 

 

  

 

 

  

 

 

Impaired Loans

 

$

10,369 

 

$

 -

 

$

 -

 

$

10,369 

Other real estate owned

 

$

532 

  

$

 -

  

$

 -

  

$

532 







34

 


 



Note 10 – Fair Values of Financial Instruments (Continued)

The following tables present additional quantitative information as of June 30, 2018 and December 31, 2017 about assets measured at fair value on a nonrecurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value. (Dollars in thousands):









 

 

 

 

 

Quantitative Information about Level 3 Fair Value Measurements



 

Fair Value

Valuation

Unobservable

Range



 

Estimate

Techniques

Input

 

June 30, 2018:

 

 

 

 

 

Impaired Loans

$

8,857 

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-10%



 

 

 

 

 



 

 

 

 

 

Other real estate owned

$

1,178 

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-10%



 

 

 

 

 

















 

 

 

 

 



 

Fair Value

Valuation

Unobservable

Range 



 

Estimate

Techniques

Input

 

December 31, 2017:

 

 

 

 

 

Impaired Loans

$

10,369 

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-10%



 

 

 

 

 



 

 

 

 

 

Other real estate owned

$

532 

Appraisal of collateral (1)

Appraisal adjustments (2)

0%-10%



 

 

 

 

 



(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not objectively determinable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments as of June 30, 2018 and December 31, 2017.

  





Cash and Cash Equivalents and Interest-Earning Time Deposits (Carried at Cost)

The carrying amounts reported in the consolidated statements of financial condition for cash and short-term instruments approximate fair values.

Securities

The fair value of securities available for sale (carried at fair value) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Held for Sale (Carried at Lower of Cost or Fair Value)

The fair value of loans held for sale is determined, when possible, using quoted secondary-market prices. If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for specific attributes of that loan. Loans held for sale are carried at their cost as of June 30, 2018 and December 31, 2017.

Loans Receivable (Carried at Cost)

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.







35

 


 



Note 10 – Fair Values of Financial Instruments (Continued)

Impaired Loans (Generally Carried at Fair Value)

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value at June 30, 2018 and December 31, 2017 consisted of the loan balances of $10.895 million and $12.402 million, net of a valuation allowance of $2.038 million and $2.033 million, respectively.





Real Estate Owned (Generally Carried at Fair Value)

Real Estate Owned is generally carried at fair value which is determined based upon independent third-party appraisals of the properties, or based upon the expected proceeds from a pending sale. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

FHLB of New York Stock (Carried at Cost)

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Interest Receivable and Payable (Carried at Cost)

The carrying amount of interest receivable and interest payable approximates its fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-Term Debt (Carried at Cost)

Fair values of long-term debt are estimated using discounted cash flow analysis, based on quoted prices for new long-term debt with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and unused lines of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these commitments was deemed immaterial and is not presented in the accompanying table.

 







36

 


 

Note 10 – Fair Values of Financial Instruments (Continued)



The carrying values and estimated fair values of financial instruments were as follows as of June 30, 2018 and December 31, 2017:

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of June 30, 2018



 

 



 

 

 

 

 

 

 

Quoted Prices in Active

 

Significant

 

Significant



 

Carrying

 

 

 

 

Markets for Identical Assets

 

Other Observable Inputs

 

Unobservable Inputs



 

Value

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)



 

  

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)

Financial assets:

 

  

 

 

 

 

  

 

 

  

 

 

 

 

 

Cash and cash equivalents

 

$

180,445 

 

$

180,445 

  

$

180,445 

  

$

 -

 

$

 -

Interest-earning time deposits

 

 

980 

 

 

980 

  

 

980 

  

 

 -

 

 

 -

Debt securities available for sale

 

 

127,291 

 

 

127,291 

 

 

 -

 

 

127,291 

 

 

 -

Equity investments

 

 

8,134 

 

 

8,134 

  

 

8,134 

  

 

 -

 

 

 -

Loans held for sale

 

 

1,405 

 

 

1,405 

  

 

 -

  

 

1,405 

 

 

 -

Loans receivable, net

 

 

2,119,829 

 

 

2,070,306 

  

 

 -

  

 

 -

 

 

2,070,306 

FHLB of New York stock, at cost

 

 

16,744 

 

 

16,744 

  

 

 -

  

 

16,744 

 

 

 -

Accrued interest receivable

 

 

7,563 

 

 

7,563 

  

 

 -

  

 

7,563 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

  

 

 

  

 

 

 

 

 

Deposits

 

 

1,984,876 

 

 

1,991,258 

  

 

935,885 

  

 

1,055,373 

 

 

 -

Borrowings

 

 

320,005 

 

 

316,414 

  

 

 -

  

 

316,414 

 

 

 -

Subordinated debentures

 

 

4,124 

 

 

4,078 

 

 

 -

 

 

4,078 

 

 

 -

Accrued interest payable

 

 

1,174 

 

 

1,174 

  

 

 -

  

 

1,174 

 

 

 -











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of December 31, 2017



 

 



 

 

 

 

 

 

 

Quoted Prices in Active

 

Significant

 

Significant



 

Carrying

 

 

 

 

Markets for Identical Assets

 

Other Observable Inputs

 

Unobservable Inputs



 

Value

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)



 

  

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)

Financial assets:

 

  

 

 

 

 

  

 

 

  

 

 

 

 

 

Cash and cash equivalents

 

$

124,235 

 

$

124,235 

  

$

124,235 

  

$

 -

 

$

 -

Interest-earning time deposits

 

 

980 

 

 

980 

  

 

980 

  

 

 -

 

 

 -

Debt securities available for sale

 

 

114,295 

 

 

114,295 

 

 

 -

 

 

114,295 

 

 

 -

Equity investments

 

 

8,294 

 

 

8,294 

  

 

8,294 

  

 

 -

 

 

 -

Loans held for sale

 

 

1,295 

 

 

1,295 

  

 

 -

  

 

1,295 

 

 

 -

Loans receivable, net

 

 

1,643,677 

 

 

1,643,626 

  

 

 -

  

 

 -

 

 

1,643,626 

FHLB of New York stock, at cost

 

 

10,211 

 

 

10,211 

  

 

 -

  

 

10,211 

 

 

 -

Accrued interest receivable

 

 

6,153 

 

 

6,153 

  

 

 -

  

 

6,153 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

  

 

 

  

 

 

 

 

 

Deposits

 

 

1,569,370 

 

 

1,578,382 

  

 

903,155 

  

 

673,227 

 

 

 -

Borrowings

 

 

185,000 

 

 

182,947 

  

 

 -

  

 

182,947 

 

 

 -

Subordinated debentures

 

 

4,124 

 

 

4,078 

 

 

 -

 

 

4,078 

 

 

 -

Accrued interest payable

 

 

791 

 

 

791 

  

 

 -

  

 

791 

 

 

 -





































37

 


 

Note 11 – Subsequent Event



On July 30, 2018, the Company issued $33.5 million of fixed-to-floating rate subordinated debentures in a private placement. The notes mature in 2028 and carry a fixed interest rate of 5.625% for the first five years. Thereafter, the notes will pay interest at 3-month LIBOR plus 2.72%. The subordinated debentures qualify as Tier 2 capital for the Company for regulatory purposes and the portion that the Company contributes to the Bank will qualify as Tier 1 capital for the Bank. The additional capital will be used for general corporate purposes including organic growth initiatives. 



38

 


 

 

ITEM 2.



Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



This report on Form 10-Q contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995, or the PSLRA. Such forward-looking statements, in addition to historical information, involve risk and uncertainties, and are based on the beliefs, assumptions and expectations of our management team. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variation of such similar expressions are intended to identify such forward-looking statements. Forward-looking statements speak only as of the date they are made. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possible materially, from those that we anticipated in our forward-looking statements and future results could differ materially from historical performance.

 

Factors that could cause future results to vary from current management expectations as reflected in our forward looking statements include, but are not limited to:



· unfavorable economic conditions in the United States generally and particularly in our primary market area;

· the effects of declines in housing markets and real estate values that may adversely impact the collateral underlying our loans;

· increase in unemployment levels and slowdowns in economic growth;

· our level of non-performing assets and the costs associated with resolving any problem loans including litigation and other costs;

· the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of our loan and investment securities portfolios;

· the credit risk associated with our loan portfolio;

· changes in the quality and composition of the Bank’s loan and investment portfolios;

· changes in our ability to access cost-effective funding;

· deposit flows;

· legislative and regulatory changes, including increases in Federal Deposit Insurance Corporation, or FDIC, insurance rates;

· monetary and fiscal policies of the federal government;

· changes in tax policies, rates and regulations of federal, state and local tax authorities;

· inflation;

· demands for our loan products;

· demand for financial services;

· competition;

· changes in the securities or secondary mortgage markets;

· changes in management’s business strategies;

· our ability to enter new markets successfully;

· Any potential delay in completing the merger integration;

· our ability to successfully integrate acquired businesses;

· changes in consumer spending;

· our ability to retain key employees;

· the effects of any reputational, credit, interest rate, market, operational, legal, liquidity, regulatory risk;

· expanded regulatory requirements as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which could adversely affect operating results; and

· other factors discussed elsewhere in this report, and in other reports we filed with the SEC, including under “Risk Factors” in Part I, Item 1A of our annual Report on Form 10-K and our other periodic reports that we file with the SEC.



You should not place undue reliance on these forward-looking statements, which reflect our expectations only as of the date of this Form 10-Q. We do not assume any obligation to revise forward-looking statements except as may be required by law.



Overview



BCB Bancorp, Inc. is a New Jersey corporation, and is the holding company parent of BCB Community Bank, or the Bank. The Company has not engaged in any significant business activity other than owning all of the outstanding common stock of BCB Community Bank. Our executive office is located at 104-110 Avenue C, Bayonne, New Jersey 07002. At June 30, 2018 we had approximately $2.517 billion in consolidated assets, $1.985 billion in deposits and $194.1 million in consolidated stockholders’ equity.



BCB Community Bank opened for business on November 1, 2000 as Bayonne Community Bank, a New Jersey chartered commercial bank. The Bank changed its name from Bayonne Community Bank to BCB Community Bank in April 2007. At June 30, 2018 the Bank operated through twenty-eight branches in Bayonne, Carteret, Colonia, Edison, Jersey City, Hoboken, Fairfield, Holmdel, Lodi, Lyndhurst, Maplewood, Monroe Township, Parsippany, Plainsboro, Rutherford, South Orange, Union, and Woodbridge, New Jersey, as well as three branches in Hicksville and Staten Island, NY, and through executive offices located at 104-110 Avenue C and an administrative office located at 591-595 Avenue C, Bayonne, New Jersey 07002. The Bank’s deposit accounts are insured by the FDIC, and the Bank is a member of the Federal Home Loan Bank System.

 

We are a community-oriented financial institution. Our business is to offer FDIC-insured deposit products and to invest funds held in deposit accounts at the Bank, together with funds generated from operations, in loans and investment securities. We offer our customers:



· loans, including commercial and multi-family real estate loans, one- to four-family mortgage loans, home equity loans, construction loans, consumer loans and commercial business loans.  In recent years the primary growth in our loan portfolio has been in loans secured by commercial real estate and multi-family properties;



· FDIC-insured deposit products, including savings and club accounts, interest and non-interest bearing demand accounts, money market accounts, certificates of deposit and individual retirement accounts; and



· retail and commercial banking services including wire transfers, money orders, safe deposit boxes, a night depository, debit cards, online banking, mobile banking, gift cards, fraud detection (positive pay), and automated teller services.

39

 


 



For a description of the recently completed merger by the Company, see Note 2 to the Company’s unaudited financial statements.



Critical Accounting Policies



The preparation of the Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those used to determine the allowance for loan losses, deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2018, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.



See further discussion of these critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2017 and Note 1, Basis of Presentation, to the unaudited Consolidated Financial Statements. There has been no change in critical accounting policies since the Company’s last reported on annual report on Form 10-K.





Financial Condition



Total assets increased by $573.7 million, or 29.5 percent, to $2.517 billion at June 30, 2018 from $1.943 billion at December 31, 2017. The increase in total assets resulted from the acquisition of IAB, which added approximately $215.8 million in assets a well as an increase in loans receivable of $476.2 million, including those acquired in the merger.

Loans receivable increased by $476.2 million, or 29.0 percent, to $2.120 billion at June 30, 2018 from $1.644 billion at December 31, 2017. The increase in loans resulted from the acquisition of IAB, which approximated $182.5 million in the balance of loans added, and an increase in loans receivable of $476.2 million, excluding those acquired in the merger. The organic growth in loans represented increases of $229.6 million in commercial real estate and multi-family loans, $11.6 million in home equity loans, $37.6 million in commercial business loans and $15.2 million in residential one-to-four family loans. The allowance for loan losses was $20.6 million, or 191.8 percent of non-accruing loans and 0.96 percent of gross loans, at June 30, 2018 as compared to an allowance for loan losses of $17.4 million, or 133.3 percent of non-accruing loans and 1.04 percent of gross loans, at December 31, 2017.

Total cash and cash equivalents increased by $56.2 million, or 45.2 percent, to $180.4 million at June 30, 2018 from $124.2 million at December 31, 2017 primarily due to the Company’s strategy to further strengthen liquidity and our deposit base.

Total securities available for sale increased by $12.8 million, or 10.5 percent, to $135.4 million at June 30, 2018 from $122.6 million at December 31, 2017, as the Company deployed excess cash to improve returns on interest-earning assets and liquidity.

Deposit liabilities increased by $415.5 million, or 26.5 percent, to $1.985 billion at June 30, 2018 from $1.569 billion at December 31, 2017. The increases in deposit liabilities related to the acquisition of IAB, which approximated $178.4 million in the balance of deposits added, as well as the continued maturation of the seven branches opened in 2016 as a result of our organic growth initiative. Excluding IAB deposits, the increases included $161.4 million in certificates of deposit, including listing service and brokered deposits, $24.6 million in non-interest bearing deposit accounts, $21.8 million in money market checking accounts, $19.7 million in NOW deposit accounts, and $4.5 million in savings and club accounts. The Company utilizes listing service and brokered certificates of deposit as additional sources of deposit liquidity to fund loan growth, which totaled $41.5 million and $202.3 million, respectively, at June 30, 2018.

Debt obligations increased by $135.0 million, or 73.0 percent, to $320.0 million at June 30, 2018 from $185.0 million at December 31, 2017, the net result of scheduled maturities of FHLB advances and the issuance of new FHLB advances, and includes advances related to the acquisition of IAB, which approximated $20.0 million in the balance of advances added. The purpose of these borrowings reflected the use of long-term Federal Home Loan Bank advances to augment deposits as the Company’s funding source for originating loans and investing in investment securities. The weighted average interest rate of borrowings was 2.15 percent at June 30, 2018.

Stockholders’ equity increased by $17.6 million, or 10.0 percent, to $194.1 million at June 30, 2018 from $176.5 million at December 31, 2017. The increase in stockholders’ equity was primarily attributable to an increase in additional paid-in capital of $17.4 million from common stock and preferred stock issued as part of the acquisition of IAB. Retained earnings increased by $2.3 million to $33.6 million at June 30, 2018 from $31.2 million at December 31, 2017. Accumulated other comprehensive loss increased $2.7 million to $5.8 million at June 30, 2018 from $3.1 million at December 31, 2017.













































40

 


 



Net Interest Income Analysis



Net interest income represents the difference between income earned on our interest-earning assets and the expense incurred on our interest-bearing liabilities, and is analyzed and monitored by the Company on a regular basis. The following tables set forth average balance sheets, yields, and costs. The yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or expense.







 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,



 

2018

 

 

2017



 

Average Balance

 

Interest Earned/Paid

Average Yield/Rate

 

 

Average Balance

 

Interest Earned/Paid

Average Yield/Rate



 

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable

$

2,033,372 

$

24,048  4.74% 

 

$

1,577,772 

$

18,026  4.57% 

Investment Securities

 

146,760 

 

1,033  2.82% 

 

 

105,009 

 

762  2.90% 

Interest-earning deposits

 

96,853 

 

615  2.55% 

 

 

63,902 

 

281  1.76% 

  Total Interest-earning assets

 

2,276,985 

 

25,696  4.53% 

 

 

1,746,684 

 

19,069  4.37% 

Non-interest-earning assets

 

46,060 

 

 

 

 

 

54,964 

 

 

 

  Total assets

$

2,323,045 

 

 

 

 

$

1,801,648 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand accounts

$

333,641 

$

473  0.57% 

 

$

299,940 

$

407  0.54% 

Money market accounts

 

186,650 

 

502  1.07% 

 

 

132,018 

 

270  0.82% 

Savings accounts

 

264,764 

 

105  0.16% 

 

 

266,628 

 

100  0.15% 

Certificates of Deposit

 

876,266 

 

3,405  1.56% 

 

 

607,538 

 

2,142  1.41% 

  Total interest-bearing deposits

 

1,661,321 

 

4,485  1.08% 

 

 

1,306,125 

 

2,919  0.89% 

Borrowed funds

 

228,353 

 

1,221  2.15% 

 

 

165,489 

 

1,087  2.63% 

  Total interest-bearing liabilities

 

1,889,674 

 

5,706  1.21% 

 

 

1,471,614 

 

4,006  1.09% 

Non-interest-bearing liabilities

 

244,544 

 

 

 

 

 

202,817 

 

 

 

  Total liabilities

 

2,134,218 

 

 

 

 

 

1,674,430 

 

 

 

Stockholders' equity

 

188,827 

 

 

 

 

 

127,218 

 

 

 

  Total liabilities and stockholders' equity

$

2,323,045 

 

 

 

 

$

1,801,648 

 

 

 

Net interest income

 

 

$

19,990 

 

 

 

 

$

15,063 

 

Net interest rate spread(1)

 

 

 

 

3.32% 

 

 

 

 

 

3.28% 

Net interest margin(2)

 

 

 

 

3.52% 

 

 

 

 

 

3.45% 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 







(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

2 Net interest margin represents net interest income divided by average total interest-earning assets.

41

 


 



Net Interest Income Analysis (Continued)











 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30,



 

2018

 

 

2017



 

Average Balance

 

Interest Earned/Paid

Average Yield/Rate

 

 

Average Balance

 

Interest Earned/Paid

Average Yield/Rate



 

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Loans Receivable

$

1,876,349 

$

43,569  4.68% 

 

$

1,549,996 

$

35,568  4.59% 

Investment Securities

 

138,133 

 

1,836  2.68% 

 

 

100,541 

 

1,395  2.77% 

Interest-earning deposits

 

109,937 

 

1,233  2.26% 

 

 

73,328 

 

561  1.53% 

  Total Interest-earning assets

 

2,124,419 

 

46,638  4.43% 

 

 

1,723,865 

 

37,524  4.35% 

Non-interest-earning assets

 

44,647 

 

 

 

 

 

58,664 

 

 

 

  Total assets

$

2,169,066 

 

 

 

 

$

1,782,529 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand accounts

$

323,843 

$

903  0.56% 

 

$

302,045 

$

833  0.55% 

Money market accounts

 

172,074 

 

869  1.02% 

 

 

129,421 

 

517  0.80% 

Savings accounts

 

261,792 

 

202  0.16% 

 

 

265,025 

 

199  0.15% 

Certificates of Deposit

 

798,672 

 

6,135  1.55% 

 

 

599,792 

 

4,153  1.38% 

  Total interest-bearing deposits

 

1,556,381 

 

8,109  1.05% 

 

 

1,296,284 

 

5,702  0.88% 

Borrowed funds

 

205,311 

 

2,099  2.06% 

 

 

163,727 

 

2,154  2.63% 

  Total interest-bearing liabilities

 

1,761,692 

 

10,208  1.17% 

 

 

1,460,011 

 

7,856  1.08% 

Non-interest-bearing liabilities

 

224,561 

 

 

 

 

 

189,737 

 

 

 

  Total liabilities

 

1,986,253 

 

 

 

 

 

1,649,748 

 

 

 

Stockholders' equity

 

182,813 

 

 

 

 

 

132,781 

 

 

 

  Total liabilities and stockholders' equity

$

2,169,066 

 

 

 

 

$

1,782,529 

 

 

 

Net interest income

 

 

$

36,430 

 

 

 

 

$

29,668 

 

Net interest rate spread(1)

 

 

 

 

3.26% 

 

 

 

 

 

3.28% 

Net interest margin(2)

 

 

 

 

3.46% 

 

 

 

 

 

3.44% 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 











(1)

Net interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.





































42

 


 







Results of Operations comparison for the Three Months Ended June 30, 2018 and 2017

Net income decreased $200,000, or 8.0 percent, to $2.3 million for the three months ended June 30, 2018, compared with $2.5 million for the three months ended June 30, 2017. The decrease in net income was primarily related to an increase in total non-interest expense, an increase in total interest expense, a higher provision for loan loss, and a decrease in total non-interest income, partly offset by higher interest income and a lower income tax provision for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017.



Net interest income increased by $4.9 million, or 32.7 percent, to $20.0 million for the three months ended June 30, 2018 from $15.1 million for the three months ended June 30, 2017. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $530.3 million, or 30.4 percent, to $2.277 billion for the three months ended June 30, 2018 from $1.747 billion for the three months ended June 30, 2017. There was an increase in the average yield on interest-earning assets of 16 basis points to 4.53 percent for the three months ended June 30, 2018 from 4.37 percent for the three months ended June 30, 2017. There was a corresponding increase in the average balance of interest-bearing liabilities of $418.1 million, or 28.4 percent, to $1.890 billion for the three months ended June 30, 2018 from $1.472 billion for the three months ended June 30, 2017, as well as an increase in the average rate on interest-bearing liabilities of 12 basis points to 1.21 percent for the three months ended June 30, 2018 from 1.09 percent for the three months ended June 30, 2017.



Interest income on loans receivable increased by $6.0 million, or 33.4 percent, to $24.0 million for the three months ended June 30, 2018 from $18.0 million for the three months ended June 30, 2017. The increase was primarily attributable to an increase in the average balance of loans receivable of $455.6 million, or 28.9 percent, to $2.033 billion for the three months ended June 30, 2018 from $1.578 billion for the three months ended June 30, 2017, as well as an increase in the average yield on loans of 17 basis points to 4.74 percent for the three months ended June 30, 2018 from 4.57 percent for the three months ended June 30, 2017. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included growing the Bank’s geographic footprint vis-à-vis our organic branching strategy and the acquisition of IAB, while the increase in the average yield on loans related to the rising rate environment.

Interest income on securities increased by $271,000, or 35.6 percent, to $1.0 million for the three months ended June 30, 2018 from $762,000 for the three months ended June 30, 2017. This increase was primarily due to an increase in the average balance of securities of $41.8 million, or 39.8 percent, to $146.8 million for the three months ended June 30, 2018 from $105.0 million for the three months ended June 30, 2017, partly offset by a decrease in the average yield on securities of nine basis points to 2.82 percent for the three months ended June 30, 2018 from 2.90 percent for the three months ended June 30, 2017. The increase in the average balance of securities related to the Company’s strategy to further strengthen its liquidity position, while the decrease in the average yield on securities related to the mix of investments in the portfolio.

Interest income on other interest-earning assets increased by $334,000, or 118.9 percent to $615,000 for the three months ended June 30, 2018 from $281,000 for the three months ended June 30, 2017. This increase was primarily due to an increase in the average yield on other interest-earning assets of 79 basis points to 2.55 percent for the three months ended June 30, 2018 from 1.76 percent for the three months ended June 30, 2017, as well as an increase in the average balance of other interest earning assets of $33.0 million, or 51.6 percent, to $96.9 million for the three months ended June 30, 2018 from $63.9 million for the three months ended June 30, 2017. The increase in the average balance of other interest-earning assets was consistent with the Company’s strategy of maintaining strong levels of liquidity. The increase in the average yield on other interest-earning assets correlates to the increases in the fed funds rate that have occurred over the last 12 months.  

Total interest expense increased by $1.7 million, or 42.4 percent, to $5.7 million for the three months ended June 30, 2018 from $4.0 million for the three months ended June 30, 2017. This increase resulted, primarily, from an increase in the average balance of interest-bearing liabilities of $418.1 million, or 28.4 percent, to $1.890 billion for the three months ended June 30, 2018 from $1.472 billion for the three months ended June 30, 2017, as well as an increase in the average rate on interest-bearing liabilities of 12 basis points to 1.21 percent for the three months ended June 30, 2018 from 1.09 percent for the three months ended June 30, 2017.



Net interest margin was 3.52 percent for the three-month period ended June 30, 2018 and 3.45 percent for the three-month period ended June 30, 2017. The increase in the net interest margin was the result of more selective pricing on new loans and managing the cost of funds in this rising rate environment.



The provision for loan losses increased by $1.3 million, to $2.1 million for the three months ended June 30, 2018 from $776,000 for the three months ended June 30, 2017. The provision for loan losses is established based upon management’s review of the Company’s loans and consideration of a variety of factors, including but not limited to: (1) the risk characteristics of the loan portfolio; (2) current economic conditions; (3) actual losses previously experienced; (4) the dynamic activity and fluctuating balance of loans receivable; and (5) the existing level of reserves for loan losses that are probable and estimable.  During the three months ended June 30, 2018, the Company experienced $243,000 in net charge-offs compared to $338,000 in net charge-offs for the three months ended June 30, 2017. The Bank had non-performing loans totaling $22.4 million, or 1.05 percent, of gross loans at June 30, 2018 as compared to $13.4 million, or 0.80 percent, of gross loans at December 31, 2017. The allowance for loan losses was $20.6 million, or 0.96 percent, of gross loans at June 30, 2018, $17.4 million, or 1.04 percent, of gross loans at December 31, 2017 and $18.0 million, or 1.12 percent, of gross loans at June 30, 2017. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Company to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at June 30, 2018 and December 31, 2017.



Total non-interest income decreased by $459,000, or 22.7 percent, to $1.6 million for the three months ended June 30, 2018 from $2.0 million for the three months ended June 30, 2017. The decrease in total non-interest income mainly related to a decrease in the gains on sale of OREO properties of $207,000 to ($10,000) for the three months ended June 30, 2018 from $197,000 for the three months ended June 30, 2017, a decrease in gains on sales of loans of $157,000, or 21.4 percent, to $576,000 for the three months ended June 30, 2018 from $733,000 for the three months ended June 30, 2017, a decrease in other non-interest income of $195,000, or 76.8 percent, to $59,000 for the three months ended June 30, 2018 from $254,000 for the three months ended June 30, 2017. The decrease in other non-interest income related to $237,000 of proceeds from a legal settlement in the second quarter of 2017. The decrease in total non-interest income was partly offset by an increase in the amount of fees and service charges of $133,000.

 

Total non-interest expense increased by $3.8 million, or 31.5 percent, to $16.0 million for the three months ended June 30, 2018 from $12.1 million for the three months ended June 30, 2017. Merger-related costs increased by $2.0 million for the three months ended June 30, 2018, with no comparable figure for the three months ended June 30, 2017. Salaries and employee benefits expense increased by $1.2 million, or 21.2 percent, to $7.1 million for the three months ended June 30, 2018 from $5.9 million for the three months ended June 30, 2017. Other non-interest expense increased by $665,000, or 42.5 percent, to $2.2 million for the three months ended June 30, 2018 from $1.6 million for the three months ended June 30, 2017. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and other fees and expenses. Occupancy expense increased by $487,000, or 24.5 percent, to $2.5 million for the three months ended June 30, 2018 from $2.0 million for the three months ended June 30, 2017. Data processing expense increased by $150,000, or 22.1 percent, to

43

 


 

$828,000 for the three months ended June 30, 2018 from $678,000 for the three months ended June 30, 2017. OREO expense increased by $147,000 to $160,000 for the three months ended June 30, 2018 from $13,000 for the three months ended June 30, 2017. These increases in non-interest expense were partly offset by lower professional fees of $850,000, or 61.5 percent, to $533,000 for the three months ended June 30, 2018 from $1.4 million for the three months ended June 30, 2017.



The income tax provision decreased by $448,000, or 27.2 percent, to $1.2 million for the three months ended June 30, 2018 from $1.7 million for the three months ended June 30, 2017. The decrease in the income tax provision comes as a result of the lower tax provision as mandated by enactment of the Tax Cuts and Jobs Act of 2017, which lowered the federal corporate tax rate from 34% to 21% beginning in 2018, and due to lower taxable income for the three months ended June 30, 2018 as compared to that same period for 2017. The consolidated effective tax rate for the three months ended June 30, 2018 was 34.2 percent compared to 39.6 percent for the three months ended June 30, 2017.



Results of Operations comparison for the Six Months Ended June 30, 2018 and 2017



Net income increased by $1.5 million, or 28.0 percent, to $6.9 million for the six months ended June 30, 2018 from $5.4 million for the six months ended June 30, 2017. The increase in net income was primarily related to an increase in total interest income, an increase in total non-interest income, and a lower income tax provision partly offset by higher interest expense, and a higher provision for loan losses, higher non-interest expense for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.



Net interest income increased by $6.8 million, or 22.8 percent, to $36.4 million for the six months ended June 30, 2018 from $29.7 million for the six months ended June 30, 2017. The increase in net interest income resulted primarily from an increase in the average balance of interest-earning assets of $400.6 million, or 23.2 percent, to $2.124 billion for the six months ended June 30, 2018 from $1.724 billion for the six months ended June 30, 2017. There was an increase in the average yield on interest-earning assets of eight basis points to 4.43 percent for the six months ended June 30, 2018 from 4.35 percent for the six months ended June 30, 2017. There was a corresponding increase in the average balance of interest-bearing liabilities of $301.7 million, or 20.7 percent, to $1.762 billion for the six months ended June 30, 2018 from $1.460 billion for the six months ended June 30, 2017, as well as an increase in the average rate on interest-bearing liabilities of nine basis points to 1.17 percent for the six months ended June 30, 2018 from 1.08 percent for the six months ended June 30, 2017.



Interest income on loans receivable increased by $8.0 million, or 22.5 percent, to $43.6 million for the six months ended June 30, 2018 from $35.6 million as compared to the six months ended June 30, 2017. The increase was primarily attributable to an increase in the average balance of loans receivable of $326.4 million, or 21.1 percent, to $1.876 billion for the six months ended June 30, 2018 from $1.550 billion for the six months ended June 30, 2017, as well as an increase in the average yield on loans of nine basis points to 4.68 percent for the six months ended June 30, 2018 from 4.59 percent for the six months ended June 30, 2017. The increase in the average balance of loans receivable was in accordance with the Company’s growth strategy, which included growing the Bank’s geographic footprint vis-à-vis our organic branching strategy and the acquisition of IAB, while the increase in the average yield on loans related to the rising rate environment.



Interest income on securities increased by $441,000, or 2.77 percent, to $1.8 million for the six months ended June 30, 2018 from $1.4 million for the six months ended June 30, 2017. This increase was primarily due to an increase in the average balance of securities of $37.4  million, or 37.4 percent, to $138.1 million for the six months ended June 30, 2018 from $100.5 million for the six months ended June 30, 2017, partially offset by a decrease in the average yield on securities of 9 basis points to 2.68 percent for the six months ended June 30, 2018 from 3.27 percent for the six months ended June 30, 2017. The increase in the average balance of securities related to the Company’s strategy to further strengthen its liquidity position, while the decrease in the average yield on securities related to the mix of investments in the portfolio.

Interest income on other interest-earning assets increased by $672,000, or 119.8 percent to $1.2 million for the six months ended June 30, 2018 from $561,000 for the six months ended June 30, 2017. This increase was primarily due to an increase in the average yield on other interest-earning assets of 73 basis points to 2.26 percent for the six months ended June 30, 2018 from 1.53 percent for the six months ended June 30, 2017, as well as an increase in the average balance of other interest earning assets of $36.6 million, or 49.9 percent, to $109.9 million for the six months ended June 30, 2018 from $73.3 million for the six months ended June 30, 2017. The increase in the average balance of other interest-earning assets is consistent with the Company’s strategy of maintaining strong levels of liquidity. The increase in the average yield on other interest-earning assets correlates to the increases in the fed funds rate that have occurred over the last 12 months. 

Total interest expense increased by $2.4 million, or 29.9 percent, to $10.2 million for the six months ended June 30, 2018 from $7.8 million for the six months ended June 30, 2017. This increase resulted primarily from an increase in the average balance of interest-bearing liabilities of $301.7 million, or 20.7 percent, to $1.762 billion for the six months ended June 30, 2018 from $1.460 billion for the six months ended June 30, 2017, as well as an increase in the average rate on interest-bearing liabilities of nine basis points to 1.17 percent for the six months ended June 30, 2018 from 1.08 percent for the six months ended June 30, 2017.



Net interest margin was 3.46 percent for the six-month period ended June 30, 2018 and 3.44 percent for the six-month period ended June 30, 2017. The increase in the net interest margin was the result of more selective pricing on new loans and managing the cost of funds in this rising rate environment.



The provision for loan losses increased by $2.1 million, to $3.4 million for the six months ended June 30, 2018 from $1.3 million for the six months ended June 30, 2017. The provision for loan losses is established based upon management’s review of the Company’s loans and consideration of a variety of factors, including but not limited to: (1) the risk characteristics of the loan portfolio; (2) current economic conditions; (3) actual losses previously experienced; (4) the dynamic activity and fluctuating balance of loans receivable; and (5) the existing level of reserves for loan losses that are probable and estimable.  During the six months ended June 30, 2018, the Company experienced $137,000 in net charge-offs compared to $519,000 in net charge-offs for the six months ended June 30, 2017. The Bank had non-performing loans totaling $22.4 million, or 1.05 percent, of gross loans at June 30, 2018 as compared to $13.4 million, or 0.80 percent, of gross loans at December 31, 2017. The allowance for loan losses was $20.6 million, or 0.96 percent, of gross loans at June 30, 2018, $17.4 million, or 1.04 percent, of gross loans at December 31, 2017 and $18.0 million, or 1.13 percent, of gross loans at June 30, 2017. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in the aforementioned criteria. In addition various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Company to recognize additional provisions based on their judgment of information available to them at the time of their examination. Management believes that the allowance for loan losses was adequate at June 30, 2018 and December 31, 2017.



Total non-interest income increased by $614,000, or 14.2 percent, to $4.9 million for the six months ended June 30, 2018 from $4.3 million for the six months ended June 30, 2017. The increase in total non-interest income was mainly related to an increase in other non-interest income of $2.0 million to $2.3 million for the six months ended June 30, 2018 from $282,000 for the six months ended June 30, 2017. The increase in other non-interest income was mainly attributed to $2.0 million received from a legal settlement in the first quarter of 2018. The increase in total non-interest income was partly offset by a decrease in the gains on sale of OREO properties of $1.4 million for the six months ended June 30, 2018 from $1.3 million for the six months ended June 30, 2017.

 

Total non-interest expense increased by $4.3 million, or 18.1 percent, to $28.0 million for the six months ended June 30, 2018 from $23.7 million for the six months ended June 30, 2017. Merger-related costs increased by $2.2 million for the six months ended June 30, 2018, with no comparable figure for the six months ended June 30, 2017. Salaries and employee benefits expense increased by $1.4 million, or 11.9 percent, to $13.4 million for the six months ended June 30, 2018 from $12.0 million for the six months ended June 30, 2017. Other non-interest expense increased by $840,000, or 26.8 percent, to $4.0 million for the six months ended June 30, 2018 from

44

 


 

$3.1 million for the six months ended June 30, 2017. Other non-interest expense consisted of loan expense, business development, office supplies, correspondent bank fees, telephone and communication and other fees and expenses. Occupancy expense increased by $391,000, or 9.4 percent, to $4.5 million for the six months ended June 30, 2018 from $4.1 million for the six months ended June 30, 2017. Data processing expense increased by $226,000, or 17.0 percent, to $1.6 million for the six months ended June 30, 2018 from $1.3 million for the six months ended June 30, 2017. OREO expense increased by $136,000 to $191,000 for the six months ended June 30, 2018 from $55,000 for the six months ended June 30, 2017. The increase in total non-interest expense was partly offset by decreases in professional fees of $708,000, or 40.5 percent, to $1.0 million for the six months ended June 30, 2018 from $1.7 million for the six months ended June 30, 2017, as well as a decrease in regulatory assessments of $163,000, or 23.6 percent, to $529,000 for the six months ended June 30, 2018 from $692,000 for the six months ended June 30, 2017.



The income tax provision decreased by $552,000, or 15.4 percent, to $3.0 million for the six months ended June 30, 2018 from $3.6 million for the six months ended June 30, 2017. The decrease in the income tax provision comes as a result of the lower tax provision as mandated by enactment of the Tax Cuts and Jobs Act of 2017, which lowered the federal corporate tax rate from 34% to 21% beginning in 2018, partly offset by higher taxable income for the six months ended June 30, 2018 as compared to that same period for 2017. The consolidated effective tax rate for the six months ended June 30, 2018 was 30.5 percent compared to 39.8 percent for the six months ended June 30, 2017.



Liquidity and Capital Resources 



Liquidity



The overall objective of our liquidity management practices is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities.  The Company manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings and other obligations as they mature, and to fund loan and investment portfolio opportunities as they arise.



The Company’s primary sources of funds to satisfy its objectives are net growth in deposits (primarily retail), principal and interest payments on loans and investment securities, proceeds from the sale of originated loans and FHLB and other borrowings. The scheduled amortization of loans is a predictable source of funds. Deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including unsecured overnight lines of credit and other collateralized borrowings from the FHLB and other correspondent banks.



At June  30, 2018, the Company had $20.0 million in overnight borrowings outstanding with the FHLB compared to $0 at December 31, 2017. The Company utilizes overnight borrowings from time to time to fund short-term liquidity needs. The Company had total borrowings of $324.1 million at June  30, 2018 and $189.1 million at December 31, 2017. The average rate of FHLB borrowings was 2.16 percent at June  30, 2018, as compared with 1.78 percent at December 31, 2017.



The Company had the ability at June  30, 2018 to obtain additional funding from the FHLB of up to $110.0 million, utilizing unencumbered loan collateral. The Company expects to have sufficient funds available to meet current loan commitments in the normal course of business through typical sources of liquidity. Time deposits scheduled to mature in one year or less totaled $631.0 million at June 30, 2018. Based upon historical experience data, management estimates that a significant portion of such deposits will remain with the Company.



Capital Resources



At June 30, 2018, and December 31, 2017, BCB Community Bank exceeded all of its regulatory capital requirements to which it was subject. The following table sets forth the regulatory capital ratios for BCB Community Bank as well as regulatory capital requirements for the periods presented.









 

 

 

 

 

 

 

 

 

 

 

 



  

Actual

 

 

For Capital Adequacy Purposes

 

 

For Well Capitalized Under Prompt Corrective Action



 

 

 

 

 

 

 

 

 

 

 

 

 As of June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Bank

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk-weighted assets)

$

217,102  10.83 

%

$

160,323  8.00 

%

$

200,403  10.00 

%

Tier 1 capital (to risk-weighted assets)

  

196,462  9.80 

 

 

120,242  6.00 

 

 

160,323  8.00 

 

Common Equity Tier 1 Capital (to risk-weighted assets)

  

196,462  9.80 

 

 

90,182  4.50 

 

 

130,262  6.50 

 

Tier 1 capital (to average assets)

 

196,462  8.44 

 

 

93,069  4.00 

 

 

116,336  5.00 

 



 

 

 

 

 

 

 

 

 

 

 

 

 As of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

Bank

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to risk-weighted assets)

$

199,637  13.24 

%

$

120,605  8.00 

%

$

150,757  10.00 

%

Tier 1 capital (to risk-weighted assets)

 

182,262  12.09 

 

 

90,454  6.00 

 

 

120,605  8.00 

 

Common Equity Tier 1 Capital (to risk-weighted assets)

 

182,262  12.09 

 

 

67,841  4.50 

 

 

97,992  6.50 

 

Tier 1 capital (to average assets)

 

182,262  9.50 

 

 

76,712  4.00 

 

 

95,890  5.00 

 



















45

 


 

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the new rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain available-for-sale securities holdings and defined benefit plan obligations to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.  The Bank exercised the opt-out election. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. 



The final rule became effective for the Bank and the Company on January 1, 2015. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. For 2018, it is 1.875% of risk-weighted assets. The Bank and the Company currently comply with the minimum capital and capital conservation buffer requirements set forth in the final rule.



As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the Federal Reserve Board is required to amend its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant nonbanking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, will no longer be subject to regulatory capital requirements, effective no later than November 2018. 



In addition, as a result of the legislation, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  A financial institution can elect to be subject to this new definition.



At June 30, 2018 and December 31, 2017, the capital ratios of the Bank and the Company exceeded the quantitative capital ratios required for an institution to be considered “well-capitalized.”



Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management of Market Risk

General. The majority of our assets and liabilities are monetary in nature. Consequently, one of our most significant forms of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Committee, which consists of senior management and outside directors operating under a policy adopted by the Board of Directors, meets quarterly to review our asset/liability policies and interest rate risk position.

The following table presents the Company’s net portfolio value (“NPV”). These calculations were based upon assumptions believed to be fundamentally sound, although they may vary from assumptions utilized by other financial institutions. The information set forth below is based on data that included all financial instruments as of June 30, 2018. Assumptions have been made by the Company relating to interest rates, loan prepayment rates, core deposit duration, and the market values of certain assets and liabilities under the various interest rate scenarios. Actual maturity dates were used for fixed rate loans and certificate accounts. Investment securities were scheduled at either the maturity date or the next scheduled call date based upon management’s judgment of whether the particular security would be called in the current interest rate environment and under assumed interest rate scenarios. Variable rate loans were scheduled as of their next scheduled interest rate repricing date. Additional assumptions made in the preparation of the NPV table include prepayment rates on loans and mortgage-backed securities, core deposits without stated maturity dates were scheduled with an assumed term of 48 months, and money market and non-interest bearing accounts were scheduled with an assumed term of 24 months. The NPV at “PAR” represents the difference between the Company’s estimated value of assets and estimated value of liabilities assuming no change in interest rates. The NPV for a decrease of 200 to 300 basis points has been excluded since it would not be meaningful, in the interest rate environment as of June 30, 2018. The following sets forth the Company’s NPV as of that date.

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



  

 

 

 

 

 

 

 

 

 

NPV as a % of Assets

 

Change in Calculation

  

Net Portfolio Value

 

$ Change from PAR

 

% Change from PAR

 

NPV Ratio

 

Change



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+300b

  

$

116,374 

  

$

(95,007)

 

(44.95)

%

 

5.14 

%

 

(345)

bps

+200bp

  

 

146,471 

 

 

(64,910)

 

(30.71)

 

 

6.29 

 

 

(230)

bps

+100bp

  

 

181,107 

  

 

(30,274)

 

(14.32)

 

 

7.56 

 

 

(102)

bps

PAR

  

 

211,381 

  

 

 -

 

 -

 

 

8.59 

 

 

 -

bps

-100bp

 

 

232,808 

 

 

21,428 

 

10.14 

 

 

9.23 

 

 

64 

bps

bp – basis points



The table above indicates that as of June 30, 2018, in the event of a 100 basis point increase in interest rates, we would experience a decrease to 7.56% in NPV.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in NPV require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that

46

 


 

the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the NPV table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income, and will differ from actual results.



ITEM 4.

Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS



We are involved, from time to time, as plaintiff or defendant in various legal actions arising in the normal course of business. As of June 30, 2018, we were not involved in any material legal proceedings the outcome of which, if determined in a manner adverse to the Company, would have a material adverse effect on our financial condition or results of operations.



















47

 


 

ITEM 1.A. RISK FACTORS

There have been no changes to the risk factors set forth under Item 1.A Risk Factors as set forth in the Company’s Annual Report or Form 10-K for the year ended December 31, 2017.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.



ITEM 4. MINE SAFTEY DISCLOSURES

Not applicable



ITEM 5. OTHER INFORMATION

None.



ITEM 6. EXHIBITS





 

Exhibit 11.0

Computation of Earnings Per Share.

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2

Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32

Officers’ Certification filed pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS

XBRL Instance Document

Exhibit 101.SCH

XBRL Taxonomy Extension Schema

Exhibit 101.CAL

XBRL Taxonomy Extension Calculation LinkBase

Exhibit 101.DEF

XBRL Taxonomy Extension Definition LinkBase

Exhibit 101.LAB

XBRL Taxonomy Extension Label LinkBase

Exhibit 101.PRE

XBRL Taxonomy Extension Presentation LinkBase



Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 



 

 

 

 

 

 

 

 

 

 

 

BCB BANCORP, INC.

 

 

 

Date: August 7th, 2018

 

By:

 

/s/ Thomas Coughlin

 

 

 

 

Thomas Coughlin

 

 

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: August 7th, 2018

 

By:

 

/s/ Thomas P. Keating

 

 

 

 

Thomas P. Keating

Senior Vice President and Chief Financial Officer

 

 

 

 

(Principal Accounting and Financial Officer)



48