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HV Bancorp, Inc. - Quarter Report: 2021 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, 2021

OR

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

For the transition period from   to                to           

Commission file number: 001-37981

 

HV BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Pennsylvania

 

46-4351868

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

2005 South Easton Road, Suite 304, Doylestown, Pennsylvania  18901

(Address of Principal Executive Offices and Zip Code)

(267) 280-4000

(Registrant's Telephone Number, Including Area Code)

 

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

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

HVBC

 

The NASDAQ Stock Market, LLC

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

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

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

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

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


 

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

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 10, 2021, there were 2,175,874 outstanding shares of the issuer’s common stock.

 

 

 


 

 

INDEX

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

2

 

 

 

 

 

 

Item 1 – Consolidated Financial Statements – Unaudited

2

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

 

 

 

 

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

43

 

 

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

62

 

 

 

 

 

 

Item 4 – Controls and Procedures

63

 

 

 

 

 

 

PART II OTHER INFORMATION

63

 

 

 

 

Item 1 – Legal Proceedings

63

 

 

 

 

 

 

Item 1A – Risk Factors

63

 

 

 

 

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

63

 

 

 

 

Item 3 – Defaults upon Senior Securities

64

 

 

 

 

Item 4 – Mine Safety Disclosures

64

 

 

 

 

Item 5 – Other Information

64

 

 

 

 

Item 6 – Exhibits

64

 

 

 

SIGNATURES

65

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements – Unaudited

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Financial Condition as of June 30, 2021 and December 31, 2020 (Dollars in thousands, except share and per share data)

 

 

At June 30,

 

 

At December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

3,112

 

 

$

1,625

 

Non interest-earning deposits with banks

 

 

3,335

 

 

 

 

Interest-earning deposits with banks

 

 

71,464

 

 

 

410,853

 

Federal funds sold

 

 

1,607

 

 

 

2,112

 

Cash and cash equivalents

 

 

79,518

 

 

 

414,590

 

Investment securities available-for-sale, at fair value

 

 

33,734

 

 

 

23,518

 

Equity securities

 

 

500

 

 

 

500

 

Loans held-for-sale, at fair value

 

 

69,389

 

 

 

83,549

 

Loans receivable, net of allowance for loan losses of  $2,260  at

June 30, 2021 and $2,017 at December 31, 2020

 

 

335,527

 

 

 

313,811

 

Bank-owned life insurance

 

 

6,482

 

 

 

6,408

 

Restricted investment in bank stock

 

 

1,847

 

 

 

1,721

 

Premises and equipment, net

 

 

3,319

 

 

 

2,834

 

Operating lease right-of-use assets

 

 

9,136

 

 

 

7,685

 

Accrued interest receivable

 

 

1,502

 

 

 

1,489

 

Mortgage banking derivatives

 

 

3,339

 

 

 

2,899

 

Mortgage servicing rights

 

 

3,104

 

 

 

2,041

 

Other assets

 

 

1,164

 

 

 

562

 

Total Assets

 

$

548,561

 

 

$

861,607

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

$

437,430

 

 

$

730,826

 

Advances from the Federal Home Loan Bank

 

 

26,349

 

 

 

26,269

 

Advances from the Federal Reserve's Paycheck Protection Program liquidity facility ("PPPLF")

 

 

17,568

 

 

 

48,682

 

Subordinated debt

 

 

9,996

 

 

 

 

Operating lease liabilities

 

 

9,449

 

 

 

7,946

 

Advances from borrowers for taxes and insurance

 

 

1,323

 

 

 

2,131

 

Other liabilities

 

 

5,009

 

 

 

6,826

 

Total Liabilities

 

 

507,124

 

 

 

822,680

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Preferred  Stock, $0.01 par value, 2,000,000 shares authorized; no shares

issued and outstanding as of June 30, 2021  and December 31, 2020

 

 

 

 

 

 

Common Stock, $0.01 par value, 20,000,000 shares authorized; 2,272,625 and 2,270,725   shares issued as of June 30, 2021 and December 31, 2020, respectively; 2,175,874 and 2,189,408 shares outstanding as of June 30, 2021 and December 31, 2020, respectively

 

 

23

 

 

 

23

 

Treasury Stock, at cost (96,751 shares at June 30, 2021 and 81,317 December 31, 2020)

 

 

(1,359

)

 

 

(1,092

)

Additional paid-in capital

 

 

21,178

 

 

 

21,011

 

Retained earnings

 

 

23,325

 

 

 

20,741

 

Accumulated other comprehensive income

 

 

205

 

 

 

238

 

Unearned Employee Stock Option Plan

 

 

(1,935

)

 

 

(1,994

)

Total Shareholders' Equity

 

 

41,437

 

 

 

38,927

 

Total Liabilities and Shareholders' Equity

 

$

548,561

 

 

$

861,607

 

 

See Notes to the Unaudited Consolidated Financial Statements

2


HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020 (Dollars in thousands, except per share data)

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

3,851

 

 

$

3,170

 

 

$

7,416

 

 

$

5,946

 

Interest and dividends on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

147

 

 

 

92

 

 

 

274

 

 

 

188

 

Nontaxable

 

 

19

 

 

 

12

 

 

 

34

 

 

 

23

 

Interest on mortgage-backed securities and collateralized mortgage obligations

 

 

26

 

 

 

39

 

 

 

57

 

 

 

92

 

Interest on interest-earning deposits and federal funds sold

 

 

35

 

 

 

15

 

 

 

100

 

 

 

105

 

Total Interest Income

 

 

4,078

 

 

 

3,328

 

 

 

7,881

 

 

 

6,354

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

378

 

 

 

575

 

 

 

784

 

 

 

1,352

 

Interest on advances from the Federal Home Loan Bank

 

 

99

 

 

 

164

 

 

 

196

 

 

 

320

 

Interest on advances from the Federal Reserve PPPLF

 

 

26

 

 

 

19

 

 

 

59

 

 

 

19

 

Interest on subordinated debt

 

 

43

 

 

 

 

 

 

43

 

 

 

 

Total Interest Expense

 

 

546

 

 

 

758

 

 

 

1,082

 

 

 

1,691

 

Net interest income

 

 

3,532

 

 

 

2,570

 

 

 

6,799

 

 

 

4,663

 

Provision for Loan Losses

 

 

267

 

 

 

450

 

 

 

415

 

 

 

561

 

Net interest income after provision for loan losses

 

 

3,265

 

 

 

2,120

 

 

 

6,384

 

 

 

4,102

 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fees for customer services

 

 

60

 

 

 

31

 

 

 

171

 

 

 

70

 

Increase in cash surrender value of bank-owned life insurance

 

 

37

 

 

 

38

 

 

 

74

 

 

 

76

 

Gain on sale of loans, net

 

 

3,243

 

 

 

2,327

 

 

 

8,135

 

 

 

3,956

 

Gain on sale of available-for-sale securities, net

 

 

 

 

 

141

 

 

 

 

 

 

141

 

Gain from derivative instruments, net

 

 

713

 

 

 

1,080

 

 

 

477

 

 

 

1,464

 

Change in fair value of loans held-for-sale

 

 

(355

)

 

 

287

 

 

 

(1,064

)

 

 

293

 

Other

 

 

164

 

 

 

41

 

 

 

172

 

 

 

89

 

Total Non-Interest Income

 

 

3,862

 

 

 

3,945

 

 

 

7,965

 

 

 

6,089

 

Non-Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,190

 

 

 

2,368

 

 

 

6,700

 

 

 

4,781

 

Occupancy

 

 

554

 

 

 

450

 

 

 

1,077

 

 

 

883

 

Federal deposit insurance premiums

 

 

133

 

 

 

63

 

 

 

356

 

 

 

120

 

Data processing related operations

 

 

316

 

 

 

246

 

 

 

719

 

 

 

475

 

Professional fees

 

 

255

 

 

 

145

 

 

 

507

 

 

 

336

 

Other expenses

 

 

853

 

 

 

707

 

 

 

1,374

 

 

 

1,313

 

Total Non-Interest Expense

 

 

5,301

 

 

 

3,979

 

 

 

10,733

 

 

 

7,908

 

Income before income taxes

 

 

1,826

 

 

 

2,086

 

 

 

3,616

 

 

 

2,283

 

Income Tax Expense

 

 

544

 

 

 

590

 

 

 

1,032

 

 

 

638

 

Net Income

 

$

1,282

 

 

$

1,496

 

 

$

2,584

 

 

$

1,645

 

Net Income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.65

 

 

$

0.73

 

 

$

1.30

 

 

$

0.80

 

Diluted

 

$

0.63

 

 

$

0.73

 

 

$

1.27

 

 

$

0.80

 

See Notes to the Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

3


 

HV BANCORP, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020 (Dollars in thousands)

 

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Comprehensive Income, Net of Taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,282

 

 

$

1,496

 

 

$

2,584

 

 

$

1,645

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities (pre-tax

  $283 and $264, and ($46) and $391, respectively)

 

 

199

 

 

 

186

 

 

 

(33

)

 

 

275

 

Reclassification for gains included in income (pre-tax ($(0) and ($141) and ($0) and ($141), respectively) (1)

 

 

 

 

 

(99

)

 

 

 

 

 

(99

)

Other comprehensive income (loss)

 

 

199

 

 

 

87

 

 

 

(33

)

 

 

176

 

Comprehensive Income

 

$

1,481

 

 

$

1,583

 

 

$

2,551

 

 

$

1,821

 

 

(1)

Amounts are included in gain on sale of available-for-sale securities on the Consolidated Statements of Income as a separate element within non-interest income. Income tax expense is included in the Consolidated Statements of Income.

See Notes to the Unaudited Consolidated Financial Statements

 

4


 

HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 (Dollars in thousands, except per share data)

 

 

 

Common Stock    Shares

 

 

Common Stock Amount

 

 

Treasury Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Unearned ESOP Shares

 

 

Total

 

Balance, April 1, 2021

 

 

2,175,548

 

 

$

23

 

 

$

(1,355

)

 

$

21,100

 

 

$

22,043

 

 

$

6

 

 

$

(1,965

)

 

$

39,852

 

ESOP shares committed to be

released

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

30

 

 

 

41

 

Treasury stock purchased

 

 

(174

)

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

Stock option exercise

 

 

500

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Stock option expense

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Restricted stock expense

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

 

 

 

45

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,282

 

 

 

 

 

 

 

 

 

1,282

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

199

 

 

 

 

 

 

199

 

Balance, June 30, 2021

 

 

2,175,874

 

 

$

23

 

 

$

(1,359

)

 

$

21,178

 

 

$

23,325

 

 

$

205

 

 

$

(1,935

)

 

$

41,437

 

 

 

 

Common Stock    Shares

 

 

Common Stock Amount

 

 

Treasury Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Unearned ESOP Shares

 

 

Total

 

Balance, April 1, 2020

 

 

2,259,052

 

 

$

23

 

 

$

(148

)

 

$

20,831

 

 

$

15,122

 

 

$

71

 

 

$

(2,086

)

 

$

33,813

 

ESOP shares committed to be

released

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

30

 

Treasury stock purchased

 

 

(19,799

)

 

 

 

 

 

(231

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(231

)

Stock option expense

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Restricted stock expense

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

47

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,496

 

 

 

 

 

 

 

 

 

1,496

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

87

 

Balance, June 30, 2020

 

 

2,239,253

 

 

$

23

 

 

$

(379

)

 

$

20,893

 

 

$

16,618

 

 

$

158

 

 

$

(2,056

)

 

$

35,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock    Shares

 

 

Common Stock Amount

 

 

Treasury Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Unearned ESOP Shares

 

 

Total

 

Balance, January 1, 2021

 

 

2,189,408

 

 

$

23

 

 

$

(1,092

)

 

$

21,011

 

 

$

20,741

 

 

$

238

 

 

$

(1,994

)

 

$

38,927

 

ESOP shares committed to be

released

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

59

 

 

 

77

 

Treasury stock purchased

 

 

(15,434

)

 

 

 

 

 

(267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(267

)

Stock option exercise

 

 

1,900

 

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

 

 

 

28

 

Stock option expense

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

30

 

Restricted stock expense

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

91

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,584

 

 

 

 

 

 

 

 

 

2,584

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

(33

)

Balance, June 30, 2021

 

 

2,175,874

 

 

$

23

 

 

$

(1,359

)

 

$

21,178

 

 

$

23,325

 

 

$

205

 

 

$

(1,935

)

 

$

41,437

 

5


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock    Shares

 

 

Common Stock Amount

 

 

Treasury Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Unearned ESOP Shares

 

 

Total

 

Balance, January 1, 2020

 

 

2,268,917

 

 

$

23

 

 

$

(3

)

 

$

20,740

 

 

$

14,973

 

 

$

(18

)

 

$

(2,116

)

 

$

33,599

 

ESOP shares committed to be

released

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

60

 

 

 

65

 

Treasury stock purchased

 

 

(31,264

)

 

 

 

 

 

(376

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(376

)

Stock option exercise

 

 

1,600

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Stock option expense

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

30

 

Restricted stock expense

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

 

 

 

94

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,645

 

 

 

 

 

 

 

 

 

1,645

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

Balance, June 30, 2020

 

 

2,239,253

 

 

$

23

 

 

$

(379

)

 

$

20,893

 

 

$

16,618

 

 

$

158

 

 

$

(2,056

)

 

$

35,257

 

 

See Notes to the Unaudited Consolidated Financial Statements

6


HV BANCORP, INC. AND SUBSIDIARY

Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)

Six Months Ended June 30,

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

2,584

 

 

$

1,645

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

320

 

 

 

291

 

(Accretion) amortization of net deferred loan (fees) costs

 

 

(1,116

)

 

 

246

 

Amortization of net securities premiums

 

 

38

 

 

 

38

 

Amortization of operating lease right-of-use assets

 

 

421

 

 

 

282

 

Amortization of Federal Home Loan Bank premium

 

 

80

 

 

 

 

Gain on sale of available-for-sale securities, net

 

 

 

 

 

(141

)

Gain from derivative instruments, net

 

 

(477

)

 

 

(1,464

)

Provision for loan losses

 

 

415

 

 

 

561

 

Deferred income taxes

 

 

(230

)

 

 

328

 

Earnings on bank owned life insurance

 

 

(74

)

 

 

(76

)

Stock based compensation expense

 

 

121

 

 

 

124

 

ESOP compensation expense

 

 

77

 

 

 

65

 

Loans held for sale:

 

 

 

 

 

 

 

 

Originations, net of prepayments

 

 

(332,807

)

 

 

(211,528

)

Proceeds from sales

 

 

354,038

 

 

 

210,169

 

Gain on sales

 

 

(8,135

)

 

 

(3,956

)

Change in fair value of loans held for sale

 

 

1,064

 

 

 

(293

)

Changes in assets and liabilities which provided (used) cash:

 

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(13

)

 

 

(284

)

Other assets

 

 

(1,665

)

 

 

(346

)

Other liabilities

 

 

(1,906

)

 

 

691

 

Net cash provided by (used in) operating activities

 

 

12,735

 

 

 

(3,648

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Net increase in loans receivable

 

 

(21,015

)

 

 

(55,338

)

Activity in available-for-sale securities:

 

 

 

 

 

 

 

 

Proceeds from sales

 

 

 

 

 

3,961

 

Maturities and repayments

 

 

3,974

 

 

 

4,138

 

Purchases

 

 

(14,274

)

 

 

(5,229

)

Purchases of restricted investment in bank stock

 

 

(523

)

 

 

(1,290

)

Redemption of restricted investment in bank stock

 

 

397

 

 

 

1,224

 

Purchases of premises and equipment

 

 

(805

)

 

 

(432

)

Net cash used in investing activities

 

 

(32,246

)

 

 

(52,966

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(293,396

)

 

 

16,804

 

Net (decrease) increase in advances from borrowers for taxes and insurance

 

 

(808

)

 

 

354

 

Net proceeds from issuance of subordinated debt

 

 

9,996

 

 

 

 

Proceeds from the FRB PPPLF

 

 

 

 

 

47,834

 

Repayment of  borrowings from the FRB PPPLF

 

 

(31,114

)

 

 

 

Proceeds from stock option exercise

 

 

28

 

 

 

24

 

Purchase of treasury stock

 

 

(267

)

 

 

(376

)

Net cash (used in) provided by financing activities

 

 

(315,561

)

 

 

64,640

 

(Decrease) Increase in Cash and Cash Equivalents

 

 

(335,072

)

 

 

8,026

 

Cash and Cash Equivalents, beginning of year

 

 

414,590

 

 

 

20,625

 

Cash and Cash Equivalents, end of year

 

$

79,518

 

 

$

28,651

 

Supplementary Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the year of interest

 

$

1,128

 

 

$

1,893

 

Cash paid during the year for income taxes

 

$

2,438

 

 

$

59

 

Recognition of operating lease right-of-use assets

 

$

1,864

 

 

$

2,240

 

Recognition of operating lease obligations

 

$

1,864

 

 

$

2,228

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements

 

 

7


 

HV BANCORP, INC. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

 

1. ORGANIZATION, BASIS OF PRESENTATION and RECENT ACCOUNTING PRONOUNCEMENTS

Organization

HV Bancorp, Inc., a Pennsylvania Corporation (the “Company”) is the holding company of Huntingdon Valley Bank (the “Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On January 11, 2017, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Shares of the Company began trading on the Nasdaq Capital Market on January 12, 2017. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Bank”).

 

The Bank is a stock savings bank organized under the laws of the Commonwealth of Pennsylvania and is subject to comprehensive regulation and examination by the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities (“PADOBs”). The Bank was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties of Pennsylvania, Burlington County, New Jersey and New Castle County, Delaware) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers. In November 2020, the Bank formed a wholly-owned subsidiary, HVB Investment Management Inc. under the laws of the state of Delaware, as an investment company subsidiary to hold and manage certain investments. HVB Investment Management Inc. became operational in January 2021.

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company.  Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.

The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.  The balances as of December 31, 2020 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by the Company with the U.S. Securities and Exchange Commission on March 30, 2021. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year-ending December 31, 2021.

The Company has evaluated subsequent events through the date of issuance of the financial statements included herein.

 

Significant Event

The COVID-19 pandemic has adversely affected economic activity globally, nationally and locally. It has caused substantial disruption in international and U.S. economies, markets, and employment. In response to the COVID-19 national emergency, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law by President Trump on March 27, 2020. The CARES Act provides an estimated $2.2 trillion of economy-wide financial stimulus to combat the pandemic and stimulate the economy in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities through loans, grants, tax changes, and other types of relief. Some of the applicable provisions of the Cares Act to the Company include, but are not limited to:

8


 

 

Accounting for Loan Modifications – Under Section 4013 of the CARES Act, a financial institution may elect to temporarily suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a Troubled Debt Restructuring (“TDR”) and (2) does not need to determine impairment associated with the loan modifications. As of June 30, 2021, the Company had 4 loan modification agreements with a balance of $1.9 million outstanding.

 

 

 

Paycheck Protection Program - The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). In early April 2020, the Company began accepting and processing applications for loans under PPP. As of June 30, 2021, the Company had received over 450 applications from new and existing customers with an outstanding balance of approximately $25.3 million with an estimated processing fee income of approximately $2.3 million. On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA provides several amendments to the PPP, including additional funding for second draws of PPP loans up to June 30, 2021. The Company began accepting and processing applications for second draw PPP loans in January 2021. As of June 30, 2021, the Company had processed and approved over 340 applications with an outstanding balance of $46.2 million in the second round of PPP loans with an estimated processing fee income of approximately $1.8 million.

 

For further discussion, see COVID-19 update section of Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Principles of Consolidation

 

The unaudited interim consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates in the Preparation of Financial Statements

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Statement of Financial Condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairments of securities (“OTTI”), interest rate lock commitments (“IRLCs”), mandatory sales commitments, the valuation of mortgage loans held-for-sale and the valuation of deferred tax assets.

Recent Accounting Pronouncements

 

The Company qualifies under the Jumpstart Our Business Startups Act (the “JOBS Act”) as an emerging growth company. As an emerging growth company, the Company has elected to use the extended transition period to delay adoption of new or revised accounting pronouncements until such pronouncements are made applicable to private companies.

 

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless

9


reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

 

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same as the expected loss model described above.

 

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (“AFS”) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company currently meets the SEC definition of a smaller reporting company, the delay will be applicable to the Company. In anticipation of the ASU, the Company has entered into a contract with a third party, compiled data for the modeling and is working on developing an estimate using historically and qualitative data based on the requirements of ASU 2016-13. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.  Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers and all other companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Furthermore, the ASU provides a one-year deferral of the effective dates of the ASUs on derivatives and hedging for companies that are not public business entities. The Company qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

10


In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

 

2. INVESTMENT SECURITIES

Investment securities available-for-sale was comprised of the following:

 

 

 

June 30, 2021

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. Governmental securities

 

$

2,394

 

 

$

9

 

 

$

(44

)

 

$

2,359

 

Corporate notes

 

 

12,838

 

 

 

241

 

 

 

(31

)

 

 

13,048

 

Collateralized mortgage obligations - agency residential

 

 

4,671

 

 

 

33

 

 

 

(5

)

 

 

4,699

 

Mortgage-backed securities - agency residential

 

 

8,739

 

 

 

52

 

 

 

(43

)

 

 

8,748

 

Municipal securities

 

 

4,302

 

 

 

70

 

 

 

(1

)

 

 

4,371

 

Bank CDs

 

 

499

 

 

 

10

 

 

 

 

 

 

509

 

 

 

$

33,443

 

 

$

415

 

 

$

(124

)

 

$

33,734

 

 

Investment securities available-for-sale was comprised of the following:

 

 

 

December 31, 2020

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

U.S. Governmental securities

 

$

377

 

 

$

14

 

 

$

 

 

$

391

 

Corporate notes

 

 

9,454

 

 

 

156

 

 

 

(10

)

 

 

9,600

 

Collateralized mortgage obligations - agency residential

 

 

3,819

 

 

 

38

 

 

 

(6

)

 

 

3,851

 

Mortgage-backed securities - agency residential

 

 

5,608

 

 

 

81

 

 

 

 

 

 

5,689

 

Municipal securities

 

 

2,924

 

 

 

47

 

 

 

 

 

 

2,971

 

Bank CDs

 

 

999

 

 

 

17

 

 

 

 

 

 

1,016

 

 

 

$

23,181

 

 

$

353

 

 

$

(16

)

 

$

23,518

 

 

11


 

The scheduled maturities of securities available-for-sale at June 30, 2021 were as follows:

 

 

 

June 30, 2021

 

 

 

Available-for-Sale

 

 

 

Amortized

 

 

 

 

 

(Dollars in thousands)

 

Cost

 

 

Fair Value

 

Due in one year or less

 

$

1,262

 

 

$

1,274

 

Due from one to five years

 

 

1,749

 

 

 

1,782

 

Due from after five to ten years

 

 

13,389

 

 

 

13,524

 

Due after ten years

 

 

17,043

 

 

 

17,154

 

 

 

$

33,443

 

 

$

33,734

 

 

Securities with a fair value of $3.4 million and $4.4 million at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required by law.

There were no proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2021 and no gross realized gains and losses for the three and six months ended June 30, 2021.

Proceeds from the sale of available-for-sale securities for the three and six months ended June 30, 2020 was $4.0 million. For the three months and six months ended June 30, 2020, gross realized gains were $141,000 and there were no gross realized losses.

The following tables summarize the unrealized loss positions of securities available-for-sale as of June 30, 2021 and December 31, 2020:

 

 

 

June 30, 2021

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

 

 

$

 

 

$

2,025

 

 

$

(44

)

 

$

2,025

 

 

$

(44

)

Corporate notes

 

 

 

 

 

 

 

 

2,861

 

 

 

(31

)

 

 

2,861

 

 

 

(31

)

Collateralized mortgage obligations

 

 

164

 

 

 

(2

)

 

 

437

 

 

 

(3

)

 

 

601

 

 

 

(5

)

Mortgage-backed securities

 

 

 

 

 

 

 

 

4,775

 

 

 

(43

)

 

 

4,775

 

 

 

(43

)

Municipal securities

 

 

 

 

 

 

 

 

1,885

 

 

 

(1

)

 

 

1,885

 

 

 

(1

)

Bank CDs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

164

 

 

$

(2

)

 

$

11,983

 

 

$

(122

)

 

$

12,147

 

 

$

(124

)

 

 

 

December 31, 2020

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

(Dollars in thousands)

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Corporate notes

 

 

3,420

 

 

 

(9

)

 

 

500

 

 

 

(1

)

 

 

3,920

 

 

 

(10

)

Collateralized mortgage obligations

 

 

 

 

 

 

 

 

532

 

 

 

(6

)

 

 

532

 

 

 

(6

)

Mortgage-backed  securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank CDs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,420

 

 

$

(9

)

 

$

1,032

 

 

$

(7

)

 

$

4,452

 

 

$

(16

)

 

At June 30, 2021, the investment portfolio included four U.S. Government and Agency securities with total fair values of $2.4 million. At December 31, 2020, the investment portfolio included two U.S Government securities with total fair value of $391,000. As of June 30, 2021, there were two securities in an unrealized loss position. There were no securities in an unrealized loss position as of December 31, 2020. The U.S

12


Government securities are zero risk weighted for capital purposes and are guaranteed for repayment of principal and interest. As of June 30, 2021 and December 31, 2020, management found no evidence of other-than-temporary (“OTTI”) on any of the U.S. Governmental securities in an unrealized loss position held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At June 30, 2021 and December 31, 2020, the investment portfolio included sixteen and thirteen corporate notes, respectively with total fair values of $13.0 million and $9.6 million. Of these securities, three and five were in an unrealized loss position as of June 30 2021 and December 31, 2020, respectively. At the time of purchase and as of June 30, 2021 and December 31, 2020, these bonds in an unrealized loss position continue to maintain investment grade ratings. As of June 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the corporate notes held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At June 30, 2021 and December 31, 2020, the investment portfolio included twenty-seven collateralized mortgage obligations (“CMOs”) with total fair values of $4.7 million and $3.9 million, respectively. Of these securities, eleven were in an unrealized loss position as of June 30, 2021 and December 31, 2020, respectively. The CMO portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of June 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the CMOs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At June 30, 2021 and December 31, 2020, the investment portfolio included 20 and sixteen mortgage backed securities (“MBS”) with a total fair value of $8.7 million and $5.7 million, respectively. As of June 30, 2021, there were six securities in an unrealized loss position.  As of December 31, 2020, there no securities were in an unrealized loss position. The MBS portfolio is comprised of 100% agency (FHLMC, FNMA and GNMA) investment grade bonds. As of June 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the MBS held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At June 30, 2021 and December 31, 2020, the investment portfolio included seven and six municipal securities for both periods with a total fair value of $4.4 million and $3.0 million, respectively. Of these securities, two were in an unrealized loss position as of June 30, 2021. As of December 31, 2020, none of the securities were in an unrealized loss position. The Company’s municipal portfolio issuers are located in Pennsylvania and at the time of purchase, and as of June 30, 2021 and December 31, 2020, continue to maintain investment grade ratings. As of June 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the municipal securities held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

At June 30, 2021 and December 31, 2020, the investment portfolio included two and four Bank Certificate of Deposits (“CDs”) with a total fair value of $509,000 and $1.0 million for both periods. As of June 30, 2021 and December 31, 2020, there were no securities in an unrealized loss position. The Bank CDs are fully insured by the FDIC. As of June 30, 2021 and December 31, 2020, management found no evidence of OTTI on any of the Bank CDs held in the investment securities portfolio. The Company has the ability to hold to maturity and more likely than not, will not be required to sell the securities before a recovery of the cost has occurred.

 

3. EQUITY SECURITIES

 

The Company maintains an equity security portfolio that consists of $500,000 at June 30, 2021, and December 31, 2020. As of June 30, 2021 and December 31, 2020, the Company determined that the

13


equity investment did not have a readily determinable fair value measure and is carrying the equity investment at cost, less impairment, adjusted for changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

 

The following table presents the carrying amount of the Company’s equity investment at June 30, 2021, and December 31, 2020:

 

 

 

June 30, 2021

 

(dollars in thousands)

 

Year-to-date

 

 

Life-to-date

 

Amortized cost

 

$

500

 

 

$

500

 

Impairment

 

 

 

 

 

 

Observable price changes

 

 

 

 

 

 

Carrying value

 

$

500

 

 

$

500

 

 

 

 

December 31, 2020

 

(dollars in thousands)

 

Year-to-date

 

 

Life-to-date

 

Amortized cost

 

$

500

 

 

$

500

 

Impairment

 

 

 

 

 

 

Observable price changes

 

 

 

 

 

 

Carrying value

 

$

500

 

 

$

500

 

 

At June 30, 2021 and December 31, 2020, the Company performed a qualitative assessment considering impairment indictors to evaluate whether the investment was impaired and determined the investment was not impaired.

4. LOANS RECEIVABLE

Loans receivable were comprised of the following:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Residential:

 

 

 

 

 

 

 

 

One-to-four family

 

$

115,695

 

 

$

141,891

 

Home equity and HELOCs

 

 

3,189

 

 

 

3,993

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

92,514

 

 

 

68,705

 

Commercial business

 

 

20,894

 

 

 

24,152

 

SBA PPP loans

 

 

71,447

 

 

 

64,380

 

Main Street Lending Program

 

 

1,556

 

 

 

1,556

 

Construction

 

 

29,679

 

 

 

7,299

 

Consumer:

 

 

 

 

 

 

 

 

Medical education

 

 

4,566

 

 

 

5,105

 

Other

 

 

5

 

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

339,545

 

 

 

317,114

 

 

 

 

 

 

 

 

 

 

Unearned discounts, origination and commitment

   fees and costs

 

 

(1,758

)

 

 

(1,286

)

Allowance for loan losses

 

 

(2,260

)

 

 

(2,017

)

 

 

 

 

 

 

 

 

 

 

 

$

335,527

 

 

$

313,811

 

 

 

 

14


 

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending American Medical Association (“AMA”) approved medical schools in Caribbean Nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At June 30, 2021, the balance of the private education loans was $4.6 million. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policies. At June 30, 2021, there was one loan with a balance of approximately $34,000 that is past due 90 days or more.

 

Overdraft deposits are reclassified as other consumer and are included in the total loans on the statements of financial condition. Overdrafts were $5,000 and $33,000 at June 30, 2021, and December 31, 2020, respectively.

 

The following tables summarize the activity in the allowance for loan losses by loan class for the three months ended June 30, 2021 and 2020:

 

Allowance for Loan Losses

 

For the three months ended June 30, 2021

 

(Dollars in thousands)

 

Beginning

Balance

 

 

Charge-

offs

 

 

Recoveries

 

 

(Credit)

Provisions

 

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

565

 

 

$

 

 

$

 

 

$

(43

)

 

$

522

 

 

$

 

 

$

522

 

Home equity and HELOCs

 

 

13

 

 

 

 

 

 

 

 

 

(1

)

 

 

12

 

 

 

 

 

 

12

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

557

 

 

 

 

 

 

 

 

 

134

 

 

 

691

 

 

 

 

 

 

691

 

Commercial business

 

 

293

 

 

 

 

 

 

 

 

 

(13

)

 

 

280

 

 

 

 

 

 

280

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Construction

 

 

149

 

 

 

 

 

 

 

 

 

197

 

 

 

346

 

 

 

 

 

 

346

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

389

 

 

 

 

 

 

 

 

 

(7

)

 

 

382

 

 

 

 

 

 

382

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,993

 

 

$

 

 

$

 

 

$

267

 

 

$

2,260

 

 

$

 

 

$

2,260

 

 

15


 

Allowance for Loan Losses

 

For the three months ended June 30, 2020

 

(Dollars in thousands)

 

Beginning

Balance

 

 

Charge-

offs

 

 

Recoveries

 

 

(Credit)

Provisions

 

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

760

 

 

$

 

 

$

 

 

$

8

 

 

$

768

 

 

$

 

 

$

768

 

Home equity and HELOCs

 

 

13

 

 

 

 

 

 

 

 

 

26

 

 

 

39

 

 

 

 

 

 

39

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

269

 

 

 

 

 

 

 

 

 

63

 

 

 

332

 

 

 

 

 

 

332

 

Commercial business

 

 

154

 

 

 

 

 

 

 

 

 

3

 

 

 

157

 

 

 

 

 

 

157

 

Construction

 

 

22

 

 

 

 

 

 

 

 

 

5

 

 

 

27

 

 

 

 

 

 

27

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

331

 

 

 

(154

)

 

 

 

 

 

161

 

 

 

338

 

 

 

 

 

 

338

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

184

 

 

 

184

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,549

 

 

$

(154

)

 

$

 

 

$

450

 

 

$

1,845

 

 

$

 

 

$

1,845

 

 

The following tables summarize the activity in the allowance for loan losses by loan class for the six months ended June 30, 2021 and 2020:

 

Allowance for Loan Losses

 

For the six months ended June 30, 2021

 

(Dollars in thousands)

 

Beginning

Balance

 

 

Charge-

offs

 

 

Recoveries

 

 

(Credit)

Provisions

 

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

637

 

 

$

 

 

$

 

 

$

(115

)

 

$

522

 

 

$

 

 

$

522

 

Home equity and HELOCs

 

 

15

 

 

 

 

 

 

 

 

 

(3

)

 

 

12

 

 

 

 

 

 

12

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

519

 

 

 

 

 

 

 

 

 

172

 

 

 

691

 

 

 

 

 

 

691

 

Commercial business

 

 

280

 

 

 

 

 

 

 

 

 

 

 

 

280

 

 

 

 

 

 

280

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

27

 

Construction

 

 

74

 

 

 

 

 

 

 

 

 

272

 

 

 

346

 

 

 

 

 

 

346

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

367

 

 

 

(172

)

 

 

 

 

 

187

 

 

 

382

 

 

 

 

 

 

382

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

98

 

 

 

 

 

 

 

 

 

(98

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,017

 

 

$

(172

)

 

$

 

 

$

415

 

 

$

2,260

 

 

$

 

 

$

2,260

 

 

16


 

Allowance for Loan Losses

 

For the six months ended June 30, 2020

 

(Dollars in thousands)

 

Beginning

Balance

 

 

Charge-

offs

 

 

Recoveries

 

 

(Credit)

Provisions

 

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

701

 

 

$

 

 

$

 

 

$

67

 

 

$

768

 

 

$

 

 

$

768

 

Home equity and HELOCs

 

 

44

 

 

 

 

 

 

 

 

 

(5

)

 

 

39

 

 

 

 

 

 

39

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

229

 

 

 

 

 

 

 

 

 

103

 

 

 

332

 

 

 

 

 

 

332

 

Commercial business

 

 

122

 

 

 

 

 

 

 

 

 

35

 

 

 

157

 

 

 

 

 

 

157

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

8

 

 

 

 

 

 

 

 

 

19

 

 

 

27

 

 

 

 

 

 

27

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

333

 

 

 

(154

)

 

 

1

 

 

 

158

 

 

 

338

 

 

 

 

 

 

338

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

184

 

 

 

184

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,437

 

 

$

(154

)

 

$

1

 

 

$

561

 

 

$

1,845

 

 

$

 

 

$

1,845

 

 

The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared. Due to uncertainty of economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the calculation of the allowance for loan losses. However, due to the uncertainty of the impact, the Company will continue to monitor and additional adjustments to the allowance for loan losses may be necessary.

 

The following tables summarize information with respect to the recorded investment in loans receivable by loan class as of June 30, 2021 and December 31, 2020:

17


 

June 30, 2021

 

Loans Receivable

 

(Dollars in thousands)

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

115,695

 

 

$

1,301

 

 

$

114,394

 

Home equity and HELOCs

 

 

3,189

 

 

 

 

 

 

3,189

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

92,514

 

 

 

187

 

 

 

92,327

 

Commercial business

 

 

20,894

 

 

 

83

 

 

 

20,811

 

SBA PPP loans

 

 

71,447

 

 

 

 

 

 

71,447

 

Main Street Lending Program

 

 

1,556

 

 

 

 

 

 

1,556

 

Construction

 

 

29,679

 

 

 

 

 

 

29,679

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

4,566

 

 

 

 

 

 

4,566

 

Other

 

 

5

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

339,545

 

 

$

1,571

 

 

$

337,974

 

 

 

December 31, 2020

 

Loans Receivable

 

(Dollars in thousands)

 

Ending

Balance

 

 

Ending

Balance:

Individually

Evaluated

for

Impairment

 

 

Ending

Balance:

Collectively

Evaluated

for

Impairment

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

141,891

 

 

$

932

 

 

$

140,959

 

Home equity and HELOCs

 

 

3,993

 

 

 

 

 

 

3,993

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

68,705

 

 

 

300

 

 

 

68,405

 

Commercial business

 

 

24,152

 

 

 

96

 

 

 

24,056

 

SBA PPP loans

 

 

64,380

 

 

 

 

 

 

64,380

 

Main Street Lending Program

 

 

1,556

 

 

 

 

 

 

1,556

 

Construction

 

 

7,299

 

 

 

 

 

 

7,299

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

5,105

 

 

 

 

 

 

5,105

 

Other

 

 

33

 

 

 

 

 

 

33

 

 

 

$

317,114

 

 

$

1,328

 

 

$

315,786

 

 

18


 

The following table summarizes information about impaired loans by loan portfolio class as of June 30, 2021 and December 31, 2020:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

(Dollars in thousands)

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,301

 

 

$

1,448

 

 

$

 

 

$

932

 

 

$

1,056

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

187

 

 

 

187

 

 

 

 

 

 

300

 

 

 

300

 

 

 

 

Commercial business

 

 

83

 

 

 

83

 

 

 

 

 

 

96

 

 

 

96

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,571

 

 

 

1,718

 

 

 

 

 

 

1,328

 

 

 

1,452

 

 

 

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,571

 

 

$

1,718

 

 

$

 

 

$

1,328

 

 

$

1,452

 

 

$

 

 

19


 

The following table presents additional information regarding the impaired loans for the three months ended June 30, 2021 and June 30, 2020:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Average

Record

Investment

 

 

Interest

Income

Recognized

 

 

Average

Record

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,108

 

 

$

 

 

$

1,236

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

140

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

926

 

 

 

25

 

 

 

311

 

 

 

5

 

Commercial business

 

 

87

 

 

 

1

 

 

 

111

 

 

 

2

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,121

 

 

 

26

 

 

 

1,798

 

 

 

7

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,121

 

 

$

6

 

 

$

1,798

 

 

$

7

 

 

If these loans were performing under the original contractual rate, interest income on such loans would

have increased approximately $18,000 and $14,000 for the three months ended June 30, 2021, and 2020, respectively.


20


 

 

The following table presents additional information regarding the impaired loans for the six months ended June 30, 2021 and June 30, 2020:

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

(Dollars in thousands)

 

Average

Record

Investment

 

 

Interest

Income

Recognized

 

 

Average

Record

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,049

 

 

$

 

 

$

1,346

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

196

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

718

 

 

 

30

 

 

 

313

 

 

 

11

 

Commercial business

 

 

90

 

 

 

2

 

 

 

114

 

 

 

3

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,857

 

 

 

32

 

 

 

1,969

 

 

 

14

 

With an allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,857

 

 

$

32

 

 

$

1,969

 

 

$

14

 

 

If these loans were performing under the original contractual rate, interest income on such loans would

have increased approximately $32,000 and $38,000 for the six months ended June 30, 2021, and 2020, respectively.

 

21


 

The following table presents non-accrual loans by classes of the loan portfolio as of June 30, 2021, and December 31, 2020:

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2021

 

 

2020

 

Residential:

 

 

 

 

 

 

 

 

One-to-four family

 

$

1,509

 

 

$

932

 

Home equity and HELOCs

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

Medical education

 

 

1,308

 

 

 

1,322

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,817

 

 

$

2,254

 

 

Credit quality risk ratings include regulatory classifications of Special Mention, Substandard, Doubtful and Loss.  Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. Included in the non-performing medical education loans are non-accrual loans that have been brought current through a status change to deferred status. The deferred status generally means the student is in medical residency.  Generally, the loan may be restored to accrual status when the obligation is in accordance with the contractual terms for a reasonable period of time, generally six months.

The following tables summarize the aggregate Pass and criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of June 30, 2021, and December 31, 2020:

 

 

June 30, 2021

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

114,186

 

 

$

 

 

$

1,509

 

 

$

 

 

$

115,695

 

Home equity and HELOCs

 

 

3,189

 

 

 

 

 

 

 

 

 

 

 

 

3,189

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

90,771

 

 

 

1,556

 

 

 

187

 

 

 

 

 

 

92,514

 

Commercial business

 

 

20,811

 

 

 

 

 

 

83

 

 

 

 

 

 

20,894

 

SBA PPP Loans

 

 

71,447

 

 

 

 

 

 

 

 

 

 

 

 

71,447

 

Main Street Lending Program

 

 

1,556

 

 

 

 

 

 

 

 

 

 

 

 

1,556

 

Construction

 

 

29,679

 

 

 

 

 

 

 

 

 

 

 

 

29,679

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

3,258

 

 

 

 

 

 

1,308

 

 

 

 

 

 

4,566

 

Other

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

$

334,902

 

 

$

1,556

 

 

$

3,087

 

 

$

 

 

$

339,545

 

22


 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

140,959

 

 

$

 

 

$

932

 

 

$

 

 

$

141,891

 

Home equity and HELOCs

 

 

3,993

 

 

 

 

 

 

 

 

 

 

 

 

3,993

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

68,211

 

 

 

194

 

 

 

300

 

 

 

 

 

 

68,705

 

Commercial business

 

 

24,010

 

 

 

 

 

 

142

 

 

 

 

 

 

24,152

 

SBA PPP loans

 

 

64,380

 

 

 

 

 

 

 

 

 

 

 

 

64,380

 

Main Street Lending

 

 

1,556

 

 

 

 

 

 

 

 

 

 

 

 

1,556

 

Construction

 

 

7,299

 

 

 

 

 

 

 

 

 

 

 

 

7,299

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

3,783

 

 

 

 

 

 

1,322

 

 

 

 

 

 

5,105

 

Other

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

$

314,224

 

 

$

194

 

 

$

2,696

 

 

$

 

 

$

317,114

 

 

The following tables present the segments of the loan portfolio summarized by aging categories as of June 30, 2021, and December 31, 2020:

 

 

 

June 30, 2021

 

(Dollars in thousands)

 

30-59

Days Past

Due

 

 

60-89

Days Past

Due

 

 

Greater

than 90

Days

 

 

Total Past

Due

 

 

Current

 

 

Total

Loans

Receivable

 

 

Loans

Receivable

>90 Days

and

Accruing

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

667

 

 

$

84

 

 

$

492

 

 

$

1,243

 

 

$

114,452

 

 

$

115,695

 

 

$

 

Home equity and HELOCs

 

 

 

 

 

65

 

 

 

 

 

 

65

 

 

 

3,124

 

 

 

3,189

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92,514

 

 

 

92,514

 

 

 

 

Commercial business

 

 

412

 

 

 

 

 

 

 

 

 

412

 

 

 

20,482

 

 

 

20,894

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71,447

 

 

 

71,447

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,556

 

 

 

1,556

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,679

 

 

 

29,679

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

461

 

 

 

141

 

 

 

34

 

 

 

636

 

 

 

3,930

 

 

 

4,566

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,540

 

 

$

290

 

 

$

526

 

 

$

2,356

 

 

$

337,189

 

 

$

339,545

 

 

$

 

23


 

 

 

 

December 31, 2020

 

(Dollars in thousands)

 

30-59

Days Past

Due

 

 

60-89

Days Past

Due

 

 

Greater

than 90

Days

 

 

Total Past

Due

 

 

Current

 

 

Total

Loans

Receivable

 

 

Loans

Receivable

>90 Days

and

Accruing

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

543

 

 

$

186

 

 

$

571

 

 

$

1,300

 

 

$

140,591

 

 

$

141,891

 

 

$

 

Home equity and HELOCs

 

 

38

 

 

 

 

 

 

 

 

 

38

 

 

 

3,955

 

 

 

3,993

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,705

 

 

 

68,705

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,152

 

 

 

24,152

 

 

 

 

SBA PPP loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,380

 

 

 

64,380

 

 

 

 

Main Street Lending Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,556

 

 

 

1,556

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,299

 

 

 

7,299

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

169

 

 

 

951

 

 

 

81

 

 

 

1,201

 

 

 

3,904

 

 

 

5,105

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

750

 

 

$

1,137

 

 

$

652

 

 

$

2,539

 

 

$

314,575

 

 

$

317,114

 

 

$

 

 

The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan that is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers' operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company's allowance for loan losses. TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the modified contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The Company may identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.

The Company began offering short-term loan modifications to provide assistance to borrowers during the COVID-19 pandemic. The CARES Act along with a joint agency statement issued by federal and state banking agencies, provides that short-term modifications made on a good faith basis in response to COVID-19 who were current at the time the modification program is implemented do not need to be accounted for as TDRs. As of June 30, 2021, we had 4 deferrals of either the full loan payment or the principal component of the loan payment on outstanding loan balances of $1.9 million in connection with the COVID-19 relief provided by the CARES Act.  

As of June 30, 2021, and December 31, 2020, the Company had two loans identified as TDRs totaling $209,000 and $227,000, respectively.  At June 30, 2021, and December 31, 2020, the two TDRs were performing in compliance with their restructured terms and on accrual status. There were no modifications to loans classified as TDRs during the three and six months ended June 30, 2021 and 2020. No additional loan commitments were outstanding to these borrowers at June 30, 2021, and December 31, 2020. At June 30, 2021 and December 31, 2020, there was no specific reserves related to the TDRs.

24


 

The following table details the Company’s TDRs that are on accrual status and non-accrual status at June 30, 2021:

 

 

 

As of June 30, 2021

 

 

 

Number

 

 

Accrual

 

 

Non-Accrual

 

 

 

 

 

(Dollars in thousands)

 

Of Loans

 

 

Status

 

 

Status

 

 

Total TDRs

 

Commercial real estate

 

 

1

 

 

$

126

 

 

$

 

 

$

126

 

Commercial business

 

 

1

 

 

 

83

 

 

 

 

 

 

83

 

Total

 

 

2

 

 

$

209

 

 

$

 

 

$

209

 

 

The following table details the Company’s TDRs that are on accrual status and non-accrual status at December 31, 2020:

 

 

 

As of December 31, 2020

 

 

 

Number

 

 

Accrual

 

 

Non-Accrual

 

 

 

 

 

(Dollars in thousands)

 

Of Loans

 

 

Status

 

 

Status

 

 

Total TDRs

 

Commercial real estate

 

 

1

 

 

$

131

 

 

$

 

 

$

131

 

Commercial business

 

 

1

 

 

 

96

 

 

 

 

 

 

96

 

Total

 

 

2

 

 

$

227

 

 

$

 

 

$

227

 

 

The carrying amount of residential mortgage loans in the process of foreclosure was $290,000 and $294,000 at June 30, 2021 and December 31, 2020, respectively.

 

5. MORTGAGE SERVICING RIGHTS

 

During 2020, the Company began selling a portfolio of residential mortgage loans to a third party, while retaining the rights to service the loans. As of June 30, 2021, the value of the mortgage servicing rights associated with the loan sales totaled $3.1 million.  These retained servicing rights were recorded as a servicing asset and were initially recorded at fair value and changes to the balance of mortgage servicing rights are recorded in interest income on loans in the Company’s consolidated statements of income. Servicing income, which includes late and ancillary fees, was $118,000 and $328,000 for the three and six months ended June 30, 2021 compared to $7,000 for the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2021 and 2020, the change in the carrying value of the Company’s mortgage servicing rights accounted for under the amortization method was as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Balance at Beginning of Period

 

$

2,801

 

 

$

 

 

$

2,041

 

 

$

 

Servicing Rights retained from loans sold

 

 

496

 

 

 

514

 

 

 

1,393

 

 

 

514

 

Amortization

 

 

(193

)

 

 

(6

)

 

 

(330

)

 

 

(6

)

Valuation Allowance Provision

 

 

 

 

 

 

 

 

 

 

 

 

Balance at End of Period

 

$

3,104

 

 

$

508

 

 

$

3,104

 

 

$

508

 

Fair Value, End of Period

 

$

3,656

 

 

$

543

 

 

$

3,656

 

 

$

543

 

25


 

 

The key data and assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of June 30, 2021 were as follows:

 

 

June 30, 2021

 

 

 

 

 

 

Long run Constant Prepayment Rate

 

6.72

 

%

 

 

 

 

Weighted-Average Life (in years)

 

 

27.1

 

 

 

 

 

 

Weighted-Average Note Rate

 

2.897

 

%

 

 

 

 

Weighted-Average Discount Rate

 

 

9.00

 

%

 

 

 

 

 

6. DERIVATIVES AND RISK MANAGEMENT ACTIVITIES

The Company did not have any derivative instruments designated as hedging instruments or subject to master netting and collateral agreements as of June 30, 2021, and December 31, 2020. The following tables summarize the amounts recorded in the Company’s consolidated statements of financial condition for derivatives not designated as hedging instruments as of June 30, 2021, and December 31, 2020 (in thousands):

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Mortgage banking derivatives

 

$

2,657

 

 

$

120,306

 

Forward loan sales commitments

 

Mortgage banking derivatives

 

 

671

 

 

 

17,552

 

To Be Announced securities ("TBAs")

 

Mortgage banking derivatives

 

 

11

 

 

 

9,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Other liabilities

 

$

101

 

 

$

8,148

 

Forward loan sales commitments

 

Other liabilities

 

 

62

 

 

 

7,655

 

TBA securities

 

Other liabilities

 

 

109

 

 

 

39,000

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Mortgage banking derivatives

 

$

2,647

 

 

$

120,563

 

Forward loan sales commitments

 

Mortgage banking derivatives

 

 

252

 

 

 

5,459

 

TBA securities

 

Mortgage banking derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

Notional

 

 

 

Presentation

 

Fair Value

 

 

Amount

 

Interest rate lock commitments

 

Other liabilities

 

$

106

 

 

$

12,111

 

Forward loan sales commitments

 

Other liabilities

 

 

127

 

 

 

18,071

 

TBA securities

 

Other liabilities

 

 

76

 

 

 

13,500

 

26


 

 

The following table summarizes the amounts recorded in the Company’s consolidated statements of income for derivative instruments not designated as hedging instruments for the three and six months ended June 30, 2021 and 2020 (in thousands):

 

 

 

 

Gain/(Loss)

 

 

 

Consolidated Statements of Income

 

Three Months Ended

 

 

 

Presentation

 

June 30, 2021

 

 

June 30, 2020

 

Interest rate lock commitments

 

Gain from derivative instruments

 

$

172

 

 

$

683

 

Forward loan sales commitments

 

Gain (loss) from derivative instruments

 

 

661

 

 

 

(202

)

TBA securities

 

(Loss) gain from derivative instruments

 

 

(120

)

 

 

599

 

 

 

Total gain from derivative instruments

 

$

713

 

 

$

1,080

 

 

 

 

 

 

Gain/(Loss)

 

 

 

Consolidated Statements of Income

 

Six Months Ended

 

 

 

Presentation

 

June 30, 2021

 

 

June 30, 2020

 

Interest rate lock commitments

 

Gain from derivative instruments

 

$

15

 

 

$

1,805

 

Forward loan sales commitments

 

Gain (loss) from derivative instruments

 

 

484

 

 

 

(336

)

TBA securities

 

Loss from derivative instruments

 

 

(22

)

 

 

(5

)

 

 

Total gain from derivative instruments

 

$

477

 

 

$

1,464

 

 

 

7. FAIR VALUE PRESENTATION

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

Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

27


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

Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

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

The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of June 30, 2021, and December 31, 2020:

 

 

 

June 30, 2021

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

 

 

$

2,359

 

 

$

 

 

$

2,359

 

Corporate notes

 

 

 

 

 

1,021

 

 

 

12,027

 

 

 

13,048

 

Collateralized mortgage obligations -

   agency residential

 

 

 

 

 

4,699

 

 

 

 

 

 

4,699

 

Mortgage-backed securities - agency

   residential

 

 

 

 

 

8,748

 

 

 

 

 

 

8,748

 

Municipal securities

 

 

 

 

 

4,371

 

 

 

 

 

 

4,371

 

Bank CDs

 

 

 

 

 

509

 

 

 

 

 

 

509

 

Loans held for sale

 

 

 

 

 

69,389

 

 

 

 

 

 

69,389

 

Interest rate lock commitments

 

 

 

 

 

 

 

 

2,657

 

 

 

2,657

 

Forward loan sales commitments

 

 

 

 

 

671

 

 

 

 

 

 

671

 

TBA securities

 

 

 

 

 

11

 

 

 

 

 

 

11

 

 

 

$

 

 

$

91,778

 

 

$

14,684

 

 

$

106,462

 

28


 

 

 

 

December 31, 2020

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Governmental securities

 

$

 

 

$

391

 

 

$

 

 

$

391

 

Corporate notes

 

 

 

 

 

1,532

 

 

 

8,068

 

 

 

9,600

 

Collateralized mortgage obligations -

   agency residential

 

 

 

 

 

3,851

 

 

 

 

 

 

3,851

 

Mortgage-backed securities - agency

   residential

 

 

 

 

 

5,689

 

 

 

 

 

 

5,689

 

Municipal securities

 

 

 

 

 

2,971

 

 

 

 

 

 

2,971

 

Bank CDs

 

 

 

 

 

1,016

 

 

 

 

 

 

1,016

 

Loans held for sale

 

 

 

 

 

83,549

 

 

 

 

 

 

83,549

 

Interest rate lock commitments

 

 

 

 

 

 

 

 

2,647

 

 

 

2,647

 

Forward loan sales commitments

 

 

 

 

 

252

 

 

 

 

 

 

252

 

TBA securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

 

$

99,251

 

 

$

10,715

 

 

$

109,966

 

 

 

The following tables provide the fair value for liabilities required to be measured and reported at fair value on a recurring basis as of June 30, 2021, and December 31, 2020:

 

 

 

June 30, 2021

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Interest rate lock commitments

 

$

 

 

$

 

 

$

101

 

 

$

101

 

Forward loan sales commitments

 

 

 

 

 

62

 

 

 

 

 

 

62

 

TBA securities

 

 

 

 

 

109

 

 

 

 

 

 

109

 

 

 

$

 

 

$

171

 

 

$

101

 

 

$

272

 

 

 

 

 

December 31, 2020

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Interest rate lock commitments

 

$

 

 

$

 

 

$

106

 

 

$

106

 

Forward loan sales commitments

 

 

 

 

 

127

 

 

 

 

 

 

127

 

TBA securities

 

 

 

 

 

76

 

 

 

 

 

 

76

 

 

 

$

 

 

$

203

 

 

$

106

 

 

$

309

 

 

29


 

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2021:

 

 

 

 

(Dollars in thousands)

 

Corporate

notes

 

 

IRLC-

Asset

 

 

IRLC-

Liability

 

Beginning Balance: April 1, 2021

 

$

8,027

 

 

$

2,456

 

 

$

(72

)

Total unrealized losses:

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

104

 

 

 

 

 

 

 

Total gains or (losses) included in earnings and held at reporting date

 

 

 

 

 

201

 

 

 

(29

)

Purchases, sales and settlements

 

 

3,896

 

 

 

 

 

 

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Ending Balance: June 30, 2021

 

$

12,027

 

 

$

2,657

 

 

$

(101

)

Change in unrealized gains or (losses) for the period included in earnings (or changes in net  assets) for assets held as of June 30, 2021

 

 

 

 

 

201

 

 

 

(29

)

Change in unrealized gains for the period included other comprehensive income for assets held as of June 30, 2021

 

$

104

 

 

$

 

 

$

 

 

(Dollars in thousands)

 

Corporate

notes

 

 

IRLC-

Asset

 

 

IRLC-

Liability

 

Beginning Balance: January 1, 2021

 

$

8,068

 

 

$

2,647

 

 

$

(106

)

Total unrealized losses:

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

63

 

 

 

 

 

 

 

Total gains included in earnings and held at reporting date

 

 

 

 

 

10

 

 

 

5

 

Purchases, sales and settlements

 

 

3,896

 

 

 

 

 

 

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Ending Balance: June 30, 2021

 

$

12,027

 

 

$

2,657

 

 

$

(101

)

Change in unrealized gains for the period included in earnings (or changes in net  assets) for assets held as of June 30, 2021

 

 

 

 

 

10

 

 

 

5

 

Change in unrealized gains for the period included other comprehensive income for assets held as of June 30, 2021

 

$

63

 

 

$

 

 

$

 

30


 

The following tables represent the change in the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020:

 

(Dollars in thousands)

 

Corporate

notes

 

 

IRLC-

Asset

 

 

IRLC-

Liability

 

Beginning Balance: April 1, 2020

 

$

3,033

 

 

$

1,939

 

 

$

(32

)

Total unrealized losses:

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

28

 

 

 

 

 

 

 

Total gains or (losses) included in earnings and held at reporting date

 

 

 

 

 

742

 

 

 

(59

)

Purchases, sales and settlements

 

 

900

 

 

 

 

 

 

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Ending Balance: June 30, 2020

 

$

3,961

 

 

$

2,681

 

 

$

(91

)

Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of June 30, 2020

 

 

 

 

 

742

 

 

 

(59

)

Change in unrealized gains for the period included other comprehensive income for assets held as of   June 30, 2020

 

$

28

 

 

$

 

 

$

 

 

(Dollars in thousands)

 

Corporate

notes

 

 

IRLC-

Asset

 

 

IRLC-

Liability

 

Beginning Balance: January 1, 2020

 

$

3,059

 

 

$

810

 

 

$

(25

)

Total unrealized losses:

 

 

 

 

 

 

 

 

 

 

 

 

Included in other comprehensive income

 

 

2

 

 

 

 

 

 

 

Total gains or (losses) included in earnings and held at reporting date

 

 

 

 

 

1,871

 

 

 

(66

)

Purchases, sales and settlements

 

 

900

 

 

 

 

 

 

 

 

 

Transfers in and/or out of Level 3

 

 

 

 

 

 

 

 

 

Ending Balance: June 30, 2020

 

$

3,961

 

 

$

2,681

 

 

$

(91

)

Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held as of June 30, 2020

 

 

 

 

 

1,871

 

 

 

(66

)

Change in unrealized gains for the period included other comprehensive income for assets held as of   June 30, 2020

 

$

2

 

 

$

 

 

$

 

31


 

 

At June 30, 2021 and December 31, 2020, the Company had classified $12.0 million and $8.1 million of Corporate notes as Level 3, respectively. As of June 30, 2021, the fair value of $9.0 million of Corporate notes includes an adjustable rate corporate security and sub-debt bonds. The Company’s methodology for valuing these Corporate notes is to obtain market quotes through a third-party pricing model. The weighted average of the market quotes applied range from 97.9% to 109.9%.  In addition, classified as Level 3 are three sub-debt bonds with a fair value of $3.1 million. The Company’s methodology to value the three sub-debt bonds is to obtain market values of similar sub-debt bonds issuances over the past twelve months from a broker/investment firm. The weighted average of the market quotes applied is 102.4%. Since the Corporate notes are not widely traded, the Company considered the inputs as unobservable.

 

At June 30, 2021 and December 31, 2020, the Company had classified $2.6 million and $2.5 million of net derivative assets and liabilities related to IRLC as Level 3. The fair value of IRLCs is based on prices obtained for loans with similar characteristics from third parties, adjusted by the pull-through rate, which represents the Company’s best estimate of the probability that a committed loan will fund. The weighted average pull-through rates applied ranged from 67.8% to 100.0% at June 30, 2021.

 

Significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020:

 

 

 

Quantitative Information about Level 3 Fair Value Measurements at June 30, 2021

 

(Dollars in thousands)

 

Fair Value

 

 

Valuation Technique

 

Significant Unobservable Input

 

Range

 

Weighted Average

 

Measured at Fair Value on a Recurring Basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

8,954

 

 

Pricing model

 

Offered quotes

 

97.93%-109.88%

 

102.38%

 

 

 

$

3,073

 

 

Market comparable securities

 

Offered quotes

 

101.0%-102.92%

 

102.36%

 

Net derivative asset and liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IRLC

 

$

2,556

 

 

Discounted cash flows

 

Pull-through rates

 

67.82%-100.00%

 

87.38%

 

 

 

 

 

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020

 

(Dollars in thousands)

 

Fair Value

 

 

Valuation Technique

 

Significant Unobservable Input

 

Range

 

Weighted Average

 

Measured at Fair Value on a Recurring Basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

5,995

 

 

Pricing model

 

Offered quotes

 

92.37%-106.60%

 

101.67%

 

 

 

$

2,073

 

 

Market comparable securities

 

Offered quotes

 

101.63%-103.63%

 

102.50%

 

Net derivative asset and liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IRLC

 

$

2,541

 

 

Discounted cash flows

 

Pull-through rates

 

63.70%-99.79%

 

80.99%

 

32


 

 

There were no assets measured at fair value on a nonrecurring basis at June 30, 2021 and December 31, 2020.

 

The following tables provide the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Statements of Financial Condition as of June 30, 2021 and December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

June 30, 2021

 

Carrying

 

 

Estimated

 

 

Assets

 

 

Inputs

 

 

Inputs

 

(Dollars in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

79,518

 

 

$

79,518

 

 

$

79,518

 

 

$

 

 

$

 

Equity securities

 

 

500

 

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Loans receivable, net (1)

 

 

335,527

 

 

 

342,376

 

 

 

 

 

 

 

 

 

342,376

 

Bank-owned life insurance

 

 

6,482

 

 

 

6,482

 

 

 

6,482

 

 

 

 

 

 

 

Restricted investment in bank stock

 

 

1,847

 

 

 

1,847

 

 

 

1,847

 

 

 

 

 

 

 

Accrued interest receivable

 

 

1,502

 

 

 

1,502

 

 

 

1,502

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

3,104

 

 

 

3,656

 

 

 

 

 

 

 

 

 

3,656

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

437,430

 

 

$

438,359

 

 

$

390,557

 

 

$

47,802

 

 

$

 

Advances from the FHLB

 

 

26,349

 

 

 

26,816

 

 

 

 

 

 

26,816

 

 

 

 

Federal Reserve PPPLF advances

 

 

17,568

 

 

 

17,574

 

 

 

 

 

 

17,574

 

 

 

 

Subordinated debt

 

 

9,996

 

 

 

10,482

 

 

 

 

 

 

 

 

 

10,482

 

Advances from borrowers for taxes and insurance

 

 

1,323

 

 

 

1,323

 

 

 

1,323

 

 

 

 

 

 

 

Accrued interest payable

 

 

121

 

 

 

121

 

 

 

121

 

 

 

 

 

 

 

Off-balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitment to extend credit

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33


 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

December 31, 2020

 

Carrying

 

 

Estimated

 

 

Assets

 

 

Inputs

 

 

Inputs

 

(Dollars in thousands)

 

Amount

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

414,590

 

 

$

414,590

 

 

$

414,590

 

 

$

 

 

$

 

Equity securities

 

 

500

 

 

 

500

 

 

 

 

 

 

 

 

 

500

 

Loans receivable, net

 

 

313,811

 

 

 

325,636

 

 

 

 

 

 

 

 

 

325,636

 

Bank-owned life insurance

 

 

6,408

 

 

 

6,408

 

 

 

6,408

 

 

 

 

 

 

 

Restricted investment in bank stock

 

 

1,721

 

 

 

1,721

 

 

 

1,721

 

 

 

 

 

 

 

Accrued interest receivable

 

 

1,489

 

 

 

1,489

 

 

 

1,489

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

2,041

 

 

 

2,259

 

 

 

 

 

 

 

 

 

2,259

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

730,826

 

 

$

731,398

 

 

$

668,689

 

 

$

62,709

 

 

$

 

Advances from the FHLB

 

 

26,269

 

 

 

27,932

 

 

 

 

 

 

27,932

 

 

 

 

Federal Reserve PPPLF advances

 

 

48,682

 

 

 

48,698

 

 

 

 

 

 

48,698

 

 

 

 

Advances from borrowers for taxes and insurance

 

 

2,131

 

 

 

2,131

 

 

 

2,131

 

 

 

 

 

 

 

Accrued interest payable

 

 

167

 

 

 

167

 

 

 

167

 

 

 

 

 

 

 

Off-balance sheet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitment to extend credit

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

8. CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The following tables present the changes in the balances of each component of accumulated other comprehensive income (loss) (“AOCI”) for the three and six months ended June 30, 2021 and June 30, 2020.  All amounts are presented net of tax.

 

Net unrealized holding gains (losses) on available-for-sales securities (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

For the six months ended

 

(Dollars in thousands)

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Balance at beginning period

 

$

6

 

 

$

71

 

 

$

238

 

 

$

(18

)

Unrealized holding gains (losses) on available-for-sale securities before reclassification

 

 

199

 

 

 

186

 

 

 

(33

)

 

 

275

 

Amount reclassified for investment securities gains included in net income

 

 

 

 

 

(99

)

 

 

 

 

 

(99

)

Net current-period other comprehensive income (loss)

 

 

199

 

 

 

87

 

 

 

(33

)

 

 

176

 

Balance at ending period

 

$

205

 

 

$

158

 

 

$

205

 

 

$

158

 

(1)All amounts are net of tax.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34


 

There were no amounts reclassified for investment securities gains included in net income out of AOCI for the three and six months ended June 30, 2021. The following table present reclassifications out of AOCI by component for the three and six months ended June 30, 2020.

 

 

 

For the three months ended    June 30, 2020

 

 

For the six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Amount reclassified

from accumulated

other comprehensive

income (loss) (2)

 

 

Amount reclassified

from accumulated

other comprehensive

income (2)

 

Affected line item in the  Consolidated Statements of Income

Net unrealized gain on available-for securities (1)

 

$

141

 

 

$

141

 

Gain on sale of

available-for-sale

securities, net

Tax Effect

 

 

(42)

 

 

 

(42)

 

Income tax expense

 

 

$

99

 

 

$

99

 

 

 

 

(1)

For additional details related to unrealized gains on investment securities and related amounts reclassified from accumulated other comprehensive income (loss), See Note 2, “Investment securities.

 

(2)

Amounts in parentheses indicate debits.

 

9. EARNINGS PER SHARE

 

Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. The diluted EPS calculation reflects the EPS if all outstanding instruments convertible to common stock were exercised. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect. At June 30, 2021, there were 214,500 stock options outstanding of which 88,220 of the stock options were vested and exercisable at June 30, 2021. At June 30, 2021, there 87,000 restricted stock shares outstanding of which 50,680 restricted stock shares were vested and exercisable at June 30, 2021. The 214,500 stock options outstanding and 50,680 restricted stock shares outstanding were included in the computation of diluted net income per share for the three and six months ended June 30, 2021 as their effect was not anti-dilutive. At June 30, 2020, there were 216,400 stock options outstanding of which 59,600 of the stock options were vested and exercisable at June 30, 2020. At June 30, 2020, there 87,000 restricted stock shares outstanding of which 24,140 restricted stock shares were vested and exercisable at June 30, 2020. The 216,400 stock options outstanding and 62,860 restricted stock shares outstanding were not included in the computation of diluted net income per share for the three and six months ended June 30, 2020 as their effect would have been anti-dilutive.

35


The calculation of basic and diluted EPS for the three and six months ended June 30, 2021 and 2020 is as follows:

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income

 

$

1,282,000

 

 

$

1,496,000

 

 

$

2,584,000

 

 

$

1,645,000

 

Weighted average number of shares issued

 

 

2,272,207

 

 

 

2,270,725

 

 

 

2,271,702

 

 

 

2,270,452

 

Less weighted average number of treasury shares

 

 

(96,610

)

 

 

(26,449

)

 

 

(94,500

)

 

 

(14,468

)

Less weighted average number of unearned ESOP shares

 

 

(136,043

)

 

 

(144,772

)

 

 

(137,128

)

 

 

(145,863

)

Less weighted average number of unvested restricted stock awards

 

 

(51,754

)

 

 

(63,951

)

 

 

(53,269

)

 

 

(65,501

)

Basic weighted average shares outstanding

 

 

1,987,800

 

 

 

2,035,553

 

 

 

1,986,805

 

 

 

2,044,620

 

Add dilutive effect of stock options

 

 

44,905

 

 

 

 

 

 

34,369

 

 

 

 

Add dilutive effect of restricted stock awards

 

 

9,535

 

 

 

 

 

 

6,407

 

 

 

 

Diluted weighted average shares outstanding

 

 

2,042,240

 

 

 

2,035,553

 

 

 

2,027,581

 

 

 

2,044,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.65

 

 

$

0.73

 

 

$

1.30

 

 

$

0.80

 

Diluted

 

$

0.63

 

 

$

0.73

 

 

$

1.27

 

 

$

0.80

 

 

10. EMPLOYEE BENFITS

 

Equity Incentive Plan

 

The Company’s shareholders approved the HV Bancorp, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”) at a Special Meeting of shareholders on June 13, 2018. An aggregate of 305,497 shares of authorized but unissued common stock of the Company was reserved for future grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units under the 2018 Equity Incentive Plan. Of the 305,497 authorized shares, the maximum number of shares of the Company’s common stock that may be issued under the 2018 Equity Incentive Plan pursuant to the exercise of stock options is 218,212 shares, and the maximum number of shares of the Company’s common stock that may be issued as restricted stock awards or restricted stock units is 87,285 shares.

 

The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2018 Equity Incentive plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of June 30, 2021, there were 497 shares available for future awards under this plan, which includes 212 shares available for incentive and non-qualified stock options and 285 shares available for restricted stock awards. The restricted shares and stock options vest over a seven year period.

 

The Company’s shareholders approved the HV Bancorp, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”) at the Annual Meeting of shareholders on May 19, 2021. The 2021 Equity Incentive Plan authorizes the issuance or delivery to participants of up to 175,000 shares of Company common stock pursuant to grants of incentive and non-qualified stock options, restricted stock awards and restricted stock units. As of June 30, 2021, there were no grants issued under the 2021 Equity Incentive Plan.

 

36


 

Stock option expense was $15,000 and $30,000 for the three months and six months ended June 30, 2021 and $15,000 and $30,000 for the three months and six months ended June 30, 2020, respectively. At June 30, 2021, total unrecognized compensation cost related to stock options was $248,000.

 

 

 

A summary of the Company’s stock option activity and related information for the six months ended June 30, 2021 and June 30, 2020 was as follows:

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

Options

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining Contractual Life (in years)

 

 

Average

Intrinsic Value

 

 

Options

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining Contractual Life (in years)

 

 

Average

Intrinsic Value

 

Outstanding, Jan 1

 

 

216,400

 

 

$

14.93

 

 

 

7.6

 

 

$

484,736

 

 

 

218,000

 

 

$

14.92

 

 

 

8.6

 

 

$

452,400

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(1,900

)

 

 

14.80

 

 

 

 

 

 

 

 

 

(1,600

)

 

 

14.80

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, June 30

 

 

214,500

 

 

$

14.93

 

 

 

7.1

 

 

$

1,505,790

 

 

 

216,400

 

 

$

14.93

 

 

 

8.1

 

 

$

 

Exercisable, June 30

 

 

88,220

 

 

$

14.89

 

 

 

7.1

 

 

$

622,833

 

 

 

59,600

 

 

$

14.87

 

 

 

8.1

 

 

$

 

 

Restricted stock expense for the three months ended June 30, 2021 and June 30, 2020 was $45,000 and $47,000, respectively. Restricted stock expense for the six months ended June 30, 2021 and June 30, 2020 was $91,000 and $94,000, respectively. At June 30, 2021, the expected future compensation expense relating to non-vested restricted stock outstanding was $756,000.

A summary of the Company’s restricted stock activity and related information for the six months ended June 30, 2021 and June 30, 2020 was as follows:

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

Number of

Shares

 

 

Weighted-

Average Grant

Date Fair Value

 

 

Number of

Shares

 

 

Weighted-

Average Grant

Date Fair Value

 

Non-vested, Jan 1

 

 

62,860

 

 

$

14.97

 

 

 

75,320

 

 

$

14.97

 

Vested

 

 

(12,180

)

 

 

14.82

 

 

 

(12,460

)

 

 

14.97

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested at June 30

 

 

50,680

 

 

$

14.98

 

 

 

62,860

 

 

$

14.97

 

 

 

11. RELATED PARTY TRANSACTIONS

In November 2017, the Company engaged a third party to provide services for certain customers with large deposit balances, by offering both a competitive rate of return and FDIC insurance. Related party balances in this program totaled $1.2 million at June 30, 2021, for which the Company received no fees for customer services for the three and six months ended June 30, 2021. For the three months ended June 30, 2020, we received no fees and approximately $2,000 for the six months ended June 30, 2020 in fees for related party balances.  

 

12. REVENUE RECOGNITION

 

The Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all

subsequent ASUs that modified Topic 606. The following is a discussion of key revenues of fees for customer services that are within the scope of the revenue guidance:

 

37


 

 

 

     Fee income – Fee income primarily of revenue earned through cash management fees for Business Banking customers as well as fees received for placing customer deposits in a deposit placement network such that amounts are under the standard FDIC insurance maximum of $250,000 making the deposits eligible for FDIC insurance. The Company acts as an intermediary between the customer and the deposit placement network. The Company’s performance obligation is generally satisfied upon placement of the customer’s deposit in deposit placement network.

     Insufficient fund fees and other service chargesRevenue from service charges on deposit accounts is earned through cash management, wire transfer, and other deposit-related services; as well as overdraft, non-sufficient funds, account management and other deposit-related fees. Revenue is recognized for these services either over time, corresponding with deposit accounts’ monthly cycle, or at a point in time for transactional related services and fees. These revenues are included in insufficient funds fees and other service charges in the table below.

     ATM interchange and fee income ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder used a Company’s ATM. The Company’s performance obligation for ATM fee income are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.

 

The following table presents non-interest income for the three and six months ended June 30, 2021 and June 30, 2020:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Non-Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-scope of Topic 606:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

$

16

 

 

$

 

 

$

88

 

 

$

3

 

Insufficient fund fees

 

 

17

 

 

 

7

 

 

 

35

 

 

 

23

 

Other service charges

 

 

24

 

 

 

22

 

 

 

42

 

 

 

40

 

ATM interchange fee income

 

 

3

 

 

 

2

 

 

 

6

 

 

 

4

 

Other income

 

 

2

 

 

 

1

 

 

 

3

 

 

 

1

 

Total Non-Interest Income (in-scope of Topic 606)

 

$

62

 

 

$

32

 

 

$

174

 

 

$

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Out-of-scope of Topic 606:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash surrender value of bank-owned life insurance

 

$

37

 

 

$

38

 

 

$

74

 

 

$

76

 

Gain on sale of loans, net

 

 

3,243

 

 

 

2,327

 

 

 

8,135

 

 

 

3,956

 

Gain on sale of available-for-sale securities

 

 

 

 

 

141

 

 

 

 

 

 

141

 

Gain from derivative instruments

 

 

713

 

 

 

1,080

 

 

 

477

 

 

 

1,464

 

Change in fair value for loans held-for-sale

 

 

(355

)

 

 

287

 

 

 

(1,064

)

 

 

293

 

Other

 

 

162

 

 

 

40

 

 

 

169

 

 

 

88

 

Total Non-Interest Income (out-scope of Topic 606)

 

 

3,800

 

 

 

3,913

 

 

 

7,791

 

 

 

6,018

 

Total Non-Interest Income (in-scope of Topic 606)

 

 

62

 

 

 

32

 

 

 

174

 

 

 

71

 

Total Noninterest Income

 

$

3,862

 

 

$

3,945

 

 

$

7,965

 

 

$

6,089

 

 

13. Leases

 

The Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. The Company elected to adopt the transition relief under ASC Topic 842 using the modified retrospective transition method. All lease agreements are accounted for as operating leases.

 

38


 

The majority of the Company’s leases are comprised of operating leases for real estate property for branches and office spaces with terms extending through 2039. The operating lease agreements are recognized on the consolidated statements of financial condition as a right-of-use (“ROU”) asset and a corresponding lease liability. The Company elected not to include short-term leases with initial terms of twelve months or less on the consolidated statements of financial condition.

 

The following table represents the classification of the Company’s ROU assets and lease liabilities in the consolidated statements of financial condition:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Lease Right-of-Use Assets

 

Classification

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

Operating lease right-of-use assets

$

9,136

 

 

$

7,685

 

Total Lease Right-of-Use Assets

 

 

$

9,136

 

 

$

7,685

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Lease Liabilities

 

Classification

 

 

 

 

 

 

 

Operating lease liabilities

 

Operating lease liabilities

$

9,449

 

 

$

7,946

 

Total Lease Liabilities

 

 

$

9,449

 

 

$

7,946

 

 

The Company’s lease agreements frequently include one or more options to renew at the Company’s discretion. If at the beginning of the lease, the Company is reasonably certain that the renewal option will be exercised, the Company will include the extended term in the calculation of the ROU asset and lease liability. For the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. If the rate is not readily determinable in the lease, the Company used its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Weighted-average remaining lease term

 

 

 

 

 

 

 

 

 

Operating leases

 

 

11.4 years

 

 

12.2 years

 

Weighted-average discount rate

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

2.03

%

 

 

2.23

%

 

The components of the lease expense are as follows:

(dollars in thousands)

For the three months ended June 30, 2021

 

For the six months ended June 30, 2021

 

For the three months ended June 30, 2020

 

 

For the six months ended June 30, 2020

 

Operating lease cost

$

218

 

$

421

 

$

150

 

 

$

282

 

Short-term lease cost

 

1

 

 

8

 

 

3

 

 

 

21

 

Total

$

219

 

$

429

 

$

153

 

 

$

303

 

 

Future minimum payments for operating leases as of June 30, 2021 and December 31, 2020 were as follows:

 

39


 

(dollars in thousands)

June 30, 2021

 

December 31, 2020

 

Twelve Months Ended:

 

 

 

 

 

 

   Within one year

$

981

 

$

836

 

   After one but within two years

 

989

 

 

792

 

   After two but within three years

 

986

 

 

797

 

   After three but within four years

 

962

 

 

791

 

   After four but within five years

 

944

 

 

735

 

   After five years

 

5,798

 

 

5,182

 

Total Future Minimum Lease Payments

 

10,660

 

 

9,133

 

Amounts Representing Interest

 

(1,211

)

 

(1,187

)

Present Value of Net Future Minimum Lease Payments

$

9,449

 

$

7,946

 

 

14.  Segment Reporting

 

The Company has identified four reportable segments: retail banking; mortgage banking; business banking and the bank holding company. Revenue from the retail banking activities consists primarily

of interest earned on investment securities and loans and service charges on deposit accounts. Revenue from the mortgage banking and business banking activities are comprised of interest earned on loans and fees received as a result of the mortgage loan origination process. The Mortgage Banking Segment originates residential mortgage loans which are sold into the secondary market along with the loans’ servicing rights. Revenue from bank holding company activities is mainly comprised of interest earned on investment securities and intercompany income.

 

The following tables presents summary financial information for the reportable segments (in thousands):

 

 

For the three months ended June 30, 2021

 

 

Retail Banking

 

 

Mortgage Banking

 

 

Business Banking

 

 

Holding Company

 

 

Intercompany Eliminations

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Interest Income

$

1,238

 

 

$

351

 

 

$

2,472

 

 

$

38

 

 

$

(21

)

 

$

4,078

 

Total Interest Expense

 

130

 

 

 

95

 

 

 

282

 

 

 

43

 

 

 

(4

)

 

 

546

 

Net Interest Income

 

1,108

 

 

 

256

 

 

 

2,190

 

 

 

(5

)

 

 

(17

)

 

 

3,532

 

Provision for Loan losses

 

(55

)

 

 

 

 

 

322

 

 

 

 

 

 

 

 

 

267

 

Net interest income after provision for loan losses

 

1,163

 

 

 

256

 

 

 

1,868

 

 

 

(5

)

 

 

(17

)

 

 

3,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

95

 

 

 

3,577

 

 

 

203

 

 

 

 

 

 

(13

)

 

 

3,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

1,221

 

 

 

1,510

 

 

 

481

 

 

 

 

 

 

(22

)

 

 

3,190

 

Other expenses

 

890

 

 

 

835

 

 

 

309

 

 

 

85

 

 

 

(8

)

 

 

2,111

 

Total non-interest expenses

 

2,111

 

 

 

2,345

 

 

 

790

 

 

 

85

 

 

 

(30

)

 

 

5,301

 

Income (loss) before income taxes

 

(853

)

 

 

1,488

 

 

 

1,281

 

 

 

(90

)

 

 

 

 

 

1,826

 

Income tax expense (benefit)

 

(360

)

 

 

552

 

 

 

371

 

 

 

(19

)

 

 

 

 

 

544

 

Net income (loss)

$

(493

)

 

$

936

 

 

$

910

 

 

$

(71

)

 

$

 

 

$

1,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets as of June 30, 2021

$

254,015

 

 

$

75,832

 

 

$

214,412

 

 

$

51,427

 

 

$

(47,125

)

 

$

548,561

 

 

40


 

 

For the three months ended June 30, 2020

 

 

Retail Banking

 

 

Mortgage Banking

 

 

Business Banking

 

 

Holding Company

 

 

Intercompany Eliminations

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Interest Income

$

2,080

 

 

$

338

 

 

$

889

 

 

$

47

 

 

$

(26

)

 

$

3,328

 

Total Interest Expense

 

200

 

 

 

85

 

 

 

473

 

 

 

 

 

 

 

 

 

758

 

Net Interest Income

 

1,880

 

 

 

253

 

 

 

416

 

 

 

47

 

 

 

(26

)

 

 

2,570

 

Provision for Loan losses

 

450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

450

 

Net interest income after provision for loan losses

 

1,430

 

 

 

253

 

 

 

416

 

 

 

47

 

 

 

(26

)

 

 

2,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

225

 

 

 

3,694

 

 

 

39

 

 

 

 

 

 

(13

)

 

 

3,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

1,848

 

 

 

465

 

 

 

81

 

 

 

 

 

 

(26

)

 

 

2,368

 

Other expenses

 

859

 

 

 

612

 

 

 

84

 

 

 

69

 

 

 

(13

)

 

 

1,611

 

Total non-interest expenses

 

2,707

 

 

 

1,077

 

 

 

165

 

 

 

69

 

 

 

(39

)

 

 

3,979

 

Income (loss) before income taxes

 

(1,052

)

 

 

2,870

 

 

 

290

 

 

 

(22

)

 

 

 

 

 

2,086

 

Income tax expense (benefit)

 

(295

)

 

 

807

 

 

 

83

 

 

 

(5

)

 

 

 

 

 

590

 

Net income (loss)

$

(757

)

 

$

2,063

 

 

$

207

 

 

$

(17

)

 

$

 

 

$

1,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets as of June 30, 2020

$

241,083

 

 

$

46,709

 

 

$

133,641

 

 

$

35,323

 

 

$

(32,018

)

 

$

424,738

 

 

 

For the six months ended June 30, 2021

 

 

Retail Banking

 

 

Mortgage Banking

 

 

Business Banking

 

 

Holding Company

 

 

Intercompany Eliminations

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Interest Income

$

2,653

 

 

$

728

 

 

$

4,466

 

 

$

72

 

 

$

(38

)

 

$

7,881

 

Total Interest Expense

 

298

 

 

 

168

 

 

 

577

 

 

 

43

 

 

 

(4

)

 

 

1,082

 

Net Interest Income

 

2,355

 

 

 

560

 

 

 

3,889

 

 

 

29

 

 

 

(34

)

 

 

6,799

 

Provision for Loan losses

 

(30

)

 

 

 

 

 

445

 

 

 

 

 

 

 

 

 

415

 

Net interest income after provision for loan losses

 

2,385

 

 

 

560

 

 

 

3,444

 

 

 

29

 

 

 

(34

)

 

 

6,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

192

 

 

 

7,523

 

 

 

275

 

 

 

 

 

 

(25

)

 

 

7,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,391

 

 

 

3,149

 

 

 

1,194

 

 

 

 

 

 

(34

)

 

 

6,700

 

Other expenses

 

1,890

 

 

 

1,509

 

 

 

509

 

 

 

150

 

 

 

(25

)

 

 

4,033

 

Total non-interest expenses

 

4,281

 

 

 

4,658

 

 

 

1,703

 

 

 

150

 

 

 

(59

)

 

 

10,733

 

Income (loss) before income taxes

 

(1,704

)

 

 

3,425

 

 

 

2,016

 

 

 

(121

)

 

 

 

 

 

3,616

 

Income tax expense (benefit)

 

(590

)

 

 

1,077

 

 

 

570

 

 

 

(25

)

 

 

 

 

 

1,032

 

Net income (loss)

$

(1,114

)

 

$

2,348

 

 

$

1,446

 

 

$

(96

)

 

$

 

 

$

2,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets as of June 30, 2021

$

254,015

 

 

$

75,832

 

 

$

214,412

 

 

$

51,427

 

 

$

(47,125

)

 

$

548,561

 

 

41


 

 

For the six months ended June 30, 2020

 

 

Retail Banking

 

 

Mortgage Banking

 

 

Business Banking

 

 

Holding Company

 

 

Intercompany Eliminations

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Interest Income

$

4,178

 

 

$

572

 

 

$

1,561

 

 

$

95

 

 

$

(52

)

 

$

6,354

 

Total Interest Expense

 

836

 

 

 

204

 

 

 

651

 

 

 

 

 

 

 

 

 

1,691

 

Net Interest Income

 

3,342

 

 

 

368

 

 

 

910

 

 

 

95

 

 

 

(52

)

 

 

4,663

 

Provision for Loan losses

 

472

 

 

 

 

 

 

89

 

 

 

 

 

 

 

 

 

561

 

Net interest income after provision for loan losses

 

2,870

 

 

 

368

 

 

 

821

 

 

 

95

 

 

 

(52

)

 

 

4,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest income

 

318

 

 

 

5,713

 

 

 

83

 

 

 

 

 

 

(25

)

 

 

6,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,703

 

 

 

1,738

 

 

 

392

 

 

 

 

 

 

(52

)

 

 

4,781

 

Other expenses

 

1,614

 

 

 

1,238

 

 

 

173

 

 

 

127

 

 

 

(25

)

 

 

3,127

 

Total non-interest expenses

 

4,317

 

 

 

2,976

 

 

 

565

 

 

 

127

 

 

 

(77

)

 

 

7,908

 

Income (loss) before income taxes

 

(1,129

)

 

 

3,105

 

 

 

339

 

 

 

(32

)

 

 

 

 

 

2,283

 

Income tax expense (benefit)

 

(315

)

 

 

865

 

 

 

95

 

 

 

(7

)

 

 

 

 

 

638

 

Net income (loss)

$

(814

)

 

$

2,240

 

 

$

244

 

 

$

(25

)

 

$

 

 

$

1,645

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets as of June 30, 2020

$

241,083

 

 

$

46,709

 

 

$

133,641

 

 

$

35,323

 

 

$

(32,018

)

 

$

424,738

 

 

42


 

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Certain factors that could cause actual results to differ materially from expected results include, the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of coronavirus COVID-19 on our operations, current customers and the economy in general, changes in the interest rate environment, increases in nonperforming loans, legislative and regulatory changes that adversely affect the business of the Company, and changes in the securities markets. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.

Overview

HV Bancorp, Inc. provides financial services to individuals and businesses from our main office in Doylestown, Pennsylvania, and from our seven additional full-service banking offices located in Plumsteadville, Philadelphia, Warrington and Huntingdon Valley, Pennsylvania and Mount Laurel, New Jersey. We also operate a limited service branch in Philadelphia, Pennsylvania. Our administrative offices and executive offices are located in Doylestown, Pennsylvania. Our Business Banking office is located in Philadelphia, Pennsylvania. We have loan production and sales offices located in Mount Laurel, New Jersey, Doylestown, Pennsylvania, Huntingdon Valley, Pennsylvania and Wilmington, Delaware; and a loan origination office in Montgomeryville, Pennsylvania. Our primary market area includes Montgomery, Bucks and Philadelphia Counties in Pennsylvania, Burlington County in New Jersey and New Castle County in Delaware. Our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans (including multi-family loans), construction loans, home equity loans and lines of credit and, to a lesser extent, consumer loans. We retain our loans in portfolio depending on market conditions, but we primarily sell our fixed-rate one- to four-family residential mortgage loans in the secondary market. We also invest in various investment securities. Our revenue is derived principally from interest on loans and investments and loan sales. Our primary sources of funds are deposits, the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”), Federal Home Loan Bank (“FHLB”) advances and principal and interest payments on loans and securities.

Our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities.  Our results of operations also are affected by our provision for loan losses, non-interest income and non-interest expense.  Non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market, fees for customer services, gain (loss) from derivative instruments and sales of securities. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy, data processing related operations, professional fees and other expenses.  

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.  

 

43


 

COVID-19 Update

In April 2020, our team in business banking and retail banking began accepting and processing applications for loans under the Paycheck Protection Program (“PPP”) implemented by the Small Business Association (“SBA”) with support from the Department of Treasury under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company had received over 450 applications from new and existing customers with an outstanding balance of $25.3 million as of June 30, 2021 and received approximately $2.3 million in processing fee income in the first round of PPP loans. In January 2021, the Company participated in a second round of PPP loans and processed and approved over 340 applications with an outstanding balance of $46.2 million as of June 30, 2021 and received approximately $1.8 million in processing fee income. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated if the loan is forgiven. For the three and six months ended June 30, 2021, the Company recognized approximately $945,000 and $1.7 million in interest income related to the PPP loans. The PPP loans have a two-year term and earn interest at 1%. The SBA fully guarantees the principle and interest, unless the lender violated an obligation under the agreement. The Company did not include the PPP loans in the allowance for loan loss calculation as loan losses, if any, are anticipated to be immaterial. Beginning in October 2020, the SBA began forgiving PPP loans and there has been $64.7 million in PPP forgiveness through July 2021.

In December 2020, the Company participated in the Main Street Lending Program established by the Federal Reserve to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. The program ended on January 8, 2021. At June 30, 2021, the Company funded approximately $31.1 million in loans. The Company retained approximately 5% or $1.6 million outstanding balance at June 30, 2021 as 95% of the originated loans were sold to the Federal Reserve of Boston as part of the program.

Liquidity Sources

The Company has reviewed all sources of liquidity in anticipation of any potential funding needs due to the COVID-19 pandemic and prioritized based on available capacity, terms, and cost of funds. As of June 30, 2021, the Company had the following sources of liquidity available:

 

 

 

At June 30,

 

 

 

2021

 

Sources of Liquidity:

 

(Dollars in thousands)

 

Cash and cash equivalents

 

$

79,518

 

Market value of unencumbered securities

 

 

30,332

 

PPPLF availability

 

 

53,879

 

Collateral value of unencumbered pledged loans (FHLB borrowing availability)

 

 

109,040

 

Total sources of liquidity

 

$

272,769

 

In addition as of June 30, 2021, the Company also had access to $3.0 million unused borrowing capacity from the Atlantic Community Bankers Bank and a $657,000 million line of credit with Federal Reserve Bank of Philadelphia. The Company also has access to brokered certificate of deposits as an additional funding source.

Capital Strength

At June 30, 2021, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

 

 

Total risk-based capital (to risk-weighted assets) was 14.1%, tier 1 capital (to risk-weighted assets) was 13.4%, tier 1 capital (to average assets) was 8.1%, and tier 1 common equity (to risk-weighted assets) was 13.4%.

44


 

Deferral Requests

The Company has worked with the customers impacted by COVID-19 to provide short-term assistance up to nine months in accordance with regulatory guidelines. Residential borrowers needing assistance have been offered a 90-day principal and interest deferral with a potential additional 90-day deferral. Commercial borrowers requesting assistance have been offered either a 90-day principal and interest deferral or a 90-day interest only with a potential deferral of up to two additional months.  These deferrals do not constitute Troubled Debt Restructurings (“TDRs”) because they met the requirements under section 4013 of the CARES Act. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019, will be considered current for COVID-19 modifications. A financial institution can then use FASB agreed upon temporary changes to GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, FASB has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

As of June 30, 2021, the Company had three residential one-to-four family loan deferral requests totaling $1.8 million in outstanding loans and one commercial deferral with an outstanding balance of $100,000 compared to two residential one-to-four family loan deferral requests totaling $1.0 million in outstanding loans as of March 31, 2021.

Loan Portfolio Analysis

Certain industries are anticipated to suffer greater economic impact as a result of the COVID-19 pandemic. The following table provides the outstanding exposure in regard to the Company’s commercial loan portfolio by type as of June 30, 2021.

 

 

At June 30, 2021

 

 

 

(Dollars in thousands)

 

Type of Loan

 

Number of loans

 

 

Balance

 

 

% Gross Loans

 

Residential non-owner occupied

 

 

109

 

 

$

55,143

 

 

 

16.3

%

Nonresidential buildings

 

 

38

 

 

 

30,183

 

 

 

8.9

%

Other real estate properties

 

 

11

 

 

 

5,316

 

 

 

1.6

%

Residential building construction

 

 

7

 

 

 

3,738

 

 

 

1.1

%

Restaurants and Food Service

 

 

34

 

 

 

8,289

 

 

 

2.4

%

Religious Organizations

 

 

5

 

 

 

2,098

 

 

 

0.6

%

Total outstanding exposure

 

 

204

 

 

$

104,767

 

 

 

30.9

%

45


 

The extent of the impact of the COVID-19 pandemic to the Company’s loan portfolio is uncertain and cannot be predicted as it will depend on certain developments including the duration of the pandemic as well as the local and national economies as a whole.

Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations, which may significantly affect our reported results and financial condition for the current period or in future periods.

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of June 30, 2021 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K, for the year ended December 31, 2020.

The Jumpstart Our Business Startups Act (“JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. As of June 30, 2021 and December 31, 2020, there is not a significant difference in the presentation of our consolidated financial statements as compared to other public companies as a result of this transition guidance.  The complete list of Critical Accounting Policies are described in the Annual Report on Form 10-K, for the year ended December 31, 2020.

Comparison of Statements of Financial Condition at June 30, 2021 and at December 31, 2020

Total Assets

Total assets decreased $313.0 million to $548.6 million at June 30, 2021 from $861.6 million at December 31, 2020. The decrease was primarily the result of decreases of $335.1 million in cash and cash equivalents and $14.1 million in net loans held for sale, offset by increases of $21.7 million in net loans receivable, $10.2 million in investment securities, $1.5 million in right-of-use assets, and $1.1 million in mortgage servicing rights and $602,000 in other assets.

Cash and cash equivalents

Cash and cash equivalents decreased $335.1 million to $79.5 million at June 30, 2021 from $414.6 million at December 31, 2020 as a result of anticipated outflows of retail deposits in our core deposits from certain accounts.

Investment Securities

Investment securities increased $10.2 million or 43.4%, to $33.7 million at June 30, 2021 from $23.5 million at December 31, 2020. The increase was primarily due to purchase of $14.3 million of primarily of mortgage-backed and U.S governmental and agency securities offset by $4.0 million in maturities and principal repayments during the six months ended June 30, 2021 and a $33,000 net unrealized loss on available-for-sale securities.

46


Net Loans

 

Net loans increased $21.7 million, or 6.9% to $335.5 million at June 30, 2021 from $313.8 million at December 31, 2020. In January 2021, the Company began originating a second round of PPP loans and processed over 340 applications with an outstanding balance of $46.2 million as of June 30, 2021. Commercial real estate loans increased by $23.8 million to $92.5 million at June 30, 2021, from $68.7 million at December 31, 2020. Construction loans increased $22.4 million to $29.7 million at June 30, 2021, from $7.3 million at December 31, 2020. Offsetting these increases, was a $26.2 million decrease in one- to four-family residential real estate loans from $141.9 million at December 31, 2020, to $115.7 million at June 30, 2021, and a $804,000 decrease in home equity and HELOC loans from $4.0 million at December 31, 2020, to $3.2 million at June 30, 2021. In addition, PPP loans from the first round of the program decreased by $39.1 million to $25.3 million at June 30, 2021 from $64.4 million at December 31, 2020 as a result of PPP loan forgiveness from the SBA. Finally, commercial business loans decreased by $3.2 million to $21.0 million at June 30, 2021, from $24.2 million at December 31, 2020.

 

In November 2017, the Bank entered into a loan purchase agreement with a broker to purchase a portfolio of private education loans made to American citizens attending AMA-approved medical schools in Caribbean nations. The broker serves as a lender, holder, program designer and developer, administrator, and secondary market for the loan portfolios they generate. At June 30, 2021, the balance of the private education loans was $4.6 million, a net decrease of $539,000 from $5.1 million at December 31, 2020. The private student loans were made following a proven credit criteria and were underwritten in accordance with the Bank’s policiesAt June 30, 2021, there was one loan with a total balance of approximately $34,000 that was past due 90 days or more.

 

Loans Held For Sale

Loans held for sale decreased $14.1 million to $69.4 million at June 30, 2021 from $83.5 million at December 31, 2020 as a result of originations of $332.8 million of one- to four-family residential real estate loans during the six months ended June 30, 2021 and net of principle sales of $354.0 million of loans in the secondary market during this same period.

Deposits

 

Deposits decreased $293.4 million, or 40.1%, to $437.4 million at June 30, 2021 from $730.8 million at December 31, 2020. Our core deposits (consisting of demand deposits, money market, passbook and statement and checking accounts) decreased $278.2 million, or 41.6%, to $390.5 million at June 30, 2021 from $668.7 million at December 31, 2020. As previously discussed, there was an anticipated decrease in certain retail accounts in our core deposits during the first quarter of 2021. Certificates of deposit decreased $15.2 million, or 24.5%, to $46.9 million at June 30, 2021 from $62.1 million at December 31, 2020. The decrease in certificate of deposits was the result of a $10.0 million decrease of certificates of deposit issued through brokers and a $5.2 million decrease in retail growth of certificates of deposit.

 

Advances from the Federal Reserve Paycheck Protection Program Liquidity Facility

 

Advances from the Federal Reserve PPPLF decreased $31.1 million, or 63.9% from $48.7 million at December 31, 2020 to $17.6 million at June 30, 2021 as a result of repayments of $31.1 million as a result of the PPP loan forgiveness from the SBA.

Subordinated Debt

On May 28, 2021, the Company issued a $10.0 million subordinated note. This note has a maturity date of May 28, 2031, and bears interest at a fixed rate of 4.50% per annum through May 28, 2026. Thereafter, the note rate is adjustable and resets quarterly based on the then current 90-day average Secured Overnight Financing Rate (“SOFR”) plus 325 basis points for U.S. dollar denominated loans as

47


published by the Federal Reserve Bank of New York. The Company may, at its option, at any time on an interest payment date, on or after May 28, 2026, redeem the notes, in whole or in part, at par plus accrued interest to the date of redemption. The balance of subordinated debt, net of unamortized debt issuance costs, was $10.0 million at June 30, 2021.

Total Shareholders’ Equity

Total shareholders’ equity increased $2.5 million to $41.4 million at June 30, 2021 compared to $38.9 million at December 31, 2020 primarily as a result of net income of $2.6 million for the six months ended June 30, 2021, share based compensation expense of $121,000,  ESOP shares committed to be released of $77,000 and a stock option exercises of $28,000. Offsetting these increases was other comprehensive loss of $33,000 due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio and $267,000 in treasury stock repurchases primarily as part of the stock repurchase plan approved in April 2019.

Comparison of Statements of Income for the Three Months Ended June 30, 2021 and June 30, 2020

General

Net income decreased $214,000 to $1.3 million for the three months ended June 30, 2021 from $1.5 million for the three months ended June 30, 2020.  The decrease in net income for the three months ended June 30, 2021, was primarily due to an increase of $1.3 million in non-interest expense and $83,000 decrease in non-interest income offset by an increase of $962,000 in net interest income, $183,000 decrease in provision for loan losses and $46,000 decrease in income taxes.

Interest Income

Total interest income increased $750,000, or 22.5%, to $4.1 million for the three months ended June 30, 2021, from $3.3 million for the three months ended June 30, 2020.  The increase was primarily the result of increases in interest and fees on loans of $681,000, interest on investment securities of $39,000, interest on interest-earning deposits with banks of $20,000 and interest on restricted investment in bank stock of $10,000.  Total average interest-earning assets increased $179.2 million to $552.5 million for the three months ended June 30, 2021, from $373.3 million for the three months ended June 30, 2020. The increase was primarily as a result of increases in the average balance of $104.6 million in average balance of interest-earning deposits with banks, average balance of loans of $65.5 million and an increase of $9.3 million in the average balance of investment securities. The average yield on our interest-earning assets decreased 62 basis points to 2.95% for the three months ended June 30, 2021, as compared to 3.57% for the three months ended June 30, 2020.

Interest and fees on loans increased $681,000 to $3.9 million for the three months ended June 30, 2021 from $3.2 million for the same period in 2020. This increase was primarily due to an increase in average loans outstanding of $65.5 million, which increased to a total of $392.4 million for the three months ended June 30, 2021, from $326.9 million for the three months ended June 30, 2020. The increase in average loans was primarily a result of growth in the average balances of PPP loans, commercial real estate and other commercial business offset by a decrease in the average balance in one-to four-family residential real estate loans.  The average yield on loans increased 5 basis point to 3.93% for the three months ended June 30, 2021, versus 3.88% for the three months ended June 30, 2020.

Interest income on interest-earning deposits increased by $20,000 to $35,000 for the three months ended June 30, 2021, from $15,000 for the three months ended June 30, 2020 primarily due increase in the average balance of interest-earning deposits of $104.6 million to $127.9 million for the three months ended June 30, 2021, from $23.3 million for the three months ended June 30, 2020. Offsetting this increase, was a decrease of 15 basis points in the average yield on interest-earning deposits with banks to 0.11% for the three months ended June 30, 2021 from 0.26% for the three months ended June 30, 2020 due to decline in interest rates following the COVID-19 pandemic.

 

48


 

Interest on investment securities increased by $39,000 to $166,000 for the three months ended June 30, 2021, from $127,000 for the three months ended June 30, 2020, respectively as the average balance of investment securities increased by $9.3 million to $30.4 million for the three months ended June 30, 2021, from $21.1 million for the three months ended June 30, 2020. Interest on investment securities increased as a result of a $52,000 increase in income on taxable and non-taxable interest and dividend investments offset by a $13,000 decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased to $26,000 for the three months ended June 30, 2021, from $39,000 for the three months ended June 30, 2020. The average yield on total securities decreased to 2.18% for the three months ended June 30, 2021, from 2.41% for the three months ended June 30, 2020.

Interest Expense

Total interest expense decreased $212,000 to $546,000 for the three months ended June 30, 2021, from $758,000 for the three months ended June 30, 2020, primarily due to a $197,000 decrease in interest expense on deposits, a decrease of $65,000 in interest expenses on advances from the FHLB offset by increases of $43,000 interest expense on subordinated debt and an $7,000 increase in interest expense on advances from the PPPLF.

Interest expense on deposits decreased $197,000 to $378,000 for the three months ended June 30, 2021, from $575,000 for the three months ended June 30, 2020, primarily as a result of a decrease of 53 basis points in the average cost of deposits from June 30, 2020, to 38 basis point from 91 basis points. Offsetting this decrease was an increase in the average balance of interest bearing deposits of $147.0 million from $252.4 million as of June 30, 2020, to $399.4 million as of June 30, 2021, and was primarily as a result of a $150.9 million increase in the average balance of our core deposit accounts offset by a decrease of $3.9 million in the average balance of our certificates of deposit. The average rate paid on money market deposits decreased to 0.59% for the three months ended June 30, 2021, from 0.72% for the three months ended June 30, 2020. The decrease in the balance of our certificates of deposits of $3.9 million from $59.6 million for the three months ended June 30, 2020 to $55.7 million for the three months ended June 30, 2021. This was primarily the result of an $8.1 million reduction in the average balance of certificates of deposit issued through brokers from $14.9 million for the three months ended June 30, 2020 to $6.8 million for the three months ended June 30, 2021, offset by an increase of $4.2 million in the average balance in retail certificate of deposits. The average cost of certificates of deposit was 0.90% for the three months ended June 30, 2021 as compared to 1.85% for the three months ended June 30, 2020.

Interest expense on advances from the FHLB decreased $65,000 to $99,000 for the three months ended June 30, 2021 from $164,000 for the three months ended June 30, 2020, primarily as a result of a decrease in the average rate on FHLB advances from 1.89% for the three months ended June 30, 2020 to 1.50% for the three months ended June 30, 2021. During July 2020, the Company refinanced advances of $27.0 million from the FHLB to reduce the cost of borrowings. In addition, the average balance of the FHLB advances decreased $8.4 million from $34.7 million for the three months ended June 30, 2020, to $26.3 million for the three months ended June 30, 2021.

Interest expense on advances from the PPPLF increased $7,000 to $26,000 for three months ended June 30, 2021 from $19,000 during the three months ended June 30, 2020 as the average balance increased $15.9 million to $31.4 million for the three months ended June 30, 2021 from $15.5 million for the three months ended June 30, 2020.

Interest expense on subordinated debt was $43,000 for the three months ended June 30, 2021. As previously discussed, on May 28, 2021, the Company issued a $10.0 million principal amount 4.50% fixed to floating rate subordinated note due 2031.

Net Interest Income

Net interest income increased $962,000 to $3.5 million for the three months ended June 30, 2021, from $2.6 million for the three months ended June 30, 2020. Our net interest-earning assets increased $22.1

49


million to $92.7 million for the three months ended June 30, 2021, from $70.6 million for the three months ended June 30, 2020. Our interest rate spread decreased by 9 basis points to 2.48% for the three months ended June 30, 2021, from 2.57% for the three months ended June 30, 2020.  Our net interest margin decreased 19 basis points to 2.56% for the three months ended June 30, 2021 from 2.75% for the three months ended June 30, 2020.  

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin.  All average balances are based on daily balances.

 

 

 

For the Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Average Balance

 

 

Interest

Income/

Expense

 

 

Yield/

Cost (5)

 

 

Average Balance

 

 

Interest

Income/

Expense

 

 

Yield/

Cost (5)

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

392,409

 

 

$

3,851

 

 

 

3.93

%

 

$

326,936

 

 

$

3,170

 

 

 

3.88

%

Interest-earning deposits with banks

 

 

127,907

 

 

 

35

 

 

 

0.11

%

 

 

23,301

 

 

 

15

 

 

 

0.26

%

Investment securities

 

 

30,392

 

 

 

166

 

 

 

2.18

%

 

 

21,101

 

 

 

127

 

 

 

2.41

%

Restricted investment in bank stock

 

 

1,835

 

 

 

26

 

 

 

5.67

%

 

 

1,935

 

 

 

16

 

 

 

3.31

%

Total interest-earning assets

 

 

552,543

 

 

 

4,078

 

 

 

2.95

%

 

 

373,273

 

 

 

3,328

 

 

 

3.57

%

Non-interest-earning assets

 

 

25,409

 

 

 

 

 

 

 

 

 

 

 

17,538

 

 

 

 

 

 

 

 

 

Total assets

 

$

577,952

 

 

 

 

 

 

 

 

 

 

$

390,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

169,974

 

 

 

68

 

 

 

0.16

%

 

$

98,307

 

 

 

142

 

 

 

0.58

%

Money market deposit accounts

 

 

87,690

 

 

 

129

 

 

 

0.59

%

 

 

42,847

 

 

 

77

 

 

 

0.72

%

Passbook and statement savings

   accounts

 

 

33,773

 

 

 

13

 

 

 

0.15

%

 

 

25,998

 

 

 

10

 

 

 

0.15

%

Checking accounts-Municipal

 

 

52,240

 

 

 

42

 

 

 

0.32

%

 

 

25,673

 

 

 

70

 

 

 

1.09

%

Certificates of deposit

 

 

55,734

 

 

 

126

 

 

 

0.90

%

 

 

59,619

 

 

 

276

 

 

 

1.85

%

Total deposits

 

 

399,411

 

 

 

378

 

 

 

0.38

%

 

 

252,444

 

 

 

575

 

 

 

0.91

%

Federal Home Loan Bank advances

 

 

26,319

 

 

 

99

 

 

 

1.50

%

 

 

34,675

 

 

 

164

 

 

 

1.89

%

Federal Reserve PPPLF advances

 

 

31,372

 

 

 

26

 

 

 

0.33

%

 

 

15,543

 

 

 

19

 

 

 

0.49

%

Subordinated debt

 

 

2,786

 

 

 

43

 

 

 

6.17

%

 

 

 

 

 

 

 

 

       —

 

Total interest-bearing liabilities

 

 

459,888

 

 

 

546

 

 

 

0.47

%

 

 

302,662

 

 

 

758

 

 

 

1.00

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

 

64,787

 

 

 

 

 

 

 

 

 

 

 

45,070

 

 

 

 

 

 

 

 

 

Other

 

 

13,107

 

 

 

 

 

 

 

 

 

 

 

8,848

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

537,782

 

 

 

 

 

 

 

 

 

 

 

356,580

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

40,170

 

 

 

 

 

 

 

 

 

 

 

34,231

 

 

 

 

 

 

 

 

 

Total liabilities and Shareholders'

   equity

 

$

577,952

 

 

 

 

 

 

 

 

 

 

$

390,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

3,532

 

 

 

 

 

 

 

 

 

 

$

2,570

 

 

 

 

 

Interest rate spread (2)

 

 

 

 

 

 

 

 

 

 

2.48

%

 

 

 

 

 

 

 

 

 

 

2.57

%

Net interest-earning assets (3)

 

$

92,655

 

 

 

 

 

 

 

 

 

 

$

70,611

 

 

 

 

 

 

 

 

 

Net interest margin (4)

 

 

 

 

 

 

 

 

 

 

2.56

%

 

 

 

 

 

 

 

 

 

 

2.75

%

Average interest-earning assets to

    average interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

120.15

%

 

 

 

 

 

 

 

 

 

 

123.33

%

 

(1)

Includes loans held for sale.

(2)

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

(3)

Net interest-earning assets represent total average interestearning assets less total interest–bearing liabilities.

(4)

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

(5)

Annualized.

50


 

 

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns.

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

 

 

 

For the Three Months Ended

June 30, 2021 vs 2020

 

 

 

Increase (Decrease) Due to

 

 

Total

Increase

 

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

 

 

(In thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

552

 

 

$

129

 

 

$

681

 

Interest-earning deposits with banks

 

 

59

 

 

 

(39

)

 

 

20

 

Investment securities

 

 

72

 

 

 

(33

)

 

 

39

 

Restricted investment in bank stock

 

 

(1

)

 

 

11

 

 

 

10

 

Total interest-earning assets

 

 

682

 

 

 

68

 

 

 

750

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

150

 

 

 

(224

)

 

 

(74

)

Money market deposit accounts

 

 

97

 

 

 

(45

)

 

 

52

 

Passbook and statement savings accounts

 

 

3

 

 

 

 

 

 

3

 

Checking accounts

 

 

98

 

 

 

(126

)

 

 

(28

)

Certificates of deposit

 

 

(5

)

 

 

(145

)

 

 

(150

)

Total deposits

 

 

343

 

 

 

(540

)

 

 

(197

)

Federal Home Loan Bank advances

 

 

(15

)

 

 

(50

)

 

 

(65

)

Federal Reserve PPPLF

 

 

24

 

 

 

(17

)

 

 

7

 

Subordinated debt

 

 

43

 

 

 

 

 

 

43

 

Total interest-bearing liabilities

 

 

395

 

 

 

(607

)

 

 

(212

)

Change in net interest income

 

$

287

 

 

$

675

 

 

$

962

 

Provision for Loan Losses

We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimated at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates, as more information becomes available or economic conditions change. Due to uncertainty of economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the calculation of the allowance for loan losses. However, due to the uncertainty of the impact, the Company will continue to monitor and additional adjustment to the allowance for loan losses may be necessary.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as circumstances change as more information becomes available. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance for loan losses.

51


Provision for loan losses decreased by $183,000 to $267,000 for the three months ended June 30, 2021, from $450,000 for the three months ended June 30, 2020, primarily as result of net charge-offs of $154,000 related to the medical education loans during the three months ended June 30, 2020. Non-performing loans increased $563,000, or 25.0% from $2.3 million at December 31, 2020 to $2.8 million as of June 30, 2021, as a result of an increase of $577,000 in one-to four-family residential real estate loans offset by a $14,000 decrease in medical education loans compared to December 31, 2020. During the three months ended June 30, 2021, there were no net charge-offs recorded. During the three months ended June 30, 2020, there were $154,000 net charge-offs recorded.

Non-Interest Income

 

Non-interest income was $3.9 million for the three months ended June 30, 2021 and for the three months ended June 30, 2020. Non-interest income decreased $83,000 compared to the same period in 2020 primarily due to a $642,000 decrease in change in fair value of loans held for sale and a $367,000 decrease on gain on derivative instruments, net offset by a $916,000 increase in the gain on sale of loans. The change in fair value of loans held for sale decreased $642,000 from $287,000 for the three months ended June 30, 2020, to ($355,000) for the three months ended June 30, 2021. Additionally, the gain on derivative instruments decreased $367,000 to $713,000 for the three months ended June 30, 2021, from $1.1 million for the three months ended June 30, 2020 was a result of decreased volume of locked loans associated with hedging. Offsetting these decreases, was a $916,000 increase in the gain on sale of loans, net to $3.2 million for the three months ended June 30, 2021, compared to $2.3 million for the three months ended June 30, 2020 primarily as a result of higher loan sales which increased $18.3 million from $130.8 million for the three months ended June 30, 2020, to $149.1 million for the three months ended June 30, 2021. There was no gain on sale of available-for-sale securities for the three months ended June 30, 2021 compared to $141,000 for the three months ended June 30, 2020.

Non-Interest Expense

Non-interest expense increased $1.3 million or 32.5% to $5.3 million for the three months ended June 30, 2021, from $4.0 million for the three months ended June 30, 2020. The increase for the three months ended June 30, 2021, compared to the three months of June 30, 2020, was primarily as a result of an increase of $822,000 in salaries and employee benefits, $256,000 in professional fees and other expenses, $104,000 in occupancy expenses and $70,000 in data processing related operations costs.

 

Salaries and employee benefits expense increased by $822,000 to $3.2 million for the three months ended June 30, 2021, from $2.4 million for the three months ended June 30, 2020. Salaries increased as full time equivalent (FTE) employees increased to one-hundred forty-six as of June 30, 2021, from one-hundred as of June 30, 2020 primarily as a result of the expansion of the Company’s lending and business banking operations. The professional fees and other expenses increased $256,000, or 30.0%, to $1.1 million for the three months ended June 30, 2021 from $852,000 for the three months ended June 30, 2020, due to increased expenses related to consulting expenses and organizational expenses as we continue to grow and expand into new markets. Occupancy expenses increased approximately $104,000 to $554,000 for the three months ended June 30, 2021 from $450,000 for the three months ended June 30, 2020, primarily as a result of an increase expenses related to leases of additional offices space compared to the same period in 2020. Data processing related operations costs increased $70,000, or 28.5% to $316,000 for the three months ended June 30, 2021 from $246,000 for the three months ended June 30, 2020.

Income Tax Expense

Income tax expense was $544,000 for the three months ended June 30, 2021 compared to $590,000 in expense for the three months ended June 30, 2020. Federal income taxes included in total taxes for the three months ended June 30, 2021 and 2020 was $338,000 and $406,000, respectively, with effective federal tax rates of 18.5% and 19.4%. The decrease in the effective tax rate for the three months ended June 30, 2021, compared to the same period a year ago reflected a decrease in income before taxes.

 

52


 

For the three months ended June 30, 2021 and 2020, Pennsylvania state tax was $118,000 and $165,000, respectively with effective rate of 6.5% and 7.9%, respectively. The decrease in the effective tax rate for the three months ended June 30, 2021, compared to the same period a year ago reflected a decrease in income before taxes. In addition, New Jersey state tax was $88,000 for the three months ended June 30, 2021 compared to $19,000 for the three months ended June 30, 2020.

Comparison of Statements of Income for the Six Months Ended June 30, 2021 and June 30, 2020

General

Net income increased $1.0 million to $2.6 million for the six months ended June 30, 2021, from $1.6 million for the six months ended June 30, 2020.  The increase in net income for the six months ended June 30, 2021, was primarily due to an increases of $2.1 million in net interest income and $1.9 million in non-interest income and a decrease of $146,000 in provision for loan losses offset by increases of $2.8 million in non-interest expense and $394,000 in income tax expense.

Interest Income

Total interest income increased $1.5 million, or 23.4%, to $7.9 million for the six months ended June 30, 2021, from $6.4 million for the six months ended June 30, 2020.  The increase was primarily the result of an increase in interest and fees on loans of $1.5 million.  Total average interest-earning assets increased $246.4 million to $602.9 million for the six months ended June 30, 2021, from $356.5 million for the six months ended June 30, 2020. The increase was primarily a result of an increase in the average balance of interest-earning deposits with banks of $154.9 million, an increase of $84.5 million in the average balance of loans and a $6.8 million increase in the average balance of investment securities. The average yield on our interest-earning assets decreased 95 basis points to 2.61% for the six months ended June 30, 2021, as compared to 3.56% for the six months ended June 30, 2020.

Interest and fees on loans increased $1.5 million to $7.4 million for the six months ended June 30, 2021, from $5.9 million for the six months ended June 30, 2020. This increase was primarily due to an increase in average loans outstanding of $84.5 million, which increased to $394.0 million for the six months ended June 30, 2021, from $309.5 million for the six months ended June 30, 2020 primarily as a result of an increase in the average balance of PPP loans, loans held for sale, commercial real estate and other commercial business offset by a decrease in the average balance in one-to four-family residential real estate loans.  The average yield on loans decreased 8 basis point to 3.76% for the six months ended June 30, 2021, versus 3.84% for the six months ended June 30, 2020.

Interest income on interest-earning deposits decreased by $5,000 to $100,000 for the six months ended June 30, 2021, from $105,000 for the six months ended June 30, 2020. The decrease was primarily due to a decrease average yield on interest-earning deposits with banks which decreased 77 basis points, to 0.11% for the six months ended June 30, 2021, from 0.88% for the six months ended June 30, 2020, due to decline in interest rates following the COVID-19 pandemic. Offsetting this decrease, was an increase in the average balance of interest-earning deposits of $154.9 million to $178.9 million for the six months ended June 30, 2021, from $24.0 million for the six months ended June 30, 2020.

 

Interest on investment securities increased by $57,000 to $317,000 for the six months ended June 30, 2021, from $260,000 for the six months ended June 30, 2020, respectively. Interest on investment securities increased as a result of a $92,000 increase in income on taxable and non-taxable interest and dividend investments offset by a $35,000 decrease in interest income on mortgage backed securities and collateralized mortgage obligation securities which decreased to $57,000 for the six months ended June 30, 2021, from $92,000 for the six months ended June 30, 2020. The average yield on total securities decreased to 2.26% for the six months ended June 30, 2021, from 2.44% for the same period in 2020.  The average balance of investment securities increased by $6.8 million to $28.1 million for the six months ended June 30, 2021, from $21.3 million for the six months ended June 30, 2020.

53


Interest Expense

Total interest expense decreased $609,000 to $1.1 million for the six months ended June 30, 2021, from $1.7 million for the six months ended June 30, 2020, primarily due to a $568,000 decrease in interest expense on deposits, a $124,000 decrease in interest expense on advances from the FHLB offset by a $43,000 increase in interest expense on subordinated debt and $40,000 increase in interest expense on advances from the PPPLF.

Interest expense on deposits decreased $568,000 to $784,000 for the six months ended June 30, 2021, from $1.4 million for the six months ended June 30, 2020, primarily as the average cost of deposits decreased to 35 basis points for the six months ended June 30, 2021 from 107 basis points for the six months ended June 30, 2020. Offsetting this decrease, was an increase of $194.9 million in the average balance of interest bearing deposits from June 30, 2020. The increase in the average balance of interest bearing deposits of $194.9 million from $253.4 million as of June 30, 2020, to $448.3 million as of June 30, 2021, was primarily as a result of a $199.5 million increase in the average balance of our core deposit accounts offset by a decrease of $4.6 million in the average balance of our certificates of deposit. The average rate paid on money market deposits decreased 18 basis points to 0.59% for the six months ended June 30, 2021, from 0.77% for the six months ended June 30, 2020. The decrease in the balance of our certificates of deposits of $4.6 million from $63.0 million for the six months ended June 30, 2020, to $58.4 million for the six months ended June 30, 2021, was primarily the result of a $9.8 million decrease in the average balance of certificates of deposit issued through brokers from $17.9 million for the six months ended June 30, 2020 to $8.1 million for the six months ended June 30, 2021, offset by an increase of $5.2 million in the average balance in retail certificate of deposits. The average cost of certificates of deposit was 0.98% for the six months ended June 30, 2021, as compared to 1.94% for the six months ended June 30, 2020.

Interest expense on advances from the FHLB decreased $124,000 to $196,000 for the six months ended June 30, 2021, from $320,000 for the six months ended June 30, 2020 primarily as a result of a decrease in the average rate of 55 basis points from 2.04% for the six months ended June 30, 2020, to 1.49% for the six months ended June 30, 2021. During July 2020, the Company refinanced advances of $27.0 million from the FHLB to reduce the cost of borrowings. In addition, the average balance of the FHLB advances decreased $5.1 million to $26.3 million for the six months ended June 30, 2021, from $31.4 million for the six months ended June 30, 2020.

Interest expense on advances from the PPPLF increased $40,000 to $59,000 for six months ended June 30, 2021 compared to $19,000 during the six months ended June 30, 2020. The increase was primarily the result of a $29.3 million increase in the average balance in advances from the PPPLF to $38.2 million for the six months ended June 30, 2021 from $8.9 million for the six months ended June 30, 2020.

Interest expense on subordinated debt was $43,000 for the six months ended June 30, 2021. As previously discussed, on May 28, 2021, the Company sold and issued a $10.0 million in aggregate principal amount 4.50% fixed to floating rate subordinated note due 2031.

Net Interest Income

Net interest income increased $2.1 million to $6.8 million for the six months ended June 30, 2021, from $4.7 million for the six months ended June 30, 2020. Our net interest-earning assets increased $25.7 million to $88.5 million for the six months ended June 30, 2021, from $62.8 million for the six months ended June 30, 2020. Our interest rate spread decreased by 22 basis points to 2.19% for the six months ended June 30, 2021 from 2.41% for the six months ended June 30, 2020.  Our net interest margin was 2.26% for the six months ended June 30, 2021, compared to 2.62% for the six months ended June 30, 2020.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-

54


bearing liabilities, expressed both in dollars and rates, and the net interest margin.  All average balances are based on daily balances.

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

Average Balance

 

 

Interest

Income/

Expense

 

 

Yield/

Cost (5)

 

 

Average Balance

 

 

Interest

Income/

Expense

 

 

Yield/

Cost (5)

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (1)

 

$

394,005

 

 

$

7,416

 

 

 

3.76

%

 

$

309,463

 

 

$

5,946

 

 

 

3.84

%

Interest-earning deposits with banks

 

 

178,943

 

 

 

100

 

 

 

0.11

%

 

 

23,964

 

 

 

105

 

 

 

0.88

%

Investment securities

 

 

28,106

 

 

 

317

 

 

 

2.26

%

 

 

21,328

 

 

 

260

 

 

 

2.44

%

Restricted investment in bank stock

 

 

1,810

 

 

 

48

 

 

 

5.30

%

 

 

1,773

 

 

 

43

 

 

 

4.85

%

Total interest-earning assets

 

 

602,864

 

 

 

7,881

 

 

 

2.61

%

 

 

356,528

 

 

 

6,354

 

 

 

3.56

%

Non-interest-earning assets

 

 

23,825

 

 

 

 

 

 

 

 

 

 

 

17,175

 

 

 

 

 

 

 

 

 

Total assets

 

$

626,689

 

 

 

 

 

 

 

 

 

 

$

373,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

226,223

 

 

 

148

 

 

 

0.13

%

 

$

99,704

 

 

 

396

 

 

 

0.79

%

Money market deposit accounts

 

 

82,210

 

 

 

243

 

 

 

0.59

%

 

 

39,414

 

 

 

152

 

 

 

0.77

%

Passbook and statement savings

   accounts

 

 

32,562

 

 

 

24

 

 

 

0.15

%

 

 

25,771

 

 

 

22

 

 

 

0.17

%

Checking accounts-Municipal

 

 

48,944

 

 

 

83

 

 

 

0.34

%

 

 

25,499

 

 

 

172

 

 

 

1.35

%

Certificates of deposit

 

 

58,402

 

 

 

286

 

 

 

0.98

%

 

 

62,998

 

 

 

610

 

 

 

1.94

%

Total deposits

 

 

448,341

 

 

 

784

 

 

 

0.35

%

 

 

253,386

 

 

 

1,352

 

 

 

1.07

%

Federal Home Loan Bank advances

 

 

26,298

 

 

 

196

 

 

 

1.49

%

 

 

31,417

 

 

 

320

 

 

 

2.04

%

Federal Reserve PPPLF advances

 

 

38,152

 

 

 

59

 

 

 

0.31

%

 

 

8,945

 

 

 

19

 

 

 

0.42

%

Securities sold under agreements to

   repurchase

 

 

1,603

 

 

 

43

 

 

 

5.36

%

 

 

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

514,394

 

 

 

1,082

 

 

 

0.42

%

 

 

293,748

 

 

 

1,691

 

 

 

1.15

%

Non-interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

 

 

59,994

 

 

 

 

 

 

 

 

 

 

 

37,218

 

 

 

 

 

 

 

 

 

Other

 

 

13,296

 

 

 

 

 

 

 

 

 

 

 

8,894

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

587,684

 

 

 

 

 

 

 

 

 

 

 

339,860

 

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

39,005

 

 

 

 

 

 

 

 

 

 

 

33,843

 

 

 

 

 

 

 

 

 

Total liabilities and Shareholders'

   equity

 

$

626,689

 

 

 

 

 

 

 

 

 

 

$

373,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

6,799

 

 

 

 

 

 

 

 

 

 

$

4,663

 

 

 

 

 

Interest rate spread (2)

 

 

 

 

 

 

 

 

 

 

2.19

%

 

 

 

 

 

 

 

 

 

 

2.41

%

Net interest-earning assets (3)

 

$

88,470

 

 

 

 

 

 

 

 

 

 

$

62,780

 

 

 

 

 

 

 

 

 

Net interest margin (4)

 

 

 

 

 

 

 

 

 

 

2.26

%

 

 

 

 

 

 

 

 

 

 

2.62

%

Average interest-earning assets to

    average interest-bearing liabilities

 

 

 

 

 

 

 

 

 

 

117.20

%

 

 

 

 

 

 

 

 

 

 

121.37

%

(1)

Includes loans held for sale.

(2)

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

(3)

Net interest-earning assets represent total average interestearning assets less total interest–bearing liabilities.

(4)

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

(5)

Annualized.

55


 

 

Rate/ Volume Analysis

The following table presents the effects of changing rates and volumes on net interest income for the periods indicated.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns.

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

 

 

For the Six Months Ended

June 30, 2021 vs 2020

 

 

 

Increase (Decrease) Due to

 

 

Total

Increase

 

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

 

 

(In thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

1,701

 

 

$

(231

)

 

$

1,470

 

Interest-earning deposits with banks

 

 

285

 

 

 

(290

)

 

 

(5

)

Investment securities

 

 

91

 

 

 

(34

)

 

 

57

 

Restricted investment in bank stock

 

 

1

 

 

 

4

 

 

 

5

 

Total interest-earning assets

 

 

2,078

 

 

 

(551

)

 

 

1,527

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

464

 

 

 

(712

)

 

 

(248

)

Money market deposit accounts

 

 

163

 

 

 

(72

)

 

 

91

 

Passbook and statement savings accounts

 

 

7

 

 

 

(5

)

 

 

2

 

Checking accounts-Municipal

 

 

162

 

 

 

(251

)

 

 

(89

)

Certificates of deposit

 

 

(22

)

 

 

(302

)

 

 

(324

)

Total deposits

 

 

774

 

 

 

(1,342

)

 

 

(568

)

Federal Home Loan Bank advances

 

 

(29

)

 

 

(95

)

 

 

(124

)

Federal Reserve PPPLF

 

 

52

 

 

 

(12

)

 

 

40

 

Subordinated debt

 

 

43

 

 

 

 

 

 

43

 

Total interest-bearing liabilities

 

 

840

 

 

 

(1,449

)

 

 

(609

)

Change in net interest income

 

$

1,238

 

 

$

898

 

 

$

2,136

 

Provision for Loan Losses

Provision for loan losses decreased by $146,000 to $415,000 for the six months ended June 30, 2021, from $561,000 for the six months ended June 30, 2020. Non-performing loans increased $563,000, or 25.0% from $2.3 million at December 31, 2020 to $2.8 million as of June 30, 2021, as a result of an increase of $577,000 in one-to four-family residential real estate loans offset by a $14,000 decrease in medical education loans compared to December 31, 2020. During the six months ended June 30, 2021, total charge-offs were $172,000. During the six months ended June 30, 2020, net charge-offs recorded of $154,000 and $1,000 received in recoveries. Due to uncertainty of the changes in economic conditions from the COVID-19 pandemic, the Company increased the qualitative factors in the allowance for loan losses across the loan portfolio.

Non-Interest Income

 

Non-interest income increased $1.9 million to $8.0 million for the six months ended June 30, 2021, from $6.1 million for the six months ended June 30, 2020. The increase in non-interest income compared to the same period in 2020 was primarily due to a $4.1 million increase in the gain on sale of loans, net offset by a $1.4 decrease in change in fair value of loans held-for-sale and $1.0 decrease on gain on derivative instruments, net. The gain on sale of loans, net increased $4.1 million to $8.1 million for the six

56


months ended June 30, 2021, compared to $4.0 million for the six months ended June 30, 2020, primarily as a result of higher loan sales which increased $143.8 million from $210.2 million for the six months ended June 30, 2020, to $354.0 million for the six months ended June 30, 2021. Fair value of loans held for sale decreased $1.4 million to $(1.1) million for six months end June 30, 2021 compared to $293,000 for the same period in 2020. There were no gains on sale of available-for-sale securities, net for the six months ended June 30, 2021 compared to $141,000 for six months ended June 30, 2020.

Non-Interest Expense

Non-interest expense increased $2.8 million or 35.4% to $10.7 million for the six months ended June 30, 2021, from $7.9 million for the six months ended June 30, 2020. The increase was primarily as a result of an increase of $1.9 million in salaries and employee benefits, $244,000 in data processing related operations costs, $236,000 in federal deposit insurance premiums and 194,000 in occupancy expenses.

 

Salaries and employee benefits expense increased by $1.9 million to $6.7 million for the six months ended June 30, 2021, from $4.8 million for the six months ended June 30, 2020. Salaries increased as Full Time Equivalent (“FTE“) employees increased to one-hundred forty-six FTEs as of June 30, 2021, from one-hundred FTEs as of June 30, 2020. The increase was primarily a result of the expansion of the Company’s lending and business banking operations. Data processing related operations costs increased $244,000, or 51.4% to $719,000 for the six months ended June 30, 2021 from $475,000 for the six months ended June 30, 2020 as a result of expansion of locations, increased loan originations, increased information technology projects, and outsourcing of the PPP forgiveness process. Federal deposit insurance premiums increased $236,000 to $356,000 for the six months ended June 30, 2021 from $120,000 from the six months ended June 30, 2020 as the average balance of interest bearing deposits increased $194.9 million from $253.4 million for the six months ended June 30, 2020 to $448.3 million for the six months ended June 30, 2021. Occupancy expenses increased approximately $194,000 to $1.1 million for the six months ended June 30, 2021, from $883,000 for the six months ended June 30, 2020, primarily because of increases in expenses related to leases of additional offices space compared to the same period in 2020.

Income Tax Expense

Income tax expense was $1.0 million for the six months ended June 30, 2021, compared to $638,000 for the six months ended June 30, 2020. Federal income taxes included in total taxes for the six months ended June 30, 2021 and 2020 was $681,000 and $444,000, respectively, with effective federal tax rates of 18.8% and 19.4%.

 

For the six months ended June 30, 2021 and 2020, Pennsylvania state tax was $263,000 and $176,000, respectively with effective rate of 7.3% and 7.7%, respectively. In addition, New Jersey state tax was $88,000 for the six months ended June 30, 2021 compared to $19,000 for the six months ended June 30, 2020.

 

 

57


 

 

 

 

Non-Performing Assets We define non-performing loans as loans that are either non-accruing or accruing whose payments are 90 days or more past due and non-accruing TDRs. Non-performing assets, including non-performing loans and other real estate owned, totaled $2.8 million, or 0.51% of total assets, at June 30, 2021. There were no non-accruing TDRs at June 30, 2021 and at December 31, 2020. The following table sets forth the amounts and categories of our non-performing assets at the dates indicated.  There were no accruing loans past due 90 days or more at June 30, 2021 and at December 31, 2020.

 

 

 

At June 30,

 

 

At December 31,

 

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

One- to four-family

 

$

1,509

 

 

$

932

 

Consumer:

 

 

 

 

 

 

 

 

Medical education

 

 

1,308

 

 

 

1,322

 

Total non-accrual loans

 

 

2,817

 

 

 

2,254

 

 

 

 

 

 

 

 

 

 

Loans accruing past 90 days

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-performing loans

 

 

2,817

 

 

 

2,254

 

 

 

 

 

 

 

 

 

 

Real estate owned

 

 

 

 

 

 

Other non-performing assets

 

 

 

 

 

 

Total non-performing assets

 

$

2,817

 

 

$

2,254

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

Total non-performing loans to total

   loans receivable

 

 

0.83

%

 

 

0.71

%

Total non-performing loans to total

   assets

 

 

0.51

%

 

 

0.26

%

Total non-performing assets to total

   assets

 

 

0.51

%

 

 

0.26

%

 

58


 

Allowance for Loan Losses  

The following table sets forth activity in our allowance for loan losses for the periods indicated.

 

 

 

For the

Three Months Ended

June 30,

 

 

For the

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Balance at beginning of year

 

$

1,993

 

 

$

1,549

 

 

$

2,017

 

 

$

1,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

 

 

 

 

 

 

 

 

 

 

Home equity & HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

(154

)

 

 

(172

)

 

 

(154

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

Total charge-offs

 

 

 

 

 

(154

)

 

 

(172

)

 

 

(154

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

 

 

 

 

 

 

 

 

 

 

Home equity & HELOCs

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical education

 

 

 

 

 

 

 

 

 

 

 

1

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Total recoveries

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (charge-offs) recoveries

 

 

 

 

 

(154

)

 

 

(172

)

 

 

(153

)

Provision for loan losses

 

 

267

 

 

 

450

 

 

 

415

 

 

 

561

 

Balance at end of period

 

$

2,260

 

 

$

1,845

 

 

$

2,260

 

 

$

1,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net charge-offs to average loans outstanding

 

 

0.00

%

 

 

0.05

%

 

 

0.05

%

 

 

0.06

%

Allowance for loan losses to non-performing

   loans at end of period

 

 

80.23

%

 

 

66.49

%

 

 

80.23

%

 

 

66.49

%

Allowance for loan losses to total loans at

   end of period

 

 

0.67

%

 

 

0.58

%

 

 

0.67

%

 

 

0.58

%

 

59


 

Liquidity and Capital Resources

Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business.  Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures.  Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from sales of loans and securities, and matured loans and securities. In addition, we can use brokered certificates of deposit as a funding source of our asset base. As of June 30, 2021, there were no brokered certificates of deposit outstanding. At December 31, 2020, the Company had $10.0 million, or 1.2% of total assets, of brokered certificates of deposit.  We also have the ability to borrow from the FHLB of Pittsburgh and from the PPPLF. The Bank had advances from the PPPLF of $17.6 million with unused borrowing capacity of $53.9 million as of June 30, 2021.  Huntingdon Valley Bank had FHLB of Pittsburgh advances of $27.0 million outstanding with unused borrowing capacity of $109.0 million as of June 30, 2021. Additionally, at June 30, 2021, we had the ability to borrow $3.0 million from the Atlantic Community Bankers Bank and we maintained a line of credit equal to 95% of the fair value of collateral held by the Federal Reserve Bank, which was $657,000 at June 30, 2021. We have not borrowed against the credit lines with the Atlantic Community Bankers Bank and the Federal Reserve Bank for the three ended June 30, 2021.

The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of June 30, 2021.

We monitor and adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks.  The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2021, cash and cash equivalents totaled $79.5 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $33.7 million at June 30, 2021. Please refer to the section titled COVID-19 Update for additional information.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash provided by operating activities was $12.7 million for the six months ended June 30, 2021, compared to net cash used in of $3.6 million for the six months ended June 30, 2020, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $32.2 million and $53.0 million for the six months ended June 30, 2021, and June 30, 2020, respectively. During the six months ended June 30, 2021, there were no available-for-sale securities sold compared to $4.0 million available-for-sale securities sold for the six months ended June 30, 2020.  Net cash used in financing activities was $315.6 million for the six months ended June 30, 2021 compared to net cash provided by financing activities of $64.6 million for the six months ended June 30, 2020, respectively. Net cash used in financing activities for the six months ended June 30, 2021, consisted primarily of a decrease in deposits of $293.4 million and repayments of $31.1 million from the PPPLF offset by proceeds of $10.0 million from the issuance of subordinated debt. Net cash provided by financing activities for the six months ended June 30, 2020, consisted primarily of increases in deposits of $16.8 million and proceeds of $47.8 million in proceeds from the PPPLF.

We are committed to maintaining a strong liquidity position.  We monitor our liquidity position on a daily basis.  We anticipate that we will have sufficient funds to meet our current funding commitments.  Certificates of deposit due within one year of June 30, 2021, totaled $36.6 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay.  We believe, however, based on past experience

60


that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.  

Capital Management.  The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2021, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.  

Regulatory Capital

Information presented for June 30, 2021, and December 31 2020, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.

Federal bank regulators require the Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. At June 30, 2021, the Bank met all the capital adequacy requirements to which it was subject. At June 30, 2021, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. In June 2021, the Company infused $5.0 million to the Bank as Tier 1 capital. To be “well capitalized,” the Bank must maintain minimum leverage, common equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Management believes that no conditions or events have occurred since June 30, 2021 that would materially adversely change the Bank’s capital classifications.

The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under the Prompt

 

 

 

 

 

 

 

 

 

 

Capital Adequacy

 

Corrective Action

 

 

Actual

 

 

Purposes

 

Provision

(Dollars in thousands)

 

Amount

 

 

Ratio

 

 

Amount

 

Ratio

 

Amount

 

Ratio

As of June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital (to

   risk-weighted assets)

 

$

45,891

 

 

 

14.1

%

 

$>26,029

 

> 8.0%

 

$>32,536

 

>10.0%

Tier 1 capital (to risk-weighted

   assets)

 

 

43,631

 

 

 

13.4

 

 

>19,522

 

> 6.0%

 

>26,029

 

>  8.0%

Tier 1 capital (to average assets)

 

 

43,631

 

 

 

8.1

 

 

>21,556

 

> 4.0%

 

>26,945

 

>  5.0%

Tier 1 common equity (to risk

   -weighted assets)

 

 

43,631

 

 

 

13.4

 

 

>14,641

 

> 4.5%

 

>21,148

 

>  6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital (to

   risk-weighted assets)

 

$

37,848

 

 

 

13.4

%

 

$>22,576

 

> 8.0%

 

$>28,221

 

>10.0%

Tier 1 capital (to risk-weighted

   assets)

 

 

35,831

 

 

 

12.7

 

 

>16,932

 

> 6.0%

 

>22,576

 

>  8.0%

Tier 1 capital (to average assets)

 

 

35,831

 

 

 

7.4

 

 

>19,449

 

> 4.0%

 

>24,311

 

>  5.0%

Tier 1 common equity (to risk

   -weighted assets)

 

 

35,831

 

 

 

12.7

 

 

>12,699

 

> 4.5%

 

>18,343

 

>  6.5%

 

As a licensed mortgagee, the Bank is subject to the rules and regulations of the Department of Housing and Urban Development (“HUD”), Federal Housing Authority (“FHA”) and state regulatory authorities with respect to originating, processing and selling loans. Those rules and regulations, among other things, require the maintenance of minimum net worth levels (which vary based on the portfolio of FHA loans

61


originated by the Bank). Failure to meet the net worth requirements could adversely impact the ability of the Bank to originate loans and access secondary markets. As of June 30, 2021, and December 31, 2020, the Bank maintained the minimum required net worth levels.  

The Bank must hold a capital conservation buffer, subject to a phase-in from January 1, 2016, through December 31, 2019, above its minimum risk-based capital requirements. As of June 30, 2021, the Bank is required to maintain a capital conservation buffer of 2.50%. At June 30, 2021, the Bank met the capital conservation buffer requirements.  Failure to maintain the full amount of the buffer will result in restrictions on the Bank’s ability to make capital distributions and to pay discretionary bonuses to executive officers. The phase-in requires the Bank to increase its capital conservation buffer from 0.625% as of June 30, 2016 to 2.50% as of June 30, 2019 and thereafter.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) simplified capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements under the Basel III capital rules.  Such institutions that meet the community bank leverage ratio will automatically be deemed to be well-capitalized, although the regulators retain the flexibility to determine that the institution may not qualify for the community bank leverage ratio test based on the institution’s risk profile. On September 17, 2019, the board of the Federal Deposit Insurance Corporation (“FDIC”) passed a final rule on the community bank leverage ratio, setting the minimum required community bank leverage ratio at 9%. The rule went into effect January 1, 2020. On April 6, 2020, the FDIC, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework and implemented Section 4012 of the CARES Act. These changes related to the minimum Tier 1 leverage ratio that can be used to take advantage of the simplified community bank leverage ratio framework. The two interim final rules are applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets. The lower Tier 1 leverage ratio modification is temporary to 8% and will revert back to the existing 9% ratio effective January 1, 2022.

Off-Balance Sheet Arrangements and Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit.  While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At June 30, 2021, we had outstanding commitments to originate loans of $66.3 million, unused lines of credit totaling $54.4 million and $650,000 in stand-by letters of credit outstanding. We had $52.0 million outstanding in letters of credit issued by the FHLB to secure certain deposits. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2021 totaled $36.6 million of total deposits. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

62


Item 4 – Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2021.  Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the second fiscal quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

At June 30, 2021, the Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities.

Item 1A – Risk Factors

Not required for smaller reporting companies

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

 

(a)

Not applicable

 

(b)

Not applicable

 

(c)

Purchase of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended June 30, 2021 are set forth in the table below:

 

Period

 

Total Number of Shares (1)

 

 

Average Price Paid per share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)

 

April 1, 2021- April 30, 2021

 

 

 

 

$

 

 

 

 

 

 

103,922

 

May 1, 2021- May 31, 2021

 

 

 

 

 

 

 

 

 

 

 

103,922

 

June 1, 2021- June 30, 2021

 

 

174

 

 

 

20.33

 

 

 

174

 

 

 

103,922

 

Total

 

 

174

 

 

$

20.33

 

 

 

174

 

 

 

 

 

 

(1) During the second quarter of 2021, 174 shares were acquired from an employee in connection with income tax withholdings related to the vesting of restricted stock issued as part of the 2018 Equity Incentive Plan. The issuance of these shares was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by Section 4(a) (2) thereof. The participants under the 2018 Equity Incentive Plan are “Accredited Investors”, as defined in Rule 501(a)

63


under the Securities Act. These transactions did not involve a public offering and occurred without general solicitation or advertising. The shares were purchased at the closing price of the Company’s common stock on the dates of purchase.

 

(2) (1) In April 2019, a stock repurchase plan was approved to repurchase up to 100,000 shares of the Company’s outstanding common stock. There is no expiration date for this plan. In February 2021, the Board of Directors approved a plan to repurchase in the open market and privately negotiated transactions, up to 100,000 shares of the Company’s outstanding common stock. This plan supplements the previous repurchase plan. There were no purchases made under this plan during the three months ended June 30, 2021.

Item 3 – Defaults upon Senior Securities

Not Applicable

Item 4 – Mine Safety Disclosures

Not Applicable

Item 5 – Other Information

None

Item 6 – Exhibits

 

 

 

 

  31.1

  

Rule 13a-14(a) Certification of the Chief Executive Officer *

 

 

  31.2

  

Rule 13a-14(a) Certification of the Chief Financial Officer *

 

 

  32

  

Section 1350 Certification *

 

 

101.INS

  

Inline XBRL Instance Document

 

 

101.SCH

  

Inline XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

Inline XBRL Taxonomy Calculation Linkbase Document

 

 

101.DEF

  

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

  

Inline XBRL Taxonomy Label Linkbase Document

 

 

101.PRE

  

Inline XBRL Taxonomy Presentation Linkbase Document

 

104

  

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 has been formatted in Inline XBRL and is included in Exhibits 101.

 

 

 

*

Filed herewith

 

 

 

 

 

64


 

SIGNATURES

HV BANCORP, INC.

SIGNATURES

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

 

 

 

HV BANCORP, INC.

 

 

 

Date: August 13, 2021

By:

/s/ Travis J. Thompson

 

 

Travis J. Thompson

 

 

President and Chief Executive Officer

 

 

(Duly Authorized Officer)

 

 

 

Date: August 13, 2021

By:

/s/ Joseph C. O’Neill, Jr.

 

 

Joseph C. O’Neill, Jr.

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

65