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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 September 30, 20192020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 000-51821
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LAKE SHORE BANCORP, INC. | ||||
(Exact name of registrant as specified in its charter) | ||||
United States |
| 20-4729288 | ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) | ||
31 East Fourth Street, Dunkirk, New York |
| 14048 | ||
(Address of principal executive offices) |
| (Zip code) | ||
(716) 366-4070 | ||||
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common stock, par value $0.01 per share |
| LSBK |
| 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, and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X]No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
There were 5,943,1735,828,048 shares of the registrant’s common stock, $0.01 par value per share, outstanding at November 8, 2019.10, 2020.
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| TABLE OF CONTENTS |
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| TABLE OF CONTENTS |
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ITEM |
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| - | 1 | - | 1 | ||||||
| - | 2 | - | 2 | ||||||
| - | 3 | - | 3 | ||||||
| - | 4 | - | 4 | ||||||
| - | 6 | - | 6 | ||||||
| - | 7 | - | 7 | ||||||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 38 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 32 | |||||||
55 | 52 | |||||||||
55 | 52 | |||||||||
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56 | 52 | |||||||||
56 | 54 | |||||||||
56 | 54 | |||||||||
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Lake Shore Bancorp, Inc. and Subsidiary
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Consolidated Statements of Financial Condition |
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| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
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| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
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| (Unaudited) |
| (Unaudited) | ||||||||
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| (Dollars in thousands, except share data) |
| (Dollars in thousands, except share data) | ||||||||
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Assets |
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Cash and due from banks |
| $ | 9,838 |
| $ | 8,880 |
| $ | 8,373 |
| $ | 7,884 |
Interest earning deposits |
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| 10,720 |
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| 3,244 |
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| 62,766 |
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| 22,405 |
Federal funds sold |
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| - |
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| 18,627 | ||||||
Cash and Cash Equivalents |
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| 20,558 |
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| 30,751 |
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| 71,139 |
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| 30,289 |
Securities available for sale |
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| 75,093 |
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| 86,193 |
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| 81,641 |
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| 71,201 |
Federal Home Loan Bank stock, at cost |
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| 2,055 |
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| 1,545 |
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| 1,977 |
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| 2,055 |
Loans receivable, net of allowance for loan losses 2019 $4,141; 2018 $3,448 |
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| 462,993 |
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| 392,471 | ||||||
Loans receivable, net of allowance for loan losses 2020 $5,347; 2019 $4,267 |
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| 491,268 |
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| 470,816 | ||||||
Premises and equipment, net |
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| 9,321 |
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| 9,417 |
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| 9,066 |
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| 9,415 |
Accrued interest receivable |
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| 2,236 |
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| 1,913 |
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| 3,145 |
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| 2,153 |
Bank owned life insurance |
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| 21,839 |
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| 21,469 |
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| 22,343 |
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| 21,969 |
Other assets |
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| 2,720 |
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| 1,949 |
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| 2,084 |
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| 2,971 |
Total Assets |
| $ | 596,815 |
| $ | 545,708 |
| $ | 682,663 |
| $ | 610,869 |
Liabilities and Stockholders' Equity |
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Liabilities |
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Deposits: |
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Interest bearing |
| $ | 406,574 |
| $ | 377,131 |
| $ | 464,869 |
| $ | 422,247 |
Non-interest bearing |
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| 64,701 |
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| 55,327 |
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| 90,669 |
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| 61,229 |
Total Deposits |
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| 471,275 |
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| 432,458 |
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| 555,538 |
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| 483,476 |
Long-term debt |
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| 34,650 |
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| 24,650 |
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| 31,350 |
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| 34,650 |
Advances from borrowers for taxes and insurance |
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| 1,735 |
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| 3,134 |
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| 1,972 |
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| 3,233 |
Other liabilities |
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| 6,696 |
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| 5,662 |
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| 8,916 |
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| 6,670 |
Total Liabilities |
| $ | 514,356 |
| $ | 465,904 |
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| 597,776 |
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| 528,029 |
Stockholders' Equity |
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Common stock, $0.01 par value per share, 25,000,000 shares authorized; 6,836,514 shares issued and 5,949,673 shares outstanding at September 30, 2019 and 6,827,741 shares issued and 6,004,664 shares outstanding at December 31, 2018 |
| $ | 68 |
| $ | 68 | ||||||
Common stock, $0.01 par value per share, 25,000,000 shares authorized; 6,836,514 shares issued and 5,835,237 shares outstanding at September 30, 2020 and 6,836,514 shares issued and 5,924,339 shares outstanding at December 31, 2019 |
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| 68 |
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| 68 | ||||||
Additional paid-in capital |
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| 31,042 |
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| 30,916 |
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| 31,169 |
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| 31,078 |
Treasury stock, at cost (886,841 shares at September 30, 2019 and 823,077 shares at December 31, 2018) |
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| (9,802) |
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| (8,805) | ||||||
Treasury stock, at cost (1,001,277 shares at September 30, 2020 and 912,175 shares at December 31, 2019) |
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| (11,430) |
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| (10,184) | ||||||
Unearned shares held by ESOP |
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| (1,385) |
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| (1,449) |
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| (1,300) |
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| (1,364) |
Unearned shares held by compensation plans |
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| (71) |
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| (200) |
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| (147) |
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| (39) |
Retained earnings |
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| 61,038 |
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| 59,145 |
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| 64,501 |
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| 61,950 |
Accumulated other comprehensive income |
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| 1,569 |
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| 129 |
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| 2,026 |
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| 1,331 |
Total Stockholders' Equity |
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| 82,459 |
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| 79,804 |
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| 84,887 |
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| 82,840 |
Total Liabilities and Stockholders' Equity |
| $ | 596,815 |
| $ | 545,708 |
| $ | 682,663 |
| $ | 610,869 |
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See notes to consolidated financial statements. | See notes to consolidated financial statements. |
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| See notes to consolidated financial statements. |
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1
Lake Shore Bancorp, Inc. and Subsidiary
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Consolidated Statements of Income |
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||||||
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| 2019 |
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| 2018 |
| 2019 |
| 2018 |
| 2020 |
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| 2019 |
| 2020 |
| 2019 | ||||||
| (Unaudited) |
| (Unaudited) | |||||||||||||||||||||
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| (Dollars in thousands, except per share data) |
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
Interest Income |
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Loans, including fees |
| $ | 5,653 |
| $ | 4,663 |
| $ | 15,676 |
| $ | 13,480 |
| $ | 5,366 |
| $ | 5,653 |
| $ | 16,637 |
| $ | 15,676 |
Investment securities, taxable |
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| 278 |
| 267 |
| 863 |
| 753 |
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| 239 |
| 278 |
| 746 |
| 863 | ||||||
Investment securities, tax-exempt |
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| 328 |
| 403 |
| 1,082 |
| 1,193 |
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| 302 |
| 328 |
| 882 |
| 1,082 | ||||||
Other |
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| 60 |
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| 157 |
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| 312 |
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| 439 |
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| 15 |
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| 60 |
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| 92 |
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| 312 |
Total Interest Income |
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| 6,319 |
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| 5,490 |
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| 17,933 |
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| 15,865 |
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| 5,922 |
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| 6,319 |
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| 18,357 |
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| 17,933 |
Interest Expense |
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Deposits |
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| 1,173 |
| 783 |
| 3,249 |
| 2,101 |
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| 833 |
| 1,173 |
| 2,950 |
| 3,249 | ||||||
Short-term borrowings |
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| 33 |
| - |
| 46 |
| - |
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| - |
| 33 |
| - |
| 46 | ||||||
Long-term debt |
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| 142 |
| 134 |
| 409 |
| 413 |
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| 164 |
| 142 |
| 513 |
| 409 | ||||||
Other |
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| 18 |
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| 38 |
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| 55 |
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| 77 |
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| 17 |
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| 18 |
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| 52 |
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| 55 |
Total Interest Expense |
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| 1,366 |
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| 955 |
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| 3,759 |
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| 2,591 |
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| 1,014 |
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| 1,366 |
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| 3,515 |
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| 3,759 |
Net Interest Income |
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| 4,953 |
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| 4,535 |
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| 14,174 |
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| 13,274 |
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| 4,908 |
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| 4,953 |
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| 14,842 |
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| 14,174 |
Provision for Loan Losses |
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| 300 |
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| 125 |
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| 725 |
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| 315 |
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| 300 |
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| 300 |
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| 1,125 |
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| 725 |
Net Interest Income after Provision for Loan Losses |
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| 4,653 |
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| 4,410 |
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| 13,449 |
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| 12,959 |
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| 4,608 |
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| 4,653 |
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| 13,717 |
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| 13,449 |
Non-Interest Income |
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Service charges and fees |
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| 473 |
| 457 |
| 1,345 |
| 1,371 |
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| 407 |
| 473 |
| 1,206 |
| 1,345 | ||||||
Earnings on bank owned life insurance |
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| 128 |
| 103 |
| 370 |
| 273 |
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| 128 |
| 128 |
| 374 |
| 370 | ||||||
Unrealized gain (loss) on equity securities |
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| 22 |
| (5) |
| 57 |
| 9 | |||||||||||||||
Unrealized (loss) gain on interest rate swap |
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| (15) |
| 16 |
| (109) |
| 16 | |||||||||||||||
Unrealized (loss) gain on equity securities |
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| (6) |
| 22 |
| (24) |
| 57 | |||||||||||||||
Unrealized gain (loss) on interest rate swap |
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| 23 |
| (15) |
| (156) |
| (109) | |||||||||||||||
Recovery on previously impaired investment securities |
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| 13 |
| 34 |
| 39 |
| 124 |
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| 20 |
| 13 |
| 48 |
| 39 | ||||||
Net gain on sale of loans |
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| 27 |
| 4 |
| 29 |
| 10 |
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| 184 |
| 27 |
| 333 |
| 29 | ||||||
Other |
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| 21 |
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| 20 |
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| 73 |
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| 73 |
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| 15 |
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| 21 |
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| 53 |
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| 73 |
Total Non-Interest Income |
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| 669 |
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| 629 |
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| 1,804 |
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| 1,876 |
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| 771 |
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| 669 |
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| 1,834 |
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| 1,804 |
Non-Interest Expenses |
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Non-Interest Expense |
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Salaries and employee benefits |
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| 2,111 |
| 2,083 |
| 6,509 |
| 6,182 |
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| 2,172 |
| 2,111 |
| 6,311 |
| 6,509 | ||||||
Occupancy and equipment |
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| 632 |
| 587 |
| 1,855 |
| 1,735 |
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| 647 |
| 632 |
| 1,921 |
| 1,855 | ||||||
Data processing |
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| 346 |
| 337 |
| 1,022 |
| 1,000 |
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| 353 |
| 346 |
| 1,012 |
| 1,022 | ||||||
Professional services |
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| 239 |
| 237 |
| 735 |
| 716 |
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| 245 |
| 239 |
| 741 |
| 735 | ||||||
Advertising |
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| 168 |
| 151 |
| 520 |
| 473 |
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| 166 |
| 168 |
| 537 |
| 520 | ||||||
Postage and supplies |
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| 58 |
| 71 |
| 181 |
| 189 |
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| 59 |
| 58 |
| 204 |
| 181 | ||||||
FDIC Insurance |
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| 1 |
| 40 |
| 71 |
| 114 | |||||||||||||||
FDIC insurance |
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| 44 |
| 1 |
| 79 |
| 71 | |||||||||||||||
Other |
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| 364 |
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| 331 |
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| 976 |
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| 968 |
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| 236 |
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| 364 |
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| 850 |
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| 976 |
Total Non-Interest Expenses |
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| 3,919 |
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| 3,837 |
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| 11,869 |
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| 11,377 | ||||||||||||
Total Non-Interest Expense |
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| 3,922 |
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| 3,919 |
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| 11,655 |
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| 11,869 | ||||||||||||
Income before Income Taxes |
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| 1,403 |
| 1,202 |
| 3,384 |
| 3,458 |
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| 1,457 |
| 1,403 |
| 3,896 |
| 3,384 | ||||||
Income Tax Expense |
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| 191 |
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| 144 |
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| 469 |
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| 458 |
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| 226 |
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| 191 |
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| 581 |
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| 469 |
Net Income |
| $ | 1,212 |
| $ | 1,058 |
| $ | 2,915 |
| $ | 3,000 |
| $ | 1,231 |
| $ | 1,212 |
| $ | 3,315 |
| $ | 2,915 |
Basic and diluted earnings per common share |
| $ | 0.20 |
| $ | 0.17 |
| $ | 0.48 |
| $ | 0.49 |
| $ | 0.21 |
| $ | 0.20 |
| $ | 0.56 |
| $ | 0.48 |
Dividends declared per share |
| $ | 0.12 |
| $ | 0.10 |
| $ | 0.36 |
| $ | 0.30 |
| $ | 0.12 |
| $ | 0.12 |
| $ | 0.36 |
| $ | 0.36 |
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See notes to consolidated financial statements. | See notes to consolidated financial statements. |
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2
Lake Shore Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income
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| Three Months Ended September 30, |
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| Three Months Ended September 30, | ||||||||
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| 2019 |
| 2018 |
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| 2020 |
| 2019 | ||||
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| (Unaudited) |
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| (Unaudited) | ||||||||
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| (Dollars in thousands) |
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Net Income |
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| $ | 1,212 |
| 1,058 |
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| $ | 1,231 |
| 1,212 | ||
Other Comprehensive Income (Loss), net of tax expense (benefit): |
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Unrealized holding gains (losses) on securities available for sale, net of tax expense (benefit) |
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| 207 |
| (467) | ||||||||
Other Comprehensive (Loss) Income, net of tax benefit (expense): |
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Unrealized holding (losses) gains on securities available for sale, net of tax (benefit) expense |
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| (122) |
| 207 | ||||||||
Reclassification adjustments related to: |
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Recovery on previously impaired investment securities included in net income, net of tax expense |
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| (10) |
| (27) |
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| (16) |
| (10) | ||
Total Other Comprehensive Income (Loss) |
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| 197 |
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| (494) | |||||||
Total Other Comprehensive (Loss) Income |
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| (138) |
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| 197 | |||||||
Total Comprehensive Income |
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| $ | 1,409 |
| $ | 564 |
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| $ | 1,093 |
| $ | 1,409 |
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| Nine Months Ended September 30, |
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| Nine Months Ended September 30, | ||||||||
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| 2019 |
| 2018 |
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| 2020 |
| 2019 | ||||
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| (Unaudited) |
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| (Unaudited) | ||||||||
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| (Dollars in thousands) |
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| (Dollars in thousands) | ||||||||
Net Income |
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| $ | 2,915 |
| $ | 3,000 |
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| $ | 3,315 |
| $ | 2,915 |
Other Comprehensive Income (Loss), net of tax expense (benefit): |
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Unrealized holding gains (losses) on securities available for sale, net of tax expense (benefit) |
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| 1,471 |
| (1,444) | ||||||||
Other Comprehensive Income, net of tax expense: |
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Unrealized holding gains on securities available for sale, net of tax expense |
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|
| 733 |
| 1,471 | ||||||||
Reclassification adjustments related to: |
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Recovery on previously impaired investment securities included in net income, net of tax expense |
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|
| (31) |
| (98) |
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| (38) |
| (31) | ||
Total Other Comprehensive Income (Loss) |
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| 1,440 |
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| (1,542) | |||||||
Total Other Comprehensive Income |
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| 695 |
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| 1,440 | |||||||
Total Comprehensive Income |
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| $ | 4,355 |
| $ | 1,458 |
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| $ | 4,010 |
| $ | 4,355 |
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See notes to consolidated financial statements. | See notes to consolidated financial statements. |
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| See notes to consolidated financial statements. |
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3
Lake Shore Bancorp, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, June 30, and September 30, 20192020 and 20182019 (Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unearned |
| Unearned Shares |
|
|
|
| Accumulated |
|
|
| |||
|
|
|
|
| Additional |
|
|
|
| Shares |
| Held by |
|
|
|
| Other |
|
|
| ||||
|
| Common |
| Paid-In |
| Treasury |
| Held by |
| Compensation |
| Retained |
| Comprehensive |
|
|
| |||||||
|
| Stock |
| Capital |
| Stock |
| ESOP |
| Plans |
| Earnings |
| Income (Loss) |
| Total | ||||||||
|
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2018 |
| $ | 68 |
| $ | 30,719 |
| $ | (7,309) |
| $ | (1,535) |
| $ | (540) |
| $ | 56,181 |
| $ | 791 |
| $ | 78,375 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 936 |
|
| - |
|
| 936 |
Other comprehensive loss, net of tax benefit of $185 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (697) |
|
| (697) |
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from AOCI |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (156) |
|
| 156 |
|
| - |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 12 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 33 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares granted (5,285 shares) |
|
| - |
|
| - |
|
| 50 |
|
| - |
|
| (50) |
|
| - |
|
| - |
|
| - |
Compensation plan shares forfeited (9,638 shares) |
|
| - |
|
| - |
|
| (91) |
|
| - |
|
| 91 |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (6,613 shares) |
|
| - |
|
| 24 |
|
| - |
|
| - |
|
| 70 |
|
| - |
|
| - |
|
| 94 |
Purchase of treasury stock, at cost (20,000 shares) |
|
| - |
|
| - |
|
| (329) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (329) |
Cash dividends declared ($0.10 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (230) |
|
| - |
|
| (230) |
Balance - March 31, 2018 |
| $ | 68 |
| $ | 30,766 |
| $ | (7,679) |
| $ | (1,514) |
| $ | (429) |
| $ | 56,731 |
| $ | 250 |
| $ | 78,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 1, 2018 |
| $ | 68 |
| $ | 30,766 |
| $ | (7,679) |
| $ | (1,514) |
| $ | (429) |
| $ | 56,731 |
| $ | 250 |
| $ | 78,193 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,006 |
|
| - |
|
| 1,006 |
Other comprehensive loss, net of tax benefit of $94 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (351) |
|
| (351) |
ESOP shares earned (1,983 shares) |
|
| - |
|
| 12 |
|
| - |
|
| 22 |
|
| - |
|
| - |
|
| - |
|
| 34 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares granted (44 shares) |
|
| - |
|
| - |
|
| 1 |
|
| - |
|
| (1) |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (7,329 shares) |
|
| - |
|
| 30 |
|
| - |
|
| - |
|
| 77 |
|
| - |
|
| - |
|
| 107 |
Purchase of treasury stock, at cost (14,300 shares) |
|
| - |
|
| - |
|
| (243) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (243) |
Cash dividends declared ($0.10 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (228) |
|
| - |
|
| (228) |
Balance - June 30, 2018 |
| $ | 68 |
| $ | 30,819 |
| $ | (7,921) |
| $ | (1,492) |
| $ | (353) |
| $ | 57,509 |
| $ | (101) |
| $ | 78,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - July 1, 2018 |
| $ | 68 |
| $ | 30,819 |
| $ | (7,921) |
| $ | (1,492) |
| $ | (353) |
| $ | 57,509 |
| $ | (101) |
| $ | 78,529 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,058 |
|
| - |
|
| 1,058 |
Other comprehensive loss, net of tax benefit of $131 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (494) |
|
| (494) |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 12 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 33 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares forfeited (795 shares) |
|
| - |
|
| - |
|
| (8) |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| (6) |
Compensation plan shares earned (7,424 shares) |
|
| - |
|
| 28 |
|
| - |
|
| - |
|
| 78 |
|
| - |
|
| - |
|
| 106 |
Purchase of treasury stock, at cost (12,100 shares) |
|
| - |
|
| - |
|
| (208) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (208) |
Cash dividends declared ($0.10 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (228) |
|
| - |
|
| (228) |
Balance - September 30, 2018 |
| $ | 68 |
| $ | 30,870 |
| $ | (8,137) |
| $ | (1,471) |
| $ | (273) |
| $ | 58,339 |
| $ | (595) |
| $ | 78,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unearned |
| Unearned Shares |
|
|
|
| Accumulated |
|
|
| |||
|
|
|
|
| Additional |
|
|
|
| Shares |
| Held by |
|
|
|
| Other |
|
|
| ||||
|
| Common |
| Paid-In |
| Treasury |
| Held by |
| Compensation |
| Retained |
| Comprehensive |
|
|
| |||||||
|
| Stock |
| Capital |
| Stock |
| ESOP |
| Plans |
| Earnings |
| Income |
| Total | ||||||||
|
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2019 |
| $ | 68 |
| $ | 30,916 |
| $ | (8,805) |
| $ | (1,449) |
| $ | (200) |
| $ | 59,145 |
| $ | 129 |
| $ | 79,804 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 898 |
|
| - |
|
| 898 |
Other comprehensive income, net of tax expense of $167 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 628 |
|
| 628 |
Cumulative effect of adoption of ASU 2016-02 Leases (Topic 842) (net of $2 tax benefit effect) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (10) |
|
| - |
|
| (10) |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 10 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 31 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares granted (5,186 shares) |
|
| - |
|
| - |
|
| 49 |
|
| - |
|
| (49) |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (5,518 shares) |
|
| - |
|
| 18 |
|
| - |
|
| - |
|
| 60 |
|
| - |
|
| - |
|
| 78 |
Purchase of treasury stock, at cost (7,300 shares) |
|
| - |
|
| - |
|
| (111) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (111) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (267) |
|
| - |
|
| (267) |
Balance - March 31, 2019 |
| $ | 68 |
| $ | 30,955 |
| $ | (8,867) |
| $ | (1,428) |
| $ | (189) |
| $ | 59,766 |
| $ | 757 |
| $ | 81,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 1, 2019 |
| $ | 68 |
| $ | 30,955 |
| $ | (8,867) |
| $ | (1,428) |
| $ | (189) |
| $ | 59,766 |
| $ | 757 |
| $ | 81,062 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 805 |
|
| - |
|
| 805 |
Other comprehensive income, net of tax expense of $164 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 615 |
|
| 615 |
ESOP shares earned (1,983 shares) |
|
| - |
|
| 6 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 27 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares forfeited (760 shares) |
|
| - |
|
| - |
|
| (8) |
|
| - |
|
| 8 |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (6,107 shares) |
|
| - |
|
| 23 |
|
| - |
|
| - |
|
| 58 |
|
| - |
|
| - |
|
| 81 |
Purchase of treasury stock, at cost (43,900 shares) |
|
| - |
|
| - |
|
| (672) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (672) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (265) |
|
| - |
|
| (265) |
Balance - June 30, 2019 |
| $ | 68 |
| $ | 30,995 |
| $ | (9,547) |
| $ | (1,407) |
| $ | (123) |
| $ | 60,306 |
| $ | 1,372 |
| $ | 81,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - July 1, 2019 |
| $ | 68 |
| $ | 30,995 |
| $ | (9,547) |
| $ | (1,407) |
| $ | (123) |
| $ | 60,306 |
| $ | 1,372 |
| $ | 81,664 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,212 |
|
| - |
|
| 1,212 |
Other comprehensive income, net of tax expense of $52 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 197 |
|
| 197 |
Stock options exercised (17,773 shares) |
|
| - |
|
| 6 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 6 |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 11 |
|
| - |
|
| 22 |
|
| - |
|
| - |
|
| - |
|
| 33 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares earned (4,277 shares) |
|
| - |
|
| 19 |
|
| - |
|
| - |
|
| 52 |
|
| - |
|
| - |
|
| 71 |
Purchase of treasury stock, at cost (16,990 shares) |
|
| - |
|
| - |
|
| (255) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (255) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (480) |
|
| - |
|
| (480) |
Balance - September 30, 2019 |
| $ | 68 |
| $ | 31,042 |
| $ | (9,802) |
| $ | (1,385) |
| $ | (71) |
| $ | 61,038 |
| $ | 1,569 |
| $ | 82,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unearned |
| Unearned Shares |
|
|
|
| Accumulated |
|
|
| |||
|
|
|
|
| Additional |
|
|
|
| Shares |
| Held by |
|
|
|
| Other |
|
|
| ||||
|
| Common |
| Paid-In |
| Treasury |
| Held by |
| Compensation |
| Retained |
| Comprehensive |
|
|
| |||||||
|
| Stock |
| Capital |
| Stock |
| ESOP |
| Plans |
| Earnings |
| Income (Loss) |
| Total | ||||||||
|
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||
Balance - January 1, 2019 |
| $ | 68 |
| $ | 30,916 |
| $ | (8,805) |
| $ | (1,449) |
| $ | (200) |
| $ | 59,145 |
| $ | 129 |
| $ | 79,804 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 898 |
|
| - |
|
| 898 |
Other comprehensive income, net of tax expense of $167 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 628 |
|
| 628 |
Cumulative effect of adoption of ASU 2016-02 Leases (Topic 842) (net of $2 tax benefit effect) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (10) |
|
| - |
|
| (10) |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 10 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 31 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares granted (5,186 shares) |
|
| - |
|
| - |
|
| 49 |
|
| - |
|
| (49) |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (5,518 shares) |
|
| - |
|
| 18 |
|
| - |
|
| - |
|
| 60 |
|
| - |
|
| - |
|
| 78 |
Purchase of treasury stock, at cost (7,300 shares) |
|
| - |
|
| - |
|
| (111) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (111) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (267) |
|
| - |
|
| (267) |
Balance - March 31, 2019 |
| $ | 68 |
| $ | 30,955 |
| $ | (8,867) |
| $ | (1,428) |
| $ | (189) |
| $ | 59,766 |
| $ | 757 |
| $ | 81,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 1, 2019 |
| $ | 68 |
| $ | 30,955 |
| $ | (8,867) |
| $ | (1,428) |
| $ | (189) |
| $ | 59,766 |
| $ | 757 |
| $ | 81,062 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 805 |
|
| - |
|
| 805 |
Other comprehensive income, net of tax expense of $164 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 615 |
|
| 615 |
ESOP shares earned (1,983 shares) |
|
| - |
|
| 6 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 27 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares forfeited (760 shares) |
|
| - |
|
| - |
|
| (8) |
|
| - |
|
| 8 |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (6,107 shares) |
|
| - |
|
| 23 |
|
| - |
|
| - |
|
| 58 |
|
| - |
|
| - |
|
| 81 |
Purchase of treasury stock, at cost (43,900 shares) |
|
| - |
|
| - |
|
| (672) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (672) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (265) |
|
| - |
|
| (265) |
Balance - June 30, 2019 |
| $ | 68 |
| $ | 30,995 |
| $ | (9,547) |
| $ | (1,407) |
| $ | (123) |
| $ | 60,306 |
| $ | 1,372 |
| $ | 81,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - July 1, 2019 |
| $ | 68 |
| $ | 30,995 |
| $ | (9,547) |
| $ | (1,407) |
| $ | (123) |
| $ | 60,306 |
| $ | 1,372 |
| $ | 81,664 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,212 |
|
| - |
|
| 1,212 |
Other comprehensive income, net of tax expense of $52 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 197 |
|
| 197 |
Stock options exercised (17,773 shares) |
|
| - |
|
| 6 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 6 |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 11 |
|
| - |
|
| 22 |
|
| - |
|
| - |
|
| - |
|
| 33 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares earned (4,277 shares) |
|
| - |
|
| 19 |
|
| - |
|
| - |
|
| 52 |
|
| - |
|
| - |
|
| 71 |
Purchase of treasury stock, at cost (16,990 shares) |
|
| - |
|
| - |
|
| (255) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (255) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (480) |
|
| - |
|
| (480) |
Balance - September 30, 2019 |
| $ | 68 |
| $ | 31,042 |
| $ | (9,802) |
| $ | (1,385) |
| $ | (71) |
| $ | 61,038 |
| $ | 1,569 |
| $ | 82,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unearned |
| Unearned Shares |
|
|
|
| Accumulated |
|
|
| |||
|
|
|
|
| Additional |
|
|
|
| Shares |
| Held by |
|
|
|
| Other |
|
|
| ||||
|
| Common |
| Paid-In |
| Treasury |
| Held by |
| Compensation |
| Retained |
| Comprehensive |
|
|
| |||||||
|
| Stock |
| Capital |
| Stock |
| ESOP |
| Plans |
| Earnings |
| Income (Loss) |
| Total | ||||||||
|
| (Dollars in thousands, except share and per share data) | ||||||||||||||||||||||
Balance - January 1, 2020 |
| $ | 68 |
| $ | 31,078 |
| $ | (10,184) |
| $ | (1,364) |
| $ | (39) |
| $ | 61,950 |
| $ | 1,331 |
| $ | 82,840 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 731 |
|
| - |
|
| 731 |
Other comprehensive income, net of tax expense of $220 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 828 |
|
| 828 |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 7 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 28 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares granted (20,830 shares) |
|
| - |
|
| - |
|
| 196 |
|
| - |
|
| (196) |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (1,889 shares) |
|
| - |
|
| 9 |
|
| - |
|
| - |
|
| 20 |
|
| - |
|
| - |
|
| 29 |
Purchase of treasury stock, at cost (26,900 shares) |
|
| - |
|
| - |
|
| (377) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (377) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (259) |
|
| - |
|
| (259) |
Balance - March 31, 2020 |
| $ | 68 |
| $ | 31,105 |
| $ | (10,365) |
| $ | (1,343) |
| $ | (215) |
| $ | 62,422 |
| $ | 2,159 |
| $ | 83,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - April 1, 2020 |
| $ | 68 |
| $ | 31,105 |
| $ | (10,365) |
| $ | (1,343) |
| $ | (215) |
| $ | 62,422 |
| $ | 2,159 |
| $ | 83,831 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,353 |
|
| - |
|
| 1,353 |
Other comprehensive income, net of tax expense of $2 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 5 |
|
| 5 |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 2 |
|
| - |
|
| 21 |
|
| - |
|
| - |
|
| - |
|
| 23 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares forfeited (332 shares) |
|
| - |
|
| - |
|
| (4) |
|
| - |
|
| 4 |
|
| - |
|
| - |
|
| - |
Compensation plan shares earned (3,299 shares) |
|
| - |
|
| 19 |
|
| - |
|
| - |
|
| 31 |
|
| - |
|
| - |
|
| 50 |
Purchase of treasury stock, at cost (40,600 shares) |
|
| - |
|
| - |
|
| (511) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (511) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (254) |
|
| - |
|
| (254) |
Balance - June 30, 2020 |
| $ | 68 |
| $ | 31,137 |
| $ | (10,880) |
| $ | (1,322) |
| $ | (180) |
| $ | 63,521 |
| $ | 2,164 |
| $ | 84,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - July 1, 2020 |
| $ | 68 |
| $ | 31,137 |
| $ | (10,880) |
| $ | (1,322) |
| $ | (180) |
| $ | 63,521 |
| $ | 2,164 |
| $ | 84,508 |
Net income |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,231 |
|
| - |
|
| 1,231 |
Other comprehensive loss, net of tax benefit of $37 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (138) |
|
| (138) |
ESOP shares earned (1,984 shares) |
|
| - |
|
| 3 |
|
| - |
|
| 22 |
|
| - |
|
| - |
|
| - |
|
| 25 |
Stock based compensation |
|
| - |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 11 |
Compensation plan shares earned (3,327 shares) |
|
| - |
|
| 18 |
|
| - |
|
| - |
|
| 33 |
|
| - |
|
| - |
|
| 51 |
Purchase of treasury stock, at cost (42,100 shares) |
|
| - |
|
| - |
|
| (550) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (550) |
Cash dividends declared ($0.12 per share) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (251) |
|
| - |
|
| (251) |
Balance - September 30, 2020 |
| $ | 68 |
| $ | 31,169 |
| $ | (11,430) |
| $ | (1,300) |
| $ | (147) |
| $ | 64,501 |
| $ | 2,026 |
| $ | 84,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Lake Shore Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
| ||||
|
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
|
| (Unaudited) |
| (Unaudited) | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 2,915 |
| $ | 3,000 |
| $ | 3,315 |
| $ | 2,915 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||
Net amortization of investment securities |
| 38 |
| 66 |
| 31 |
| 38 | ||||
Net amortization of deferred loan costs |
| 436 |
| 423 |
| 424 |
| 436 | ||||
Provision for loan losses |
| 725 |
| 315 |
| 1,125 |
| 725 | ||||
Recovery on previously impaired investment securities |
| (39) |
| (124) |
| (48) |
| (39) | ||||
Unrealized gain on equity securities |
| (57) |
| (9) | ||||||||
Unrealized loss (gain) on interest rate swap |
| 109 |
| (16) | ||||||||
Unrealized loss (gain) on equity securities |
| 24 |
| (57) | ||||||||
Unrealized loss on interest rate swap |
| 156 |
| 109 | ||||||||
Originations of loans held for sale |
| (1,274) |
| (777) |
| (8,452) |
| (1,274) | ||||
Proceeds from sales of loans held for sale |
| 1,303 |
| 787 |
| 8,785 |
| 1,303 | ||||
Gain on sale of loans held for sale |
| (29) |
| (10) |
| (333) |
| (29) | ||||
Depreciation and amortization |
| 600 |
| 579 |
| 629 |
| 600 | ||||
Increase in bank owned life insurance, net |
| (370) |
| (273) |
| (374) |
| (370) | ||||
ESOP shares committed to be released |
| 91 |
| 100 |
| 76 |
| 91 | ||||
Stock based compensation expense |
| 263 |
| 334 |
| 163 |
| 263 | ||||
Increase in accrued interest receivable |
| (323) |
| (243) |
| (992) |
| (323) | ||||
(Increase) Decrease in other assets |
| (267) |
| 10 | ||||||||
Increase (Decrease) in other liabilities |
|
| 194 |
|
| (323) | ||||||
Decrease (increase) in other assets |
| 36 |
| (267) | ||||||||
Gains from sale of foreclosed real estate |
| (16) |
| - | ||||||||
(Decrease) increase in other liabilities |
|
| (109) |
|
| 194 | ||||||
Net Cash Provided by Operating Activities |
|
| 4,315 |
|
| 3,839 |
|
| 4,440 |
|
| 4,315 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Activity in available for sale securities: |
|
|
|
|
|
|
|
| ||||
Maturities, prepayments and calls |
| 12,981 |
| 6,215 |
| 13,118 |
| 12,981 | ||||
Purchases |
| - |
| (10,826) |
| (20,330) |
| - | ||||
Purchases of Federal Home Loan Bank Stock |
| (510) |
| (20) |
| (93) |
| (510) | ||||
Redemptions of Federal Home Loan Bank Stock |
| - |
| 106 |
| 171 |
| - | ||||
Loan origination and principal collections, net |
| (71,846) |
| (25,426) |
| (22,001) |
| (71,846) | ||||
Proceeds from sale of foreclosed real estate |
| 526 |
| - | ||||||||
Additions to premises and equipment |
| (507) |
| (589) |
|
| (280) |
|
| (507) | ||
Purchase of bank owned life insurance |
|
| - |
|
| (1,750) | ||||||
Net Cash Used in Investing Activities |
| (59,882) |
| (32,290) |
| (28,889) |
| (59,882) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| ||||
Net increase in deposits |
| 38,817 |
| 30,748 |
| 72,062 |
| 38,817 | ||||
Net decrease in advances from borrowers for taxes and insurance |
| (1,399) |
| (1,375) |
| (1,261) |
| (1,399) | ||||
Proceeds from issuance of long-term debt |
| 14,050 |
| 1,500 |
| 1,200 |
| 14,050 | ||||
Repayment of long-term debt |
| (4,050) |
| (3,800) |
| (4,500) |
| (4,050) | ||||
Proceeds from stock options exercised |
| 6 |
| - |
| - |
| 6 | ||||
Purchase of treasury stock |
| (1,038) |
| (780) |
| (1,438) |
| (1,038) | ||||
Cash dividends paid |
|
| (1,012) |
|
| (686) |
|
| (764) |
|
| (1,012) |
Net Cash Provided by Financing Activities |
|
| 45,374 |
|
| 25,607 |
|
| 65,299 |
|
| 45,374 |
Net Decrease in Cash and Cash Equivalents |
|
| (10,193) |
|
| (2,844) | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
| 40,850 |
|
| (10,193) | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING |
|
| 30,751 |
|
| 40,913 |
|
| 30,289 |
|
| 30,751 |
CASH AND CASH EQUIVALENTS - ENDING |
| $ | 20,558 |
| $ | 38,069 |
| $ | 71,139 |
| $ | 20,558 |
SUPPLEMENTARY CASH FLOWS INFORMATION |
|
|
|
|
|
|
|
| ||||
Interest paid |
| $ | 3,752 |
| $ | 2,564 |
| $ | 3,523 |
| $ | 3,752 |
Income taxes paid |
| $ | 530 |
| $ | 477 |
| $ | 800 |
| $ | 530 |
Right of Use Asset Recognized |
| $ | 904 |
| $ | - | ||||||
Right of Use Liability Recognized |
| $ | 916 |
| $ | - | ||||||
Right of use asset recognized |
| $ | - |
| $ | 904 | ||||||
Right of use liability recognized |
| $ | - |
| $ | 916 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
| ||||
Foreclosed real estate acquired in settlement of loans |
| $ | 165 |
| $ | 1,495 |
| $ | - |
| $ | 165 |
Securities purchased and not settled |
| $ | 2,355 |
| $ | - | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. | See notes to consolidated financial statements. |
|
| See notes to consolidated financial statements. |
|
|
6
Lake Shore Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Note 1 – Basis of Presentation
The interim consolidated financial statements include the accounts of Lake Shore Bancorp, Inc. (the “Company”, “us”, “our”, or “we”) and Lake Shore Savings Bank (the “Bank”), its wholly owned subsidiary. All intercompany accounts and transactions of the consolidated subsidiary have been eliminated in consolidation.
The interim consolidated financial statements included herein as of September 30, 20192020 and for the three and nine months ended September 30, 20192020 and 20182019 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and therefore, do not include all information or footnotes necessary for a complete presentation of the consolidated statements of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated statement of financial condition at December 31, 20182019 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information and to make the financial statements not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. The consolidated statements of income for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results for any subsequent period or the entire year ending December 31, 2019.2020.
To prepare these consolidated financial statements in conformity with GAAP, management of the Company made a number of estimates and assumptions relating to the reporting of assets and liabilities and the reporting of revenue and expenses. 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, securities valuation estimates, evaluation of impairment of securities and income taxes.
The Company has evaluated events and transactions occurring subsequent to the statement of financial condition as of September 30, 20192020 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
Leases
The Company leases certain properties and equipment under operating and finance leases. For operating leases in effect upon adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” at January 1, 2019 and for any leases commencing thereafter, the Company recognized a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset(s) during the lease term, the “right-of-use (“ROU”) asset.” The lease liability is measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate. The ROU asset is measured at the initial amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent, any unamortized initial direct costs, and any impairment of the ROU asset. Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments that are not included in the lease liability, and any impairment of the ROU asset. Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. The Company’s leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.
7
The Company has made an accounting policy election to not apply the recognition requirements in Topic 842 to short-term leases. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to include both lease and non-lease components as a single component and account for it as a lease.
The Company’s leases are not complex; therefore there were no significant assumptions or judgements made in applying the requirements of Topic 842, including the determination of whether the contracts contained a lease, the allocation of consideration in the contracts between lease and non-lease components, and the determination of the discount rates for the leases.
Note 2 – New Accounting Standards
Impact of Adoption of Recent Accounting Standards and Accounting Guidance
Under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, financial institutions have the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of COVID-19. This provision allows a financial institution the option to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company adoptedelected to adopt this provision of the CARES Act.
In addition, the Company’s banking regulators and other financial regulators, on March 22, 2020 and revised April 7, 2020, issued a joint interagency statement titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their
7
contractual payment obligations due to the effects of the COVID-19 pandemic. Pursuant to the interagency statement, loan modifications that do not meet the conditions of Section 4013 of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. Specifically, the agencies confirmed with the staff of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ASU 2016-02”)that short-term modifications made in good faith in response to the pandemic to borrowers who were current prior to any relief are not TDRs under GAAP. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on January 1, 2019. ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assetstheir contractual payments at the time a modification program is implemented. Appropriate allowances for loan and lease liabilities onlosses are expected to be maintained. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to the consolidated statements of financial condition for leases with lease terms of more than 12 months. Leases will be classifiedpandemic as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of income. ASU 2016-02 provides for a modified retrospective transition approach basis to record the impact of adopting ASU 2016-02 on financial statements. The modified retrospective transition approach allows the lessee to recognize and measure leases on the consolidated statements of financial condition at the beginning of either the earliest period presented or aspast due because of the beginning of the period of adoption.deferral. The interagency statement also states that during short-term pandemic-related loan modifications, these loans generally should not be reported as nonaccrual. The Company elected to recognize and measure leases on the consolidated statements of financial condition at the beginning of the period of adoption presented in our financial statements, or January 1, 2019, and will not restate prior periods. Adoption of ASU 2016-02 resulted in the recognition of lease liabilities totaling $916,000 and the recognition of ROU assets totaling $904,000 as of the date of adoption. Lease liabilities and ROU assets are reflected in other liabilities and other assets, respectively. The initial gross up upon adoption was primarily related to operating leases of certain real estate properties. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. The most significant effects of adoption relate to the recognition of new ROU assets and lease liabilities on our consolidated statements of financial condition for two operating leases related to branch office space; and providing additional new disclosures about the Company’s leasing activities. The Company does not expect a significant change in its leasing activities due to the adoption of ASU 2016-02. Upon adoption of ASU 2016-02, the Company recognized a cumulative effect adjustment to beginning retained earnings of $10,000. Refer to Note 6 for more information related to the adoption of ASU 2016-02. adopt this interagency guidance.
The Company adopted FASB ASU 2017-08, “Receivables—Nonrefundable Feesimplemented a loan modification program for impacted customers, in line with regulatory guidance, allowing customers to defer loan payments. The majority of loan deferrals were granted for deferral of principal and Other Costs (Subtopic 310-20)” (“ASU 2017-08”)interest payments for 90 days, and up to 180 days in some instances, with the loan repayment period extended by the deferral period. The requests are evaluated individually and approved modifications are based on January 1, 2019. ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premiumunique circumstances of each borrower. During the second quarter of 2020, the Company approved loan payment deferral requests of up to the earliest call date. Under previous GAAP, entities generally amortized the premium as an adjustment of yield over the contractual life90 days on 219 loans, representing $103.1 million, or 21.1%, of the instrument. ASU 2017-08 doesBank’s loan portfolio as of June 30, 2020. 88.2% of the loan balances with payment deferrals were for commercial real estate loans and commercial business loans, while the remaining 11.8% were for residential mortgage, home equity and consumer loans. The number of loan payment deferral requests has decreased and as of October 31, 2020, there were 25 loans, representing $20.8 million, or 4.1% of the Bank’s loan portfolio, that are deferring payments, as follows:
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Loan Type | Number of Loans |
| Balance Outstanding | Weighted Average Interest Rate | |
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Commercial real estate | 16 | $ | 17,608 | 5.06 | % |
Commercial business | 9 |
| 3,165 | 5.02 |
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| 25 | $ | 20,773 | 5.05 | % |
These loans were current at the time of modification and were not require an accounting changeconsidered troubled debt restructurings based on the CARES Act and interagency guidance noted above and we have not accounted for securities held at a discount; the discount continues to be amortized to maturity. loans as TDRs, nor have we designated the loans as past due or non-accrual.
The adoption of ASU 2017-08 did notthese provisions under Section 4013 of the CARES Act and interagency guidance may have a material impact on the Company’s consolidated financial statements or results of operations.statements; however, the Company cannot quantify the impact at this time.
Accounting Standards to be Adopted
In June 2016, the FASB issued ASUAccounting Standard Update (“ASU”) 2016-13, ““Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”Instruments” (“ASU 2016-13”). 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 the CECL model entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a
8
troubled debt restructuring exists) from the date of initial recognition of that instrument. Further, ASU 2016-13 made certain targeted amendments to the existing impairment standards 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. An entity will apply the amendments in ASU 2016-13 through a
8
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
The Company has determined its data requirements and is developing its methodologies for calculating the expected credit losses under ASU 2016-13 which has allowed the Company to run parallel loss reserve calculations. Data integrity associated with these methodologies is being reviewed and enhancements to the current process are being considered. We expect that the new guidance will result in an increase to the allowance for loan losses given that the allowance will be required to cover the full remaining expected life of the portfolio, rather than the incurred loss under the current accounting standard. The extent of this increase is still being evaluated. We are also reviewing the impact of additional disclosures required under ASU 2016-13 on our ongoing financial reporting procedures.
ASU 2016-13 was originally effective for public companies that are U.S. Securities and Exchange Commission (“SEC”) filers for fiscal periods beginning after December 15, 2019, including interim reporting periods within those periods.the Company in 2020. In AugustNovember 2019, the FASB issued a proposed accounting standard updateguidance to put forward staggereddefer the effective datesdate for certain accounting standards, including ASU 2016-13. The FASB has proposed an approach that ASU 2016-13 will be effective for Public Business Entities that are SEC filers, excluding smaller reporting companies such as the Company for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effectiveuntil January 1, 2019, for calendar-year-end companies). The FASB approved this proposed update on October 16, 2019 and expects to issue a final ASU in mid-November. The Company is currently a smaller reporting company, and once the final ASU is in place, the Company’s expected adoption date for ASU 2016-13 would change from fiscal years beginning after December 15, 2019 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years..2023.
9
Note 3 – Investment Securities
Debt Securities
The amortized cost and fair value of securities are as follows:
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| September 30, 2019 |
| September 30, 2020 | ||||||||||||||||||||
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| Gross |
| Gross |
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| Gross |
| Gross |
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| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||||||
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| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
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| (Dollars in thousands) |
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| (Dollars in thousands) | ||||||||||||||||||
SECURITIES AVAILABLE FOR SALE: |
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Debt Securities |
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U.S. Government Agencies |
| $ | 2,011 |
| $ | 175 |
| $ | - |
| $ | 2,186 | ||||||||||||
U.S. government agencies |
| $ | 2,010 |
| $ | 364 |
| $ | - |
| $ | 2,374 | ||||||||||||
Municipal bonds |
|
| 36,504 |
|
| 928 |
|
| - |
|
| 37,432 |
|
| 44,816 |
|
| 1,089 |
|
| (32) |
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| 45,873 |
Mortgage-backed securities: |
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Collateralized mortgage obligations-private label |
|
| 24 |
|
| 1 |
|
| - |
|
| 25 |
|
| 19 |
|
| - |
|
| - |
|
| 19 |
Collateralized mortgage obligations-government sponsored entities |
|
| 28,826 |
|
| 523 |
|
| (144) |
|
| 29,205 |
|
| 25,091 |
|
| 674 |
|
| (15) |
|
| 25,750 |
Government National Mortgage Association |
|
| 170 |
|
| 14 |
|
| - |
|
| 184 |
|
| 128 |
|
| 12 |
|
| - |
|
| 140 |
Federal National Mortgage Association |
|
| 2,050 |
|
| 82 |
|
| - |
|
| 2,132 |
|
| 4,520 |
|
| 125 |
|
| - |
|
| 4,645 |
Federal Home Loan Mortgage Corporation |
|
| 3,407 |
|
| 171 |
|
| - |
|
| 3,578 |
|
| 2,419 |
|
| 173 |
|
| - |
|
| 2,592 |
Asset-backed securities-private label |
|
| - |
|
| 235 |
|
| - |
|
| 235 |
|
| - |
|
| 171 |
|
| - |
|
| 171 |
Asset-backed securities-government sponsored entities |
|
| 34 |
|
| 2 |
|
| - |
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| 36 |
|
| 31 |
|
| 3 |
|
| - |
|
| 34 |
Total Debt Securities |
| $ | 73,026 |
| $ | 2,131 |
| $ | (144) |
| $ | 75,013 |
| $ | 79,034 |
| $ | 2,611 |
| $ | (47) |
| $ | 81,598 |
Equity Securities |
|
| 23 |
|
| 57 |
|
| - |
|
| 80 |
|
| 22 |
|
| 21 |
|
| - |
|
| 43 |
Total Securities Available for Sale |
| $ | 73,049 |
| $ | 2,188 |
| $ | (144) |
| $ | 75,093 |
| $ | 79,056 |
| $ | 2,632 |
| $ | (47) |
| $ | 81,641 |
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| December 31, 2018 |
| December 31, 2019 | ||||||||||||||||||||
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| Gross |
| Gross |
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| Gross |
| Gross |
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| ||||
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| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||||||
|
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
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| (Dollars in thousands) |
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| (Dollars in thousands) | ||||||||||||||||||
SECURITIES AVAILABLE FOR SALE: |
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Debt Securities |
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U.S. Government Agencies |
| $ | 2,012 |
| $ | - |
| $ | (51) |
| $ | 1,961 | ||||||||||||
U.S. government agencies |
| $ | 2,011 |
| $ | 134 |
| $ | - |
| $ | 2,145 | ||||||||||||
Municipal bonds |
|
| 44,546 |
|
| 521 |
|
| (125) |
|
| 44,942 |
|
| 34,985 |
|
| 835 |
|
| (1) |
|
| 35,819 |
Mortgage-backed securities: |
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|
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|
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|
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Collateralized mortgage obligations-private label |
|
| 27 |
|
| - |
|
| - |
|
| 27 |
|
| 23 |
|
| - |
|
| - |
|
| 23 |
Collateralized mortgage obligations-government sponsored entities |
|
| 32,987 |
|
| 152 |
|
| (686) |
|
| 32,453 |
|
| 27,081 |
|
| 393 |
|
| (133) |
|
| 27,341 |
Government National Mortgage Association |
|
| 191 |
|
| 8 |
|
| - |
|
| 199 |
|
| 162 |
|
| 14 |
|
| - |
|
| 176 |
Federal National Mortgage Association |
|
| 2,367 |
|
| 41 |
|
| (23) |
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| 2,385 |
|
| 1,944 |
|
| 69 |
|
| - |
|
| 2,013 |
Federal Home Loan Mortgage Corporation |
|
| 3,833 |
|
| 64 |
|
| (9) |
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| 3,888 |
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| 3,211 |
|
| 156 |
|
| - |
|
| 3,367 |
Asset-backed securities-private label |
|
| - |
|
| 270 |
|
| - |
|
| 270 |
|
| - |
|
| 215 |
|
| - |
|
| 215 |
Asset-backed securities-government sponsored entities |
|
| 43 |
|
| 1 |
|
| - |
|
| 44 |
|
| 33 |
|
| 2 |
|
| - |
|
| 35 |
Total Debt Securities |
| $ | 86,006 |
| $ | 1,057 |
| $ | (894) |
| $ | 86,169 |
| $ | 69,450 |
| $ | 1,818 |
| $ | (134) |
| $ | 71,134 |
Equity Securities |
|
| 22 |
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| 2 |
|
| - |
|
| 24 |
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| 22 |
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| 45 |
|
| - |
|
| 67 |
Total Securities Available for Sale |
| $ | 86,028 |
| $ | 1,059 |
| $ | (894) |
| $ | 86,193 |
| $ | 69,472 |
| $ | 1,863 |
| $ | (134) |
| $ | 71,201 |
Debt Securities
All of our collateralized mortgage obligations are backed by one- to four-family residential mortgages.
At September 30, 2019 and December 31, 2018,2020, thirty-two municipal bonds with a cost of $10.0$10.7 million and $11.0 million, respectively, and fair value of $10.3 million and $11.2 million respectively, were pledged under a collateral agreement with the Federal Reserve Bank (“FRB”) of New York for liquidity borrowing. At December 31, 2019, thirty-three municipal bonds with a cost of $10.9 million and fair value of $11.2 million were pledged with the FRB. In addition, at September 30, 2019 and December 31, 2018, twenty-two2020 seventeen municipal bonds with a cost of $5.7$3.9 million and $5.6 million, respectively, and fair value of $5.9$4.1 million and $5.6 million, respectively, were pledged as collateral for customer deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At December 31, 2019, sixteen municipal bonds with a cost of $3.6 million and fair value of $3.7 million were pledged as collateral for customer deposits in excess of the FDIC insurance limits.
1110
The following table sets forth the Company’s investment in debt securities available for sale with gross unrealized losses of less than twelve months and gross unrealized losses of twelve months or more and associated fair values as of the dates indicated:
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| Less than 12 months |
| 12 months or more |
| Total |
| Less than 12 months |
| 12 months or more |
| Total | |||||||||||||||||||||||||
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| Gross |
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| Gross |
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| Gross |
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| Gross |
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| Gross |
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| Gross | |||||||
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| Unrealized |
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| Unrealized |
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| Unrealized |
|
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| Unrealized |
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| Unrealized |
|
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| Unrealized | |||||||||
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| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | |||||||||||||
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| (Dollars in thousands) |
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||
September 30, 2019 |
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September 30, 2020 | September 30, 2020 |
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Municipal bonds |
| $ | 3,757 |
| (32) |
| $ | - |
| $ | - |
| $ | 3,757 |
| $ | (32) | ||||||||||||||||||||
Mortgage-backed securities |
| $ | 450 |
| (3) |
| $ | 11,498 |
| $ | (141) |
| $ | 11,948 |
| $ | (144) |
| 2,246 |
| (14) |
| 152 |
| (1) |
|
| 2,398 |
|
| (15) | ||||||
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| $ | 6,003 |
| $ | (46) |
| $ | 152 |
| $ | (1) |
| $ | 6,155 |
| $ | (47) |
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December 31, 2018 |
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|
|
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|
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| ||||||||||||||||||||||||
U.S. Government Agencies |
| $ | - |
| $ | - |
| $ | 1,961 |
| $ | (51) |
| $ | 1,961 |
| $ | (51) | ||||||||||||||||||
December 31, 2019 | December 31, 2019 |
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Municipal bonds |
| 1,531 |
| (5) |
| 4,299 |
| (120) |
| 5,830 |
| (125) |
| $ | 399 |
| (1) |
| $ | - |
| $ | - |
| $ | 399 |
| $ | (1) | |||||||
Mortgage-backed securities |
| 736 |
| (5) |
| 23,065 |
| (713) |
| 23,801 |
|
| (718) |
| 423 |
| (3) |
| 10,676 |
| (130) |
| 11,099 |
|
| (133) | ||||||||||
|
| $ | 2,267 |
| $ | (10) |
| $ | 29,325 |
| $ | (884) |
| $ | 31,592 |
| $ | (894) |
| $ | 822 |
| $ | (4) |
| $ | 10,676 |
| $ | (130) |
| $ | 11,498 |
| $ | (134) |
The Company reviews all investment securities on an ongoing basis for the presence of other-than-temporary-impairment (“OTTI”) with formal reviews performed quarterly.
At September 30, 2019,2020, the Company had one securityCompany’s investment portfolio included fourteen securities in the “unrealized losses less than twelve months ”months” category and 24five securities in the “unrealized losses twelve months or more” category. Management has the intent and ability to hold these securities until maturity. Management believes the temporary impairments were due to declines in fair value resulting from changes in interest rates and/or increased credit liquidity spreads since the securities were purchased.
The unrealized losses on debt securities shown in the previous tables were recorded as a component of other comprehensive income, (loss), net of tax expense (benefit) on the Company’s Consolidated Statementsconsolidated statements of Stockholders’ Equity.stockholders’ equity.
The following table presents a summary of the credit-related OTTI charges recognized as components of income:
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| �� |
|
|
|
| For The Nine Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||
Beginning balance |
| $ | 347 |
| $ | 435 |
| $ | 294 |
| $ | 347 |
Additions: |
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Credit loss not previously recognized |
|
| - |
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| - |
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| - |
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| - |
Reductions: |
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|
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Losses realized during the period on OTTI previously recognized |
|
| - |
|
| - |
|
| - |
|
| - |
Receipt of cash flows on previously recorded OTTI |
|
| (39) |
|
| (67) |
|
| (48) |
|
| (39) |
Ending balance |
| $ | 308 |
| $ | 368 |
| $ | 246 |
| $ | 308 |
A deterioration in credit quality and/or other factors that may limit the liquidity of a security in our portfolio might adversely affect the fair values of the Company’s investment portfolio and may increase the potential that certain unrealized losses will be designated as “other-than-temporary” and that the Company may incur additional write-downs in future periods.
During the nine months ended September 30, 20192020 and 2018,2019, the Company did not sell any available for sale debt securities.
1211
Scheduled contractual maturities of available for sale debt securities are as follows:
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| Amortized |
| Fair | ||
|
| Cost |
| Value | ||
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| (Dollars in thousands) | ||||
September 30, 2020: |
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Less than one year |
| $ | 895 |
| $ | 897 |
After one year through five years |
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| 7,416 |
|
| 7,472 |
After five years through ten years |
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| 13,684 |
|
| 14,221 |
After ten years |
|
| 24,831 |
|
| 25,657 |
Mortgage-backed securities |
|
| 32,177 |
|
| 33,146 |
Asset-backed securities |
|
| 31 |
|
| 205 |
|
| $ | 79,034 |
| $ | 81,598 |
Equity Securities
At September 30, 20192020 and December 31, 2018, available for sale2019, equity securities consisted of 22,368 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) common stock. During the three months ended September 30, 20192020 and 2018,2019, the Company recognized an unrealized gainloss of $22,000$6,000 and an unrealized lossgain of $5,000,$22,000, respectively, on the equity securities, which was recorded in non-interest income in the consolidated statements of income. During the nine months ended September 30, 20192020 and 2018,2019, the Company recognized an unrealized loss of $24,000 and an unrealized gain of $57,000, and $9,000, respectively.respectively, on the equity securities. There were no sales of equity securities during the three and nine months ended September 30, 2020 and 2019.
Scheduled contractual maturities of available for sale securities are as follows:
|
|
|
|
|
|
|
|
| Amortized |
| Fair | ||
|
| Cost |
| Value | ||
|
| (Dollars in thousands) | ||||
September 30, 2019: |
|
|
|
|
|
|
Less than one year |
| $ | 360 |
| $ | 361 |
After one year through five years |
|
| 7,634 |
|
| 7,734 |
After five years through ten years |
|
| 16,629 |
|
| 16,890 |
After ten years |
|
| 13,892 |
|
| 14,633 |
Mortgage-backed securities |
|
| 34,477 |
|
| 35,124 |
Asset-backed securities |
|
| 34 |
|
| 271 |
Equity securities |
|
| 23 |
|
| 80 |
|
| $ | 73,049 |
| $ | 75,093 |
Note 4 - Allowance for Loan Losses
Management segregates the loan portfolio into loan types and analyzes the risk level for each loan type when determining its allowance for loan losses. The loan types are as follows:
Real Estate Loans:
· | One- to Four-Family – are loans secured by first lien collateral on residential real estate primarily held in the Western New York region. These loans can be affected by economic conditions and the value of underlying properties. Western New York’s housing market has consistently demonstrated stability in home prices despite economic conditions. Furthermore, the Company has conservative underwriting standards and its residential lending policies and procedures ensure that its one- to four-family residential mortgage loans generally conform to secondary market guidelines. |
· | Home Equity - are loans or lines of credit secured by first or second liens on owner-occupied residential real estate primarily held in the Western New York region. These loans can also be affected by economic conditions and the values of underlying properties. Home equity loans may have increased risk of loss if the Company does not hold the first mortgage resulting in the Company being in a secondary position in the event of collateral liquidation. The Company does not originate interest only home equity loans. |
· | Commercial Real Estate – are loans used to finance the purchase of real property, which generally consists of developed real estate that is held as first lien collateral for the loan. These loans are secured by real estate properties that are primarily held in the Western New York region. Commercial real estate lending involves additional risks compared with one- to four-family residential lending, because payments on loans secured by commercial real estate properties are often dependent on the successful operation or management of the properties, and/or the collateral value of the commercial real estate securing the loan, and repayment of such loans may be subject to adverse conditions in the real estate market or economic conditions to a greater extent than one- to four-family residential mortgage loans. Also, commercial real estate loans typically involve relatively large loan balances concentrated with single borrowers or groups of related borrowers. |
13
· | Construction – are loans to finance the construction of either one- to four-family owner occupied homes or commercial real estate. At the end of the construction period, the loan automatically 12 |
converts to either a one- to four-family or commercial mortgage, as applicable. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion compared to the actual cost of construction. The Company limits its risk during construction as disbursements are not made until the required work for each advance has been completed and an updated lien search is performed. The completion of the construction progress is verified by a Company loan officer or |
Other Loans:
· | Commercial – includes business installment loans, lines of credit, and other commercial loans. Most of our commercial loans have fixed interest rates, and are for terms generally not in excess of 5 years. Whenever possible, we collateralize these loans with a lien on business assets and equipment and require the personal guarantees from principals of the borrower. Commercial loans generally involve a higher degree of credit risk, as commercial loans can |
· | Consumer – consist of loans secured by collateral such as an automobile or a deposit account, unsecured loans and lines of credit. Consumer loans tend to have a higher credit risk due to the loans being either unsecured or secured by rapidly depreciable assets. Furthermore, consumer loan payments are dependent on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. |
The allowance for loan losses is a valuation account that reflects the Company’s evaluation of the losses inherent in its loan portfolio. In order to determine the adequacy of the allowance for loan losses, the Company estimates losses by loan type using historical loss factors, as well as other environmental factors, such as trends in loan volume and loan type, loan concentrations, changes in the experience, ability and depth of the Company’s lending management, and national and local economic conditions. The Company's determination as to the classification of loans and the amount of loss allowances are subject to review by bank regulators, which can require the establishment of additional loss allowances.
The Company also reviews all loans on which the collectability of principal may not be reasonably assured, by reviewing payment status, financial conditions and estimated value of loan collateral. These loans are assigned an internal loan grade, and the Company assigns an amount of loss allowances to these classified loans based on loan grade.
Although the allocations noted below are by loan type, the allowance for loan losses is general in nature and is available to offset losses from any loan in the Company’s portfolio. The unallocated component of the allowance for loan losses reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for existing specific and general losses in the portfolio.
The projected economic impact of COVID-19 resulted in the Company recording an $828,000 provision to allowance for loan losses during the nine months ended September 30, 2020 to account for adjustments to certain qualitative factors that reflected the uncertain aspects of the pandemic on economic conditions and borrowers’ ability to repay the loans. A general review of all commercial real estate and commercial business loans that received an initial loan payment deferral as a result of the COVID-19 impact was performed. Refer to Note 2 – New Accounting Standards for information on the loan payment deferrals granted by the Bank. At this time management has not changed its classification of these loans due to the quality knowledge our loan officers have obtained from their discussions with the borrowers and due to the strength of the collateral and guarantors. Management continues to carefully monitor those borrowers who remain on payment deferral
13
for additional signs of distress that would result in a downgrade in loan classification. The net provision for loan losses of $1.1 million during the nine months ended September 30, 2020 included a $297,000 provision related to additional adjustments which were made to account for, increases in classified loans, net loan charge-offs, changes in the historical loss factor, loan originations and payoffs and changes in the mix of the loan portfolio.
The Company is participating in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the CARES Act. The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. During the first nine months of 2020, the Bank originated 252 SBA PPP loans for our customers, which totaled $26.9 million. We funded $18.4 million of PPP loans directly with the remaining $8.5 million funded indirectly via our partnership with Pursuit, a SBA lender that operates in the northeast. At September 30, 2020, there were $18.6 million in PPP loans outstanding and recorded as commercial business loans. In accordance with the SBA terms and conditions on these PPP loans, the Company recorded approximately $247,000 in net fees associated with the processing of these loans. Upon funding the loans, the net fees were deferred and will be amortized over the life of the loans as an adjustment to yield. We are in the process of assisting borrowers who have received PPP loans with the forgiveness application phase of the program. As of September 30, 2020, we have not yet submitted any forgiveness applications with the SBA. It is expected that most customers will apply and receive PPP loan forgiveness during the next six months, upon which any unamortized deferred fees will be recognized as an adjustment to interest income.
14
The following tables summarize the activity in the allowance for loan losses for the three and nine months ended September 30, 20192020 and 20182019 and the distribution of the allowance for loan losses and loans receivable by loan portfolio class and impairment method as of September 30, 20192020 and December 31, 2018:2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
| Other Loans |
|
|
|
|
|
|
| Real Estate Loans |
| Other Loans |
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
| One- to Four-Family(2) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total |
| One- to Four-Family(2) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total | ||||||||||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
September 30, 2019 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
September 30, 2020 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2019 |
| $ | 389 |
| $ | 144 |
| $ | 2,777 |
| $ | 379 |
| $ | 133 |
| $ | 30 |
| $ | 11 |
| $ | 3,863 | ||||||||||||||||||||||||
Balance – July 1, 2020 |
| $ | 426 |
| $ | 169 |
| $ | 3,377 |
| $ | 554 |
| $ | 481 |
| $ | 34 |
| $ | 23 |
| $ | 5,064 | ||||||||||||||||||||||||
Charge-offs |
|
| (2) |
|
| - |
|
| (10) |
|
| - |
|
| - |
|
| (13) |
|
| - |
|
| (25) |
|
| - |
|
| (6) |
|
| - |
|
| - |
|
| - |
|
| (17) |
|
| - |
|
| (23) |
Recoveries |
|
| - |
|
| - |
|
| 1 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| 3 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 6 |
|
| - |
|
| 6 |
Provision (Credit) |
|
| (4) |
|
| (9) |
|
| 122 |
|
| 60 |
|
| 104 |
|
| 7 |
|
| 20 |
|
| 300 | ||||||||||||||||||||||||
Balance – September 30, 2019 |
| $ | 383 |
| $ | 135 |
| $ | 2,890 |
| $ | 439 |
| $ | 237 |
| $ | 26 |
| $ | 31 |
| $ | 4,141 | ||||||||||||||||||||||||
Provision (credit) |
|
| (23) |
|
| - |
|
| 67 |
|
| 6 |
|
| 179 |
|
| 1 |
|
| 70 |
|
| 300 | ||||||||||||||||||||||||
Balance – September 30, 2020 |
| $ | 403 |
| $ | 163 |
| $ | 3,444 |
| $ | 560 |
| $ | 660 |
| $ | 24 |
| $ | 93 |
| $ | 5,347 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1, 2019 |
| $ | 471 |
| $ | 91 |
| $ | 2,020 |
| $ | 250 |
| $ | 507 |
| $ | 25 |
| $ | 84 |
| $ | 3,448 | ||||||||||||||||||||||||
Balance – January 1, 2020 |
| $ | 436 |
| $ | 129 |
| $ | 2,682 |
| $ | 388 |
| $ | 478 |
| $ | 26 |
| $ | 128 |
| $ | 4,267 | ||||||||||||||||||||||||
Charge-offs |
|
| (2) |
|
| (4) |
|
| (10) |
|
| - |
|
| - |
|
| (34) |
|
| - |
|
| (50) |
|
| (26) |
|
| (6) |
|
| - |
|
| - |
|
| (5) |
|
| (27) |
|
| - |
|
| (64) |
Recoveries |
|
| 8 |
|
| 1 |
|
| 3 |
|
| - |
|
| - |
|
| 6 |
|
| - |
|
| 18 |
|
| - |
|
| 1 |
|
| 1 |
|
| - |
|
| 4 |
|
| 13 |
|
| - |
|
| 19 |
Provision (Credit) |
|
| (94) |
|
| 47 |
|
| 877 |
|
| 189 |
|
| (270) |
|
| 29 |
|
| (53) |
|
| 725 | ||||||||||||||||||||||||
Balance – September 30, 2019 |
| $ | 383 |
| $ | 135 |
| $ | 2,890 |
| $ | 439 |
| $ | 237 |
| $ | 26 |
| $ | 31 |
| $ | 4,141 | ||||||||||||||||||||||||
Provision (credit) |
|
| (7) |
|
| 39 |
|
| 761 |
|
| 172 |
|
| 183 |
|
| 12 |
|
| (35) |
|
| 1,125 | ||||||||||||||||||||||||
Balance – September 30, 2020 |
| $ | 403 |
| $ | 163 |
| $ | 3,444 |
| $ | 560 |
| $ | 660 |
| $ | 24 |
| $ | 93 |
| $ | 5,347 | ||||||||||||||||||||||||
Ending balance: individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | 30 |
| $ | - |
| $ | 15 |
| $ | - |
| $ | - |
| $ | 45 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Ending balance: collectively evaluated for impairment |
| $ | 383 |
| $ | 135 |
| $ | 2,860 |
| $ | 439 |
| $ | 222 |
| $ | 26 |
| $ | 31 |
| $ | 4,096 |
| $ | 403 |
| $ | 163 |
| $ | 3,444 |
| $ | 560 |
| $ | 660 |
| $ | 24 |
| $ | 93 |
| $ | 5,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans Receivable (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 157,051 |
| $ | 45,083 |
| $ | 202,360 |
| $ | 32,477 |
| $ | 25,596 |
| $ | 1,092 |
| $ | - |
| $ | 463,659 |
| $ | 151,356 |
| $ | 47,073 |
| $ | 216,571 |
| $ | 37,338 |
| $ | 39,673 |
| $ | 1,312 |
| $ | - |
| $ | 493,323 |
Ending balance: individually evaluated for impairment |
| $ | 171 |
| $ | - |
| $ | 235 |
| $ | - |
| $ | 30 |
| $ | - |
| $ | - |
| $ | 436 |
| $ | 304 |
| $ | 15 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 319 |
Ending balance: collectively evaluated for impairment |
| $ | 156,880 |
| $ | 45,083 |
| $ | 202,125 |
| $ | 32,477 |
| $ | 25,566 |
| $ | 1,092 |
| $ | - |
| $ | 463,223 |
| $ | 151,052 |
| $ | 47,058 |
| $ | 216,571 |
| $ | 37,338 |
| $ | 39,673 |
| $ | 1,312 |
| $ | - |
| $ | 493,004 |
(1) Gross Loans Receivable does not include allowance for loan losses of $(5,347) or deferred loan costs of $3,292. (2) Includes one- to four-family construction loans. |
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
| Other Loans |
|
|
|
|
|
| ||||||||||||||
|
| One- to Four-Family(1) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in thousands) | ||||||||||||||||||||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2018 |
| $ | 440 |
| $ | 86 |
| $ | 1,887 |
| $ | 329 |
| $ | 658 |
| $ | 30 |
| $ | 44 |
| $ | 3,474 |
Charge-offs |
|
| (23) |
|
| - |
|
| (181) |
|
| - |
|
| - |
|
| (9) |
|
| - |
|
| (213) |
Recoveries |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| 2 |
Provision (Credit) |
|
| 18 |
|
| 2 |
|
| 249 |
|
| (80) |
|
| (48) |
|
| 2 |
|
| (18) |
|
| 125 |
Balance – September 30, 2018 |
| $ | 435 |
| $ | 88 |
| $ | 1,955 |
| $ | 249 |
| $ | 610 |
| $ | 25 |
| $ | 26 |
| $ | 3,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1, 2018 |
| $ | 511 |
| $ | 122 |
| $ | 1,663 |
| $ | 347 |
| $ | 544 |
| $ | 35 |
| $ | 61 |
| $ | 3,283 |
Charge-offs |
|
| (23) |
|
| - |
|
| (181) |
|
| - |
|
| - |
|
| (32) |
|
| - |
|
| (236) |
Recoveries |
|
| 18 |
|
| 1 |
|
| - |
|
| - |
|
| 1 |
|
| 6 |
|
| - |
|
| 26 |
Provision (Credit) |
|
| (71) |
|
| (35) |
|
| 473 |
|
| (98) |
|
| 65 |
|
| 16 |
|
| (35) |
|
| 315 |
Balance – September 30, 2018 |
| $ | 435 |
| $ | 88 |
| $ | 1,955 |
| $ | 249 |
| $ | 610 |
| $ | 25 |
| $ | 26 |
| $ | 3,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
| Other Loans |
|
|
|
|
|
| ||||||||||||||
|
| One- to Four-Family(1) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total | ||||||||
|
| (Dollars in thousands) | ||||||||||||||||||||||
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2019 |
| $ | 389 |
| $ | 144 |
| $ | 2,777 |
| $ | 379 |
| $ | 133 |
| $ | 30 |
| $ | 11 |
| $ | 3,863 |
Charge-offs |
|
| (2) |
|
| - |
|
| (10) |
|
| - |
|
| - |
|
| (13) |
|
| - |
|
| (25) |
Recoveries |
|
| - |
|
| - |
|
| 1 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| 3 |
Provision (credit) |
|
| (4) |
|
| (9) |
|
| 122 |
|
| 60 |
|
| 104 |
|
| 7 |
|
| 20 |
|
| 300 |
Balance – September 30, 2019 |
| $ | 383 |
| $ | 135 |
| $ | 2,890 |
| $ | 439 |
| $ | 237 |
| $ | 26 |
| $ | 31 |
| $ | 4,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1, 2019 |
| $ | 471 |
| $ | 91 |
| $ | 2,020 |
| $ | 250 |
| $ | 507 |
| $ | 25 |
| $ | 84 |
| $ | 3,448 |
Charge-offs |
|
| (2) |
|
| (4) |
|
| (10) |
|
| - |
|
| - |
|
| (34) |
|
| - |
|
| (50) |
Recoveries |
|
| 8 |
|
| 1 |
|
| 3 |
|
| - |
|
| - |
|
| 6 |
|
| - |
|
| 18 |
Provision (credit) |
|
| (94) |
|
| 47 |
|
| 877 |
|
| 189 |
|
| (270) |
|
| 29 |
|
| (53) |
|
| 725 |
Balance – September 30, 2019 |
| $ | 383 |
| $ | 135 |
| $ | 2,890 |
| $ | 439 |
| $ | 237 |
| $ | 26 |
| $ | 31 |
| $ | 4,141 |
(1) Includes one– to four-family construction loans.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
|
| Other Loans |
|
|
|
|
|
| |||||||||||||
|
| One- to Four-Family(2) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total | ||||||||
|
| (Dollars in thousands) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2019 |
| $ | 436 |
| $ | 129 |
| $ | 2,682 |
| $ | 388 |
| $ | 478 |
| $ | 26 |
| $ | 128 |
| $ | 4,267 |
Ending balance: individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Ending balance: collectively evaluated for impairment |
| $ | 436 |
| $ | 129 |
| $ | 2,682 |
| $ | 388 |
| $ | 478 |
| $ | 26 |
| $ | 128 |
| $ | 4,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans Receivable (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ | 154,749 |
| $ | 45,250 |
| $ | 211,220 |
| $ | 32,299 |
| $ | 26,720 |
| $ | 1,297 |
| $ | - |
| $ | 471,535 |
Ending balance: individually evaluated for impairment |
| $ | 166 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 166 |
Ending balance: collectively evaluated for impairment |
| $ | 154,583 |
| $ | 45,250 |
| $ | 211,220 |
| $ | 32,299 |
| $ | 26,720 |
| $ | 1,297 |
| $ | - |
| $ | 471,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Loans |
|
| Other Loans |
|
|
|
|
|
| |||||||||||||
|
| One- to Four-Family(2) |
| Home Equity |
| Commercial |
| Construction - Commercial |
| Commercial |
| Consumer |
| Unallocated |
| Total | ||||||||
|
| (Dollars in thousands) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2018 |
| $ | 471 |
| $ | 91 |
| $ | 2,020 |
| $ | 250 |
| $ | 507 |
| $ | 25 |
| $ | 84 |
| $ | 3,448 |
Ending balance: individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | 30 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 30 |
Ending balance: collectively evaluated for impairment |
| $ | 471 |
| $ | 91 |
| $ | 1,990 |
| $ | 250 |
| $ | 507 |
| $ | 25 |
| $ | 84 |
| $ | 3,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans Receivable (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ | 155,024 |
| $ | 41,830 |
| $ | 150,475 |
| $ | 22,252 |
| $ | 21,825 |
| $ | 1,156 |
| $ | - |
| $ | 392,562 |
Ending balance: individually evaluated for impairment |
| $ | 178 |
| $ | - |
| $ | 382 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 560 |
Ending balance: collectively evaluated for impairment |
| $ | 154,846 |
| $ | 41,830 |
| $ | 150,093 |
| $ | 22,252 |
| $ | 21,825 |
| $ | 1,156 |
| $ | - |
| $ | 392,002 |
(1) Gross Loans Receivable does not include allowance for loan losses of $(4,267) or deferred loan costs of $3,548.
|
|
|
|
(2) Includes one- to four-family construction loans.
A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect the scheduled payments of principal and interest when due according to the
16
contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled payments when due. Impairment is measured on a loan-by-loan basis for commercial real estate loans and commercial loans. Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, home equity, or one- to four-family loans for impairment disclosure, unless they are subject to a troubled debt restructuring.
The following is a summary of information pertaining to impaired loans at or for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| At September 30, 2019 |
| September 30, 2019 | |||||||||||
|
| (Dollars in thousands) | |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| $ | 171 |
| $ | 171 |
| $ | - |
| $ | 175 |
| $ | 7 |
Commercial real estate(1) |
|
| - |
|
| - |
|
| - |
|
| 35 |
|
| - |
Total impaired loans with no related allowance |
|
| 171 |
|
| 171 |
|
| - |
|
| 210 |
|
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
| 235 |
|
| 235 |
|
| 30 |
|
| 280 |
|
| 8 |
Commercial loans |
|
| 30 |
|
| 30 |
|
| 15 |
|
| 32 |
|
| 1 |
Total impaired loans with an allowance |
|
| 265 |
|
| 265 |
|
| 45 |
|
| 312 |
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
|
| 171 |
|
| 171 |
|
| - |
|
| 175 |
|
| 7 |
Commercial real estate |
|
| 235 |
|
| 235 |
|
| 30 |
|
| 315 |
|
| 8 |
Commercial loans |
|
| 30 |
|
| 30 |
|
| 15 |
|
| 32 |
|
| 1 |
Total impaired loans |
| $ | 436 |
| $ | 436 |
| $ | 45 |
| $ | 522 |
| $ | 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended | ||||
|
| At September 30, 2020 |
| September 30, 2020 | |||||||||||
|
| (Dollars in thousands) | |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| $ | 304 |
| $ | 304 |
| $ | - |
| $ | 312 |
| $ | 11 |
Home equity |
|
| 15 |
|
| 15 |
|
| - |
|
| 16 |
|
| - |
Total impaired loans |
|
| 319 |
|
| 319 |
|
| - |
|
| 328 |
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
|
|
|
|
|
|
|
|
|
|
| For the Year Ended | ||||
|
| At December 31, 2019 |
| December 31, 2019 | |||||||||||
|
| (Dollars in thousands) | |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| $ | 166 |
| $ | 166 |
| $ | - |
| $ | 173 |
| $ | 10 |
Commercial real estate(1) |
|
| - |
|
| - |
|
| - |
|
| 27 |
|
| - |
Total impaired loans with no related allowance |
|
| 166 |
|
| 166 |
|
| - |
|
| 200 |
|
| 10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate(2) |
|
| - |
|
| - |
|
| - |
|
| 260 |
|
| 8 |
Commercial loans(3) |
|
| - |
|
| - |
|
| - |
|
| 31 |
|
| 1 |
Total impaired loans with an allowance |
|
| - |
|
| - |
|
| - |
|
| 291 |
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
|
| 166 |
|
| 166 |
|
| - |
|
| 173 |
|
| 10 |
Commercial real estate |
|
| - |
|
| - |
|
| - |
|
| 287 |
|
| 8 |
Commercial loans |
|
| - |
|
| - |
|
| - |
|
| 31 |
|
| 1 |
Total impaired loans |
| $ | 166 |
| $ | 166 |
| $ | - |
| $ | 491 |
| $ | 19 |
(1)This loan was paid off during the nine months ended September 30, 2019.
17
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
|
|
|
|
|
|
|
|
|
|
| For the Year Ended | ||||
|
| At December 31, 2018 |
| December 31, 2018 | |||||||||||
|
| (Dollars in thousands) | |||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| $ | 178 |
| $ | 178 |
| $ | - |
| $ | 180 |
| $ | 12 |
Home equity (1) |
|
| - |
|
| - |
|
| - |
|
| 17 |
|
| - |
Commercial real estate |
|
| 134 |
|
| 134 |
|
| - |
|
| 356 |
|
| - |
Commercial loans |
|
| - |
|
| - |
|
| - |
|
| 59 |
|
| 1 |
Total impaired loans with no related allowance |
|
| 312 |
|
| 312 |
|
| - |
|
| 612 |
|
| 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (2) |
|
| 248 |
|
| 248 |
|
| 30 |
|
| 1,249 |
|
| 4 |
Total impaired loans with an allowance |
|
| 248 |
|
| 248 |
|
| 30 |
|
| 1,249 |
|
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
|
| 178 |
|
| 178 |
|
| - |
|
| 180 |
|
| 12 |
Home equity |
|
| - |
|
| - |
|
| - |
|
| 17 |
|
| - |
Commercial real estate |
|
| 382 |
|
| 382 |
|
| 30 |
|
| 1,605 |
|
| 4 |
Commercial loans |
|
| - |
|
| - |
|
| - |
|
| 59 |
|
| 1 |
Total impaired loans |
| $ | 560 |
| $ | 560 |
| $ | 30 |
| $ | 1,861 |
| $ | 17 |
(1)These loans were either paid off or foreclosed upon during the year ended December 31, 2018.2019.
(2)TwoThis line item consisted of two commercial real estate loans with a combined recorded investment of $1.4 million$294,000 and a related allowance of $60,000 were foreclosed upon$40,000. One commercial real estate loan was paid off in full and the other commercial real estate loan was charged off during the year ended December 31, 2018.2019.
(3) A commercial business loan with a recorded investment of $30,000 and a related allowance of $15,000 was partially paid off during the year ended December 31, 2019, with the remaining balance being recorded as a loss.
1817
The following tables provide an analysis of past due loans and non-accruing loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| 30-59 Days |
| 60-89 Days |
| 90 Days or More |
| Total Past |
| Current |
| Total Loans |
| Loans on Non- |
| 30-59 Days |
| 60-89 Days |
| 90 Days or More |
| Total Past |
| Current |
| Total Loans |
| Loans on Non- | ||||||||||||||
|
| Past Due |
| Past Due |
| Past Due |
| Due |
|
| Due |
| Receivable |
| Accrual |
| Past Due |
| Past Due |
| Past Due |
| Due |
|
| Due |
| Receivable |
| Accrual | ||||||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
September 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Residential, one- to four-family(1) |
| $ | 1,492 |
| $ | 587 |
| $ | 1,230 |
| $ | 3,309 |
| $ | 153,742 |
| $ | 157,051 |
| $ | 2,342 |
| $ | 1,000 |
| $ | 203 |
| $ | 1,245 |
| $ | 2,448 |
| $ | 148,908 |
| $ | 151,356 |
| $ | 2,664 |
Home equity |
| 296 |
|
| - |
|
| 626 |
|
| 922 |
|
| 44,161 |
|
| 45,083 |
|
| 665 |
| 144 |
|
| 100 |
|
| 631 |
|
| 875 |
|
| 46,198 |
|
| 47,073 |
|
| 696 | ||
Commercial |
| - |
|
| - |
|
| 235 |
|
| 235 |
|
| 202,125 |
|
| 202,360 |
|
| 235 |
| - |
|
| - |
|
| 253 |
|
| 253 |
|
| 216,318 |
|
| 216,571 |
|
| - | ||
Construction - Commercial |
| - |
|
| - |
|
| - |
|
| - |
|
| 32,477 |
|
| 32,477 |
|
| - | ||||||||||||||||||||||
Construction - commercial |
| - |
|
| - |
|
| - |
|
| - |
|
| 37,338 |
|
| 37,338 |
|
| - | ||||||||||||||||||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| 186 |
|
| - |
|
| - |
|
| 186 |
|
| 25,410 |
|
| 25,596 |
|
| 53 | ||||||||||||||||||||||
Commercial(2) |
| - |
|
| - |
|
| - |
|
| - |
|
| 39,673 |
|
| 39,673 |
|
| - | ||||||||||||||||||||||
Consumer |
|
| - |
|
| 1 |
|
| 5 |
|
| 6 |
|
| 1,086 |
|
| 1,092 |
|
| 5 |
|
| 13 |
|
| - |
|
| 1 |
|
| 14 |
|
| 1,298 |
|
| 1,312 |
|
| 1 |
Total |
| $ | 1,974 |
| $ | 588 |
| $ | 2,096 |
| $ | 4,658 |
| $ | 459,001 |
| $ | 463,659 |
| $ | 3,300 |
| $ | 1,157 |
| $ | 303 |
| $ | 2,130 |
| $ | 3,590 |
| $ | 489,733 |
| $ | 493,323 |
| $ | 3,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 30-59 Days |
| 60-89 Days |
| 90 Days or More |
| Total Past |
| Current |
| Total Loans |
| Loans on Non- |
| 30-59 Days |
| 60-89 Days |
| 90 Days or More |
| Total Past |
| Current |
| Total Loans |
| Loans on Non- | ||||||||||||||
|
| Past Due |
| Past Due |
| Past Due |
| Due |
|
| Due |
| Receivable |
| Accrual |
| Past Due |
| Past Due |
| Past Due |
| Due |
|
| Due |
| Receivable |
| Accrual | ||||||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential, one- to four-family(1) |
| $ | 851 |
| $ | 342 |
| $ | 1,361 | �� | $ | 2,554 |
| $ | 152,470 |
| $ | 155,024 |
| $ | 2,310 |
| $ | 1,245 |
| $ | 672 |
| $ | 1,924 |
| $ | 3,841 |
| $ | 150,908 |
| $ | 154,749 |
| $ | 2,845 |
Home equity |
| 211 |
|
| 187 |
|
| 333 |
|
| 731 |
|
| 41,099 |
|
| 41,830 |
|
| 337 |
| 168 |
|
| 162 |
|
| 583 |
|
| 913 |
|
| 44,337 |
|
| 45,250 |
|
| 590 | ||
Commercial |
| 76 |
|
| - |
|
| 306 |
|
| 382 |
|
| 150,093 |
|
| 150,475 |
|
| 382 |
| - |
|
| 1,133 |
|
| - |
|
| 1,133 |
|
| 210,087 |
|
| 211,220 |
|
| - | ||
Construction - Commercial |
| - |
|
| - |
|
| - |
|
| - |
|
| 22,252 |
|
| 22,252 |
|
| - | ||||||||||||||||||||||
Construction - commercial |
| - |
|
| - |
|
| - |
|
| - |
|
| 32,299 |
|
| 32,299 |
|
| - | ||||||||||||||||||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| - |
|
| - |
|
| 15 |
|
| 15 |
|
| 21,810 |
|
| 21,825 |
|
| 15 |
| - |
|
| - |
|
| - |
|
| - |
|
| 26,720 |
|
| 26,720 |
|
| - | ||
Consumer |
|
| 5 |
|
| - |
|
| - |
|
| 5 |
|
| 1,151 |
|
| 1,156 |
|
| - |
|
| 8 |
|
| - |
|
| 2 |
|
| 10 |
|
| 1,287 |
|
| 1,297 |
|
| 2 |
Total |
| $ | 1,143 |
| $ | 529 |
| $ | 2,015 |
| $ | 3,687 |
| $ | 388,875 |
| $ | 392,562 |
| $ | 3,044 |
| $ | 1,421 |
| $ | 1,967 |
| $ | 2,509 |
| $ | 5,897 |
| $ | 465,638 |
| $ | 471,535 |
| $ | 3,437 |
|
|
(1) Includes one- to four-family construction loans.
(2) Includes $18.6 million of PPP loans which do not require payments for a certain amount of time under the CARES Act and are 100% guaranteed by SBA.
The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. A loan does not have to be 90 days delinquent in order to be classified as non-accrual. When interest accrual is discontinued, all unpaid accrued interest is reversed. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal balance. Interest income not recognized on non-accrual loans during the nine month periods ended September 30, 2019 and 2018 was $107,000 and $205,000, respectively.balance.
The Company’s policies provide for the classification of loans as follows:
· | Pass/Performing; |
· | Special Mention – does not currently expose the Company to a sufficient degree of risk but does possess credit deficiencies or potential weaknesses deserving the Company’s close attention; |
· | Substandard – has one or more well-defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. A substandard asset would be one inadequately protected by the current net worth and paying capacity of the obligor or pledged collateral, if applicable; |
· | Doubtful – has all the weaknesses inherent in substandard loans with the additional characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss; and |
· | Loss – loan is considered uncollectible and continuance without the establishment of a specific valuation reserve is not warranted. |
1918
The Company’s Asset Classification Committee is responsible for monitoring risk ratings and making changes as deemed appropriate. Each commercial loan is individually assigned a loan classification. The Company’s consumer loans, including residential one- to four-family loans and home equity loans, are not classified as described above. Instead, the Company uses the delinquency status as the basis for classifying these loans. Generally, all consumer loans more than 90 days past due are classified and placed in non-accrual. Such loans that are well-secured and in the process of collection will remain in accrual status.
The following tables summarize the internal loan grades applied to the Company’s loan portfolio as of September 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass/ Performing |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family(1) |
| $ | 154,589 |
| $ | - |
| $ | 2,462 |
| $ | - |
| $ | - |
| $ | 157,051 |
Home equity |
|
| 44,162 |
|
| - |
|
| 921 |
|
| - |
|
| - |
|
| 45,083 |
Commercial |
|
| 200,055 |
|
| 1,456 |
|
| 849 |
|
| - |
|
| - |
|
| 202,360 |
Construction - Commercial |
|
| 32,477 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 32,477 |
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 25,543 |
|
| - |
|
| 53 |
|
| - |
|
| - |
|
| 25,596 |
Consumer |
|
| 1,086 |
|
| - |
|
| 6 |
|
| - |
|
| - |
|
| 1,092 |
Total |
| $ | 457,912 |
| $ | 1,456 |
| $ | 4,291 |
| $ | - |
| $ | - |
| $ | 463,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass/ Performing |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family(1) |
| $ | 152,039 |
| $ | - |
| $ | 2,985 |
| $ | - |
| $ | - |
| $ | 155,024 |
Home equity |
|
| 41,346 |
|
| - |
|
| 484 |
|
| - |
|
| - |
|
| 41,830 |
Commercial |
|
| 148,149 |
|
| 376 |
|
| 1,950 |
|
| - |
|
| - |
|
| 150,475 |
Construction - Commercial |
|
| 22,252 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,252 |
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 20,722 |
|
| 61 |
|
| 1,042 |
|
| - |
|
| - |
|
| 21,825 |
Consumer |
|
| 1,153 |
|
| - |
|
| 3 |
|
| - |
|
| - |
|
| 1,156 |
Total |
| $ | 385,661 |
| $ | 437 |
| $ | 6,464 |
| $ | - |
| $ | - |
| $ | 392,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass/Performing |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family(1) |
| $ | 148,727 |
| $ | - |
| $ | 2,629 |
| $ | - |
| $ | - |
| $ | 151,356 |
Home equity |
|
| 46,098 |
|
| - |
|
| 975 |
|
| - |
|
| - |
|
| 47,073 |
Commercial(2) |
|
| 201,494 |
|
| 14,477 |
|
| 600 |
|
| - |
|
| - |
|
| 216,571 |
Construction - commercial |
|
| 37,338 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 37,338 |
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial(3) |
|
| 34,340 |
|
| 1,030 |
|
| 4,303 |
|
| - |
|
| - |
|
| 39,673 |
Consumer |
|
| 1,311 |
|
| - |
|
| 1 |
|
| - |
|
| - |
|
| 1,312 |
Total |
| $ | 469,308 |
| $ | 15,507 |
| $ | 8,508 |
| $ | - |
| $ | - |
| $ | 493,323 |
Troubled debt restructurings (“TDRs”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass/Performing |
| Special Mention |
| Substandard |
| Doubtful |
| Loss |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family(1) |
| $ | 152,115 |
| $ | - |
| $ | 2,634 |
| $ | - |
| $ | - |
| $ | 154,749 |
Home equity |
|
| 44,403 |
|
| - |
|
| 847 |
|
| - |
|
| - |
|
| 45,250 |
Commercial |
|
| 208,042 |
|
| 2,573 |
|
| 605 |
|
| - |
|
| - |
|
| 211,220 |
Construction - commercial |
|
| 32,299 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 32,299 |
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 22,295 |
|
| 4,425 |
|
| - |
|
| - |
|
| - |
|
| 26,720 |
Consumer |
|
| 1,295 |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| 1,297 |
Total |
| $ | 460,449 |
| $ | 6,998 |
| $ | 4,088 |
| $ | - |
| $ | - |
| $ | 471,535 |
(1) Includes one- to four-family construction loans.
(2) The increase in commercial real estate loans classified as “Special Mention” was primarily due to a $13.3 million loan relationship with one borrower that is well collateralized and supported by guarantors.
(3) Includes $18.6 million of PPP loans which are 100% guaranteed by SBA and are graded as Pass/Performing loans.
TDRs occur when we grant borrowers concessions that we would not otherwise grant but for economic or legal reasons pertaining to the borrower’s financial difficulties. A concession is made when the terms of the loan modification are more favorable than the terms the borrower would have received in the current market under similar financial difficulties. These concessions may include, but are not limited to, modifications of the terms of the debt, the transfer of assets or the issuance of an equity interest by the borrower to satisfy all or part of the debt, or the addition of borrower(s). The Company identifies loans for potential TDRs 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. Generally, we will not return a TDR to accrual status until the borrower has demonstrated the ability to make principal and interest payments under the restructured terms for at least six consecutive months. The Company’s TDRs are impaired loans, which may result in specific allocations and subsequent charge-offs if appropriate.
2019
Some loan modifications classified as TDRs may not ultimately result in full collection of principal and interest, as modified, which may result in potential losses. These potential losses have been factored into our overall estimate of the allowance for loan losses.
The following table summarizes the loans that were classified as TDRs as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-Accruing |
| Accruing |
| TDRs That Have Defaulted on Modified Terms Year to Date |
|
|
|
|
|
| Non-Accruing |
| Accruing |
| TDRs That Have Defaulted on Modified Terms Year to Date | ||||||||||||||||||||||||
| Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment | Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment |
| Number of Loans |
| Recorded Investment | ||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
At September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
At September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| 5 |
| $ | 171 |
|
| 1 |
| $ | 30 |
|
| 4 |
| $ | 141 |
|
| - |
| $ | - |
| 8 |
| $ | 304 |
|
| 1 |
| $ | 20 |
|
| 7 |
| $ | 284 |
|
| - |
| $ | - |
Home equity |
| 1 |
|
| 15 |
|
| - |
|
| - |
|
| 1 |
|
| 15 |
|
| - |
|
| - | |||||||||||||||||||||||
Total |
| 9 |
| $ | 319 |
|
| 1 |
| $ | 20 |
|
| 8 |
| $ | 299 |
|
| - |
| $ | - | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| 5 |
| $ | 178 |
|
| 1 |
| $ | 34 |
|
| 4 |
| $ | 144 |
|
| 1 |
| $ | 34 |
| 5 |
| $ | 166 |
|
| 1 |
| $ | 28 |
|
| 4 |
| $ | 138 |
|
| - |
| $ | - |
No additional loan commitments were outstanding to these borrowers at September 30, 20192020 and December 31, 2018.2019.
The following table details the activity in loans which were first deemed to be TDRs during the nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
| |||||||
| For the Nine Months Ended September 30, 2020 | |||||||
| Number of Loans |
| Pre-Modification Outstanding Recorded Investment |
| Post-Modification Outstanding Recorded Investment | |||
| (Dollars in thousands) | |||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
Residential, one- to four-family |
| 3 |
| $ | 150 |
| $ | 150 |
Home equity |
| 1 |
|
| 16 |
|
| 16 |
Total |
| 4 |
| $ | 166 |
| $ | 166 |
There were no loans restructured and classified as TDRs during the three month period ended September 30, 2020.
There were no loans restructured and classified as TDRs during the three and nine month periods ended September 30, 2019 and 2018.2019.
Foreclosed real estate consists of property acquired in settlement of loans which is carried at its fair value less estimated selling costs. Write-downs from cost to fair value less estimated selling costs are recorded at the date of acquisition or repossession and are charged to the allowance for loan losses. Foreclosed real estate was $770,000$197,000 and $678,000$779,000 at September 30, 20192020 and December 31, 2018,2019, respectively, and was included as a component of other assets on the consolidated statements of financial condition. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $1.2$1.6 million and $1.1$1.8 million at September 30, 20192020 and December 31, 2018,2019, respectively.
20
Note 5 – BorrowingsDeposits
At September 30, 2019 and December 31, 2018,Deposits consist of the Company had no short-term borrowings.following at the dates indicated:
At September 30, 2019 and December 31, 2018, the Company had written agreements with the Federal Home Loan Bank of New York (“FHLBNY”) which allows it to borrow up to the maximum lending values designated by the type of collateral pledged. There have been no significant changes to these agreements since December 31, 2018.
Long-term debt from the FHLBNY and related contractual maturities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average Interest Rate |
| Amount Outstanding | ||||||
Maturity |
| At September 30, 2019 |
| At December 31, 2018 |
|
| At September 30, 2019 |
|
| At December 31, 2018 |
|
|
|
| (Dollars in thousands) | ||||||
|
|
|
|
|
|
|
|
|
|
|
2019 |
| 1.91% |
| 1.96% |
| $ | 2,200 |
| $ | 6,250 |
2020 |
| 2.09% |
| 2.09% |
|
| 6,100 |
|
| 6,100 |
2021 |
| 2.30% |
| 2.30% |
|
| 7,800 |
|
| 7,800 |
2022 |
| 2.18% |
| 2.18% |
|
| 2,000 |
|
| 2,000 |
2023 |
| 2.48% |
| 2.36% |
|
| 3,550 |
|
| 2,500 |
2024 |
| 1.73% |
| - |
|
| 13,000 |
|
| - |
|
| 2.04% |
| 2.16% |
| $ | 34,650 |
| $ | 24,650 |
|
|
|
|
|
|
|
|
| At September 30, 2020 |
| At December 31, 2019 | ||
|
| (Dollars in thousands) | ||||
Demand deposits: |
|
|
|
|
|
|
Non-interest bearing |
| $ | 90,669 |
| $ | 61,229 |
Interest bearing |
|
| 85,718 |
|
| 56,703 |
Money market accounts |
|
| 154,091 |
|
| 141,398 |
Savings accounts |
|
| 63,870 |
|
| 53,628 |
Time deposits |
|
| 161,190 |
|
| 170,518 |
|
|
|
|
|
|
|
|
| $ | 555,538 |
| $ | 483,476 |
21
Note 6 – Leases
Operating leases with terms longer than 12 months in which we are the lessee are recorded as ROU assets and operating lease liabilities, included in other assets and other liabilities, respectively, on the consolidated statements of financial condition under ASU 2016-02. Finance leases in which we are the lessee are recorded in premises and equipment on the consolidated statements of financial condition. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of income.
Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. ROU assets are further adjusted for lease incentives. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy and equipment expense in the consolidated statements of income.
The Company leases certain branch offices under operating or finance leases. Certain lease arrangements contain extension options which are typically for 5 years atincrease in total deposits was primarily due to an overall increase in net core deposits, partially offset by a decrease in time deposits. A majority of the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not includedgrowth in the lease term. As of September 30, 2019, operating lease ROU assets and liabilities were $808,000 and $830,000, respectively.
Operating lease costs that were recorded in occupancy and equipment expense on the consolidated statements of income for the three months ended September 30, 2019 and 2018 were $38,000 and $34,000, respectively. Operating lease costs for the nine months ended September 30, 2019 and 2018, were $114,000 and $103,000, respectively.
There were no sale and leaseback transactions, leveraged leases, lease transactions with related parties or leases that had not yet commencedcore deposits during the nine months ended September 30, 2019.
The table below summarizes information related2020 was due to our lease liabilitiesorganic growth, PPP loan proceeds and other government stimulus funds remaining on deposit at or for the nine months ended September 30, 2019Bank, and 2018:
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|
|
| For the Nine Months Ended September 30, | ||||||
(in thousands, except for percent and period data) |
| 2019 |
| 2018 | ||||
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|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
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|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 103 |
|
| $ | 103 |
|
Operating cash flows from finance leases |
|
| 95 |
|
|
| 90 |
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term, operating leases, in years |
|
| 5.8 |
|
|
| 1.1 |
|
Weighted-average discount rate – operating leases |
|
| 2.61 | % |
|
| N/A |
|
The Company has one long-term finance lease agreement for a branch location that was not impacted by the adoption of ASU 2016-02. The outstanding balanceimpact of the finance lease (includedCOVID-19 pandemic on consumer and business spending and savings levels. The Company’s strategic focus remains on organic growth of lower-cost core deposits among its retail and commercial customers in other liabilities) at September 30, 2019an effort to manage interest expense and December 31, 2018 was $757,000 and $797,000, respectively, with a weighted-average discount rate of 9.22%. The remaining term of this lease is 9.0 years. The asset related to this finance lease is included in premises and equipment and consists of the cost of $1.1 million less accumulated depreciation of approximately $580,000 and $548,000 at September 30, 2019 and December 31, 2018, respectively.strengthen customer relationships.
22
The table below summarizes the maturity of remaining lease liabilities as of September 30, 2019:
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|
|
|
|
|
| Operating |
| Finance | ||
|
| Leases |
| Lease | ||
|
| (Dollars in thousands) | ||||
2019 |
| $ | 34 |
| $ | 32 |
2020 |
|
| 145 |
|
| 126 |
2021 |
|
| 157 |
|
| 126 |
2022 |
|
| 157 |
|
| 126 |
2023 |
|
| 157 |
|
| 131 |
2024 and thereafter |
|
| 247 |
|
| 612 |
Total Lease Payments |
| $ | 897 |
| $ | 1,153 |
Less: Amounts representing interest |
|
| (67) |
|
| (396) |
Present value of lease liabilities |
| $ | 830 |
| $ | 757 |
Note 76 – Earnings per Share
Earnings per share was calculated for the three and nine months ended September 30, 20192020 and 2018,2019, respectively. Basic earnings per share is based upon the weighted average number of common shares outstanding, exclusive of unearned shares held by the Employee Stock Ownership Plan of Lake Shore Bancorp, Inc. (the “ESOP”), unearned shares held by the Lake Shore Bancorp, Inc. 2006 Recognition and Retention Plan (“RRP”), and unearned shares held by the Lake Shore Bancorp, Inc. 2012 Equity Incentive Plan (“EIP”). Diluted earnings per share is based upon the weighted average number of common shares outstanding and common share equivalents that would arise from the exercise of dilutive securities. Stock options are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would be dilutive and computed using the treasury stock method.
2321
The calculated basic and diluted earnings per share are as follows:
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|
|
| Three Months Ended September 30, |
| Three Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
Numerator – net income |
| $ | 1,212,000 |
| $ | 1,058,000 |
| $ | 1,231,000 |
| $ | 1,212,000 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 5,987,857 |
|
| 6,074,753 |
|
| 5,941,540 |
|
| 5,987,857 |
Increase in weighted average shares outstanding due to: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| - |
|
| 14,276 |
|
| - |
|
| - |
Diluted weighted average shares outstanding (1) |
|
| 5,987,857 |
|
| 6,089,029 |
|
| 5,941,540 |
|
| 5,987,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.20 |
| $ | 0.17 |
| $ | 0.21 |
| $ | 0.20 |
Diluted |
| $ | 0.20 |
| $ | 0.17 |
| $ | 0.21 |
| $ | 0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
Numerator – net income |
| $ | 2,915,000 |
| $ | 3,000,000 |
| $ | 3,315,000 |
| $ | 2,915,000 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 6,011,070 |
|
| 6,086,216 |
|
| 5,968,348 |
|
| 6,011,070 |
Increase in weighted average shares outstanding due to: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| - |
|
| 13,462 |
|
| - |
|
| - |
Diluted weighted average shares outstanding (1) |
|
| 6,011,070 |
|
| 6,099,678 |
|
| 5,968,348 |
|
| 6,011,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.48 |
| $ | 0.49 |
| $ | 0.56 |
| $ | 0.48 |
Diluted |
| $ | 0.48 |
| $ | 0.49 |
| $ | 0.56 |
| $ | 0.48 |
(1) | Stock options to purchase 64,547 shares under the Company’s 2006 Stock Option Plan and 20,000 shares under the EIP at $14.38 for each plan were outstanding during the three and nine month periods ended September 30, 2020 and 2019, respectively, but were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive. |
Note 87 – Commitments to Extend Credit
The Company has commitments to extend credit with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments. There were no loss reserves associated with these commitments at September 30, 20192020 and December 31, 2018.2019. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.
2422
The following commitments to extend credit were outstanding as of the dates specified:
|
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|
|
|
|
|
|
|
|
|
|
|
| Contract Amount |
| Contract Amount | ||||||||
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to grant loans |
| $ | 27,596 |
| $ | 41,901 |
| $ | 63,447 |
| $ | 26,919 |
Unfunded commitments under lines of credit |
| $ | 59,081 |
| $ | 52,371 |
|
| 66,735 |
|
| 61,309 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.
Note 98 – Stock-based Compensation
As of September 30, 2019,2020, the Company had four stock-based compensation plans, which are described below. The compensation cost that has been recorded under salary and benefits expense in the non-interest expense section of the consolidated statements of income for these plans was $115,000$87,000 and $144,000$115,000 for the three months ended September 30, 20192020 and 2018,2019, respectively. The compensation cost that has been recorded for the nine months ended September 30, 2020 and 2019 was $239,000 and 2018 was $354,000, and $434,000, respectively.
2006 Stock Option Plan
The Company’s 2006 Stock Option Plan (the “Stock Option Plan”), which was approved by the Company’s stockholders, permitted the grant of options to its employees and non-employee directors for up to 297,562 shares of common stock. The Stock Option Plan expired on October 24, 2016, and grants of options can no longer be awarded.
Both incentive stock options and non-qualified stock options have been granted under the Stock Option Plan. The exercise price of each stock option equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is ten years. The stock options generally vest over a five year period.
A summary of the status of the Stock Option Plan during the nine months ended September 30, 20192020 and 20182019 is presented below:
:
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| September 30, 2019 | September 30, 2018 | 2020 | 2019 | ||||||||||||||||
| Options |
|
| Weighted Average Exercise Price | Remaining Contractual Life | Options |
|
| Weighted Average Exercise Price | Remaining Contractual Life | Options |
|
| Weighted Average Exercise Price | Remaining Contractual Life | Options |
|
| Weighted Average Exercise Price | Remaining Contractual Life |
Outstanding at beginning of year | 82,321 |
| $ | 12.98 |
| 82,321 |
| $ | 12.98 |
| 64,548 |
| $ | 14.38 |
| 82,321 |
| $ | 12.98 |
|
Granted | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
Exercised | (17,773) |
|
| 7.88 |
| - |
|
| - |
| - |
|
| - |
| (17,773) |
|
| 7.88 |
|
Outstanding at end of period | 64,548 |
| $ | 14.38 | 7.1 years | 82,321 |
| $ | 12.98 | 6.6 years | 64,548 |
| $ | 14.38 | 6.0 years | 64,548 |
| $ | 14.38 | 7.1 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period | 25,818 |
| $ | 14.38 | 7.1 years | 30,681 |
| $ | 10.61 | 6.6 years | 38,726 |
| $ | 14.38 | 6.0 years | 25,818 |
| $ | 14.38 | 7.1 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of options granted |
|
| $ | - |
|
|
| $ | - |
|
|
| $ | - |
|
|
| $ | - |
|
At September 30, 2019,2020, stock options outstanding had anno intrinsic value of $11,000 and there were no remaining options available for grant under the Stock Option Plan. There were no stock options exercised during the three and nine months ended September 30, 2020. There were 17,773 stock options exercised during the three and nine months ended September 30, 2019. There were no stock options exercised during the nine
2523
months ended September 30, 2018.2019. Compensation expense related to the Stock Option Plan for the three month periodperiods ended September 30, 20192020 and 20182019 was $8,000. Compensation expense related to the Stock Option Plan for the nine month periodperiods ended September 30, 20192020 and 20182019 was $25,000. At September 30, 2019, $70,0002020, $36,000 of unrecognized compensation cost related to the Stock Option Plan is expected to be recognized over a period of 2513 months.
2006 Recognition and Retention Plan
The Company’s 2006 Recognition and Retention Plan (“RRP”), which was approved by the Company’s stockholders, permitted the grant of restricted stock awards (“Awards”) to employees and non-employee directors for up to 119,025 shares of common stock. The RRP expired on October 24, 2016, and as of October 24, 2016, all shares permitted under the plan have been granted.
As of September 30, 2019,2020, there were 113,752115,790 shares vested or distributed to eligible participants under the RRP. Compensation expense amounted to $14,000$6,000 and $23,000$14,000 for the three months ended September 30, 20192020 and 2018,2019, respectively. Compensation expense amounted to $58,000$18,000 and $67,000$58,000 for the nine months ended September 30, 2020 and 2019, and 2018, respectively.At September 30, 2019, $49,0002020, $25,000 of unrecognized compensation cost related to the RRP is expected to be recognized over a period of 2513 months.
A summary of the status of unvested shares under the RRP for the nine months ended September 30, 20192020 and 20182019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| 2019 |
|
| Weighted Average Grant Price (per Share) |
| 2018 |
|
| Weighted Average Grant Price (per Share) |
| At September 30, 2020 |
|
| Weighted Average Grant Price (per Share) |
| At September 30, 2019 |
|
| Weighted Average Grant Price (per Share) |
Unvested shares outstanding at beginning of year |
| 10,188 |
| $ | 13.27 |
| 17,119 |
| $ | 13.06 |
| 3,255 |
| $ | 14.37 |
| 10,188 |
| $ | 13.27 |
Granted |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Vested |
| (4,915) |
|
| 12.17 |
| (4,914) |
|
| 12.17 |
| (20) |
|
| 13.42 |
| (4,915) |
|
| 12.17 |
Unvested shares outstanding at end of period |
| 5,273 |
| $ | 14.30 |
| 12,205 |
| $ | 13.42 |
| 3,235 |
| $ | 14.38 |
| 5,273 |
| $ | 14.30 |
2012 Equity Incentive Plan
The Company’s 2012 Equity Incentive Plan (the “EIP”), which was approved by the Company’s stockholders on May 23, 2012, authorizes the issuance of up to 180,000 shares of common stock pursuant to grants of restricted stock awards and up to 20,000 shares of common stock pursuant to grants of incentive stock options and non-qualified stock options, subject to permitted adjustments for certain corporate transactions. Employees and directors of Lake Shore Bancorp or its subsidiaries are eligible to receive awards under the EIP, except that non-employees may not be granted incentive stock options.
The Board of Directors granted restricted stock awards under the EIP during the nine months ended September 30, 20192020 as follows:
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|
|
|
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|
|
|
|
|
| ||
Grant Date |
| Number of Restricted Stock Awards |
| Vesting |
|
| Fair Value per Share of Award on Grant Date |
| Awardees |
| Number of Restricted Stock Awards |
| Vesting |
|
| Fair Value per Share of Award on Grant Date |
| Awardees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 6, 2019 |
| 5,186 |
| 100% on December 13, 2019 |
| $ | 15.89 |
| Non-employee directors | |||||||||
February 5, 2020 |
| 5,513 |
| 100% on December 11, 2020 |
| $ | 15.51 |
| Non-employee directors | |||||||||
February 26, 2020 |
| 15,317 |
| 100% on February 26, 2023 if three year performance metric is achieved |
|
| 15.39 |
| Employees | |||||||||
|
|
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|
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| |
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|
2624
A summary of the status of unvested restricted stock awards under the EIP for the nine months ended September 30, 20192020 and 20182019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| 2019 |
|
| Weighted Average Grant Price (per Share) |
| 2018 |
| Weighted Average Grant Price (per Share) |
| At September 30, 2020 |
|
| Weighted Average Grant Price (per Share) |
| At September 30, 2019 |
| Weighted Average Grant Price (per Share) | ||
Unvested shares outstanding at beginning of year |
| 25,321 |
| $ | 15.28 |
| 42,915 |
| $ | 14.40 |
| - |
| $ | - |
| 25,321 |
| $ | 15.28 |
Granted |
| 5,186 |
|
| 15.89 |
| 5,329 |
|
| 17.00 |
| 20,830 |
|
| 15.42 |
| 5,186 |
|
| 15.89 |
Vested |
| (4,213) |
|
| 12.16 |
| (4,213) |
|
| 12.16 |
| - |
|
| - |
| (4,213) |
|
| 12.16 |
Forfeited |
| (760) |
|
| 15.90 |
| (795) |
|
| 14.85 |
| (332) |
|
| 15.39 |
| (760) |
|
| 15.90 |
Unvested shares outstanding at end of period |
| 25,534 |
| $ | 15.90 |
| 43,236 |
| $ | 14.93 |
| 20,498 |
| $ | 15.42 |
| 25,534 |
| $ | 15.90 |
As of September 30, 2019,2020, there were 58,13883,572 shares of restricted stock that vested or was distributed to eligible participants under the EIP. Compensation expense related to unvested restricted stock awards under the EIP amounted to $60,000$45,000 and $77,000$60,000 for the three months ended September 30, 20192020 and 2018,2019, respectively. Compensation expenserelated to unvested EIP restricted stock awards during the nine months ended September 30, 2020 and 2019 was $112,000 and 2018 was $172,000, and $234,000, respectively.At September 30, 2019, $42,0002020, $204,000 of unrecognized compensation cost related to unvested restricted stock awards is expected to be recognized over a period of 329 months.
A summary of the status of stock options under the EIP for the nine months ended September 30, 20192020 and 20182019 is presented below:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| September 30, 2019 | September 30, 2018 | At September 30, 2020 | At September 30, 2019 | ||||||||||||||||
| Options |
|
| Exercise Price | Remaining Contractual Life | Options |
|
| Exercise Price | Remaining Contractual Life | Options |
|
| Exercise Price | Remaining Contractual Life | Options |
|
| Exercise Price | Remaining Contractual Life |
Outstanding at beginning of year | 20,000 |
| $ | 14.38 |
| 20,000 |
| $ | 14.38 |
| 20,000 |
| $ | 14.38 |
| 20,000 |
| $ | 14.38 |
|
Granted | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
Exercised | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
Forfeited | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
|
Outstanding at end of period | 20,000 |
| $ | 14.38 | 7.1 years | 20,000 |
| $ | 14.38 | 8.1 years | 20,000 |
| $ | 14.38 | 6.0 years | 20,000 |
| $ | 14.38 | 7.1 years |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period | 7,997 |
| $ | 14.38 | 7.1 years | 3,998 |
| $ | 14.38 | 8.1 years | 11,999 |
| $ | 14.38 | 6.0 years | 7,997 |
| $ | 14.38 | 7.1 years |
|
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|
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|
|
Fair value of options granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
At September 30, 2019,2020, stock options outstanding had anno intrinsic value of $3,000 and there were no remaining options available for grant under the EIP.Compensation expense related to stock options outstanding under the EIP amounted to $3,000 for the three months ended September 30, 2020 and 2019 and 2018, and amounted to $8,000 for the nine months ended September 30, 20192020 and 2018.2019. At September 30, 2019, $22,0002020, $11,000 of unrecognized compensation cost related to unvested stock options is expected to be recognized over a period of 2513 months.
Employee Stock Ownership Plan (“ESOP”)
The Company established the ESOP for the benefit of eligible employees of the Company and Bank. All Company and Bank employees meeting certain age and service requirements are eligible to participate in the ESOP. Participants’ benefits become fully vested after five years of service once the employee is eligible to participate in the ESOP. The Company utilized $2.6 million of the proceeds of its 2006 stock offering to extend a loan to the ESOP and the ESOP used such proceeds to purchase 238,050 shares of stock on the open market at an average price of $10.70 per share, plus commission expenses. As a result of the purchase of shares by the ESOP, total stockholders’ equity of the Company was reduced by $2.6 million. As of September 30, 2019,2020, the balance of the loan to the ESOP was $1.4$1.5 million and the fair value of unallocated shares was $1.7 million, respectively. As of September 30, 2020, there were 76,242 allocated shares and 126,958
2725
$1.9 million. As of September 30, 2019, there were 72,891 allocated shares and 134,895 unallocated shares compared to 70,03172,582 allocated shares and 142,830134,893 unallocated shares at September 30, 2018.2019. The ESOP compensation expense was $25,000 for the three months ended September 30, 2020 and $30,000 for the three months ended September 30, 2019 and $33,000 for the three months ended September 30, 2018 based on 1,984 shares earned in each of those quarters. The ESOP compensation expense was $76,000 for the nine months ended September 30, 2020 and $91,000 for the nine months ended September 30, 2019 and $100,000 for the nine months ended September 30, 2018 based on 5,951 shares earned in each of those periods.
Note 109 - Fair Value of Financial Instruments
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 a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of September 30, 20192020 and December 31, 20182019 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. The estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported here.
The measurement of fair value under FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”)GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities measurements (Level 1) and the lowest priority to unobservable input measurements (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly.
Level 3: Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
28
The Company’s consolidated statementstatements of financial condition contains investment securities available for sale and derivative instruments that are recorded at fair value on a recurring basis. For financial instruments measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 20192020 and December 31, 20182019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at September 30, 2019 | ||||||||||
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| (Dollars in thousands) | |||||||||
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
| $ | 2,186 |
| $ | 2,186 |
| $ | - |
| $ | - |
Municipal bonds |
|
| 37,432 |
|
| - |
|
| 37,432 |
|
| - |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations-private label |
|
| 25 |
|
| - |
|
| 25 |
|
| - |
Collateralized mortgage obligations-government sponsored entities |
|
| 29,205 |
|
| - |
|
| 29,205 |
|
| - |
Government National Mortgage Association |
|
| 184 |
|
| - |
|
| 184 |
|
| - |
Federal National Mortgage Association |
|
| 2,132 |
|
| - |
|
| 2,132 |
|
| - |
Federal Home Loan Mortgage Corporation |
|
| 3,578 |
|
| - |
|
| 3,578 |
|
| - |
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Private label |
|
| 235 |
|
| - |
|
| 235 |
|
| - |
Government sponsored entities |
|
| 36 |
|
| - |
|
| 36 |
|
| - |
Total Debt Securities |
| $ | 75,013 |
| $ | 2,186 |
| $ | 72,827 |
| $ | - |
Equity Securities |
|
| 80 |
|
| - |
|
| 80 |
|
| - |
Total Securities Available for Sale |
| $ | 75,093 |
| $ | 2,186 |
| $ | 72,907 |
| $ | - |
Interest Rate Swap(1) |
| $ | (156) |
| $ | - |
| $ | (156) |
| $ | - |
26
|
| Fair Value Measurements at September 30, 2020 | ||||||||||
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| (Dollars in thousands) | |||||||||
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies |
| $ | 2,374 |
| $ | 2,374 |
| $ | - |
| $ | - |
Municipal bonds |
|
| 45,873 |
|
| - |
|
| 45,873 |
|
| - |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations-private label |
|
| 19 |
|
| - |
|
| 19 |
|
| - |
Collateralized mortgage obligations-government sponsored entities |
|
| 25,750 |
|
| - |
|
| 25,750 |
|
| - |
Government National Mortgage Association |
|
| 140 |
|
| - |
|
| 140 |
|
| - |
Federal National Mortgage Association |
|
| 4,645 |
|
| - |
|
| 4,645 |
|
| - |
Federal Home Loan Mortgage Corporation |
|
| 2,592 |
|
| - |
|
| 2,592 |
|
| - |
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Private label |
|
| 171 |
|
| - |
|
| 171 |
|
| - |
Government sponsored entities |
|
| 34 |
|
| - |
|
| 34 |
|
| - |
Total Debt Securities |
| $ | 81,598 |
| $ | 2,374 |
| $ | 79,224 |
| $ | - |
Equity securities |
|
| 43 |
|
| - |
|
| 43 |
|
| - |
Total Securities Available for Sale |
| $ | 81,641 |
| $ | 2,374 |
| $ | 79,267 |
| $ | - |
Interest Rate Swap(1) |
| $ | (283) |
| $ | - |
| $ | (283) |
| $ | - |
(1) | Included in Other |
2927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at December 31, 2018 |
| Fair Value Measurements at December 31, 2019 | ||||||||||||||||||||
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs |
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||||||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||
|
|
| (Dollars in thousands) |
|
| (Dollars in thousands) | ||||||||||||||||||
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
| $ | 1,961 |
| $ | 1,961 |
| $ | - |
| $ | - | ||||||||||||
U.S. government agencies |
| $ | 2,145 |
| $ | 2,145 |
| $ | - |
| $ | - | ||||||||||||
Municipal bonds |
|
| 44,942 |
|
| - |
|
| 44,942 |
|
| - |
|
| 35,819 |
|
| - |
|
| 35,819 |
|
| - |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations-private label |
|
| 27 |
|
| - |
|
| 27 |
|
| - |
|
| 23 |
|
| - |
|
| 23 |
|
| - |
Collateralized mortgage obligations-government sponsored entities |
|
| 32,453 |
|
| - |
|
| 32,453 |
|
| - |
|
| 27,341 |
|
| - |
|
| 27,341 |
|
| - |
Government National Mortgage Association |
|
| 199 |
|
| - |
|
| 199 |
|
| - |
|
| 176 |
|
| - |
|
| 176 |
|
| - |
Federal National Mortgage Association |
|
| 2,385 |
|
| - |
|
| 2,385 |
|
| - |
|
| 2,013 |
|
| - |
|
| 2,013 |
|
| - |
Federal Home Loan Mortgage Corporation |
|
| 3,888 |
|
| - |
|
| 3,888 |
|
| - |
|
| 3,367 |
|
| - |
|
| 3,367 |
|
| - |
Asset-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
Private label |
|
| 270 |
|
| - |
|
| 270 |
|
| - |
|
| 215 |
|
| - |
|
| 215 |
|
| - |
Government sponsored entities |
|
| 44 |
|
| - |
|
| 44 |
|
| - |
|
| 35 |
|
| - |
|
| 35 |
|
| - |
Total Debt Securities |
| $ | 86,169 |
| $ | 1,961 |
| $ | 84,208 |
| $ | - |
| $ | 71,134 |
| $ | 2,145 |
| $ | 68,989 |
| $ | - |
Equity Securities |
|
| 24 |
|
| - |
|
| 24 |
|
| - | ||||||||||||
Equity securities |
|
| 67 |
|
| - |
|
| 67 |
|
| - | ||||||||||||
Total Securities Available for Sale |
| $ | 86,193 |
| $ | 1,961 |
| $ | 84,232 |
| $ | - |
| $ | 71,201 |
| $ | 2,145 |
| $ | 69,056 |
| $ | - |
Interest Rate Swap(1) |
| $ | (47) |
| $ | - |
| $ | (47) |
| $ | - |
| $ | (127) |
| $ | - |
| $ | (127) |
| $ | - |
(1) | Included in Other |
Any transfers between levels would be recognized as of the actual date of event or change in circumstances that caused the transfer. There were no reclassifications between the Level 1 and Level 2 categories for the nine months ended September 30, 2019 and for the year ended December 31, 2018.
During the nine months ended September 30, 2018, asset-backed securities – private label were transferred from the Level 3 category to the Level 2 category. These securities were transferred to Level 2 because the Company changed its method of valuing these securities and that method now uses Level 2 inputs. These securities are now valued using Level 2 inputs because the price volatility associated with these securities has been reduced and management considers the quoted market price for these securities to be reasonable.
Level 2 inputs for assets or liabilities measured at fair value on a recurring basis might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment projections, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. The following is a description of valuation methodologies used for financial assets recorded at fair value on a recurring basis:
30
· | Investment securities available for sale – the fair values are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1) or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. |
· | Interest Rate Swap – the fair value is based on a discounted cash flow model. The model’s key assumptions include the contractual term of the derivative contract, including the period to maturity, 28 |
and the use of observable market based inputs, such as interest rates, yield curves, nonperformance risk and implied volatility. |
The following table presents a reconciliation of the securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3), specifically, asset-backed securities - private label, for the nine months ended September 30, 2018:
| |||
| |||
|
| ||
| |||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
| |||
|
|
|
Both observable and unobservable inputs may be used to determine the fair value of assets and liabilities measured on a recurring basis that the Company has classified within the Level 3 category. As a result, any unrealized gains and losses for assets within the Level 3 category may include changes in fair value attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
In addition to disclosure of the fair value of assets on a recurring basis, ASC Topic 820GAAP requires disclosures for assets and liabilities measured at fair value on a non-recurring basis, such as impaired assets and foreclosed real estate. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Non-recurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by ASC Topic 310, “Receivables – Loan Impairment,” when establishing the allowance for loan losses. An impaired loan is carried at fair value based on either a recent appraisal less estimated selling costs of underlying collateral or discounted cash flows based on current market conditions.
31
For assets measured at fair value on a non-recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 20192020 and December 31, 20182019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements | ||||||||||
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| (Dollars in thousands) | |||||||||
Measured at fair value on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| $ | 250 |
| $ | - |
| $ | - |
| $ | 250 |
Foreclosed real estate |
|
| 209 |
|
| - |
|
| - |
|
| 209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
| $ | 252 |
| $ | - |
| $ | - |
| $ | 252 |
Foreclosed real estate |
|
| 184 |
|
| - |
|
| - |
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements | ||||||||||
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||
|
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| (Dollars in thousands) | |||||||||
Measured at fair value on a non-recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate |
| $ | 197 |
| $ | - |
| $ | - |
| $ | 197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate |
| $ | 170 |
| $ | - |
| $ | - |
| $ | 170 |
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
| ||||||||
|
|
|
|
| ||||
| ||||||||
|
|
|
|
| ||||
|
|
|
| |||||
| ||||||||
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quantitative Information about Level 3 Fair Value Measurements | |||||||||
(Dollars in thousands) | Fair Value Estimate |
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average | |
At September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate | $ | 197 |
| Market valuation of property (1) |
| Direct Disposal Costs (2) |
| 7.00-10.00% |
| 9.21% |
At December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate | $ | 170 |
| Market valuation of property (1) |
| Direct Disposal Costs (2) |
| 7.00-10.00% |
| 9.40% |
(1) | Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable. |
(2) | The fair value basis of |
At September 30, 2019, impaired loans valued using Level 3 inputs had a carrying amount of $295,0002020 and valuation allowances of $45,000. By comparison at December 31, 2018, impaired loans valued using Level 3 inputs had a carrying amount of $282,000 and valuation allowances of $30,000.
Once a loan is determined to be impaired, the fair value of the loan continues to be evaluated based upon the market value of the underlying collateral securing the loan or by using a discounted future cash flow method if the loan is not collateral dependent. At September 30, 2019, impaired loans with a carrying amount that had been written down utilizing Level 3 inputs during the nine months ended September 30, 2019 comprised of one loan with a fair value of $15,000 and resulted in an additional provision for loan losses of $15,000. At December 31, 2018, impaired loans whose carrying amount was written down utilizing Level 3 inputs during the year ended December 31, 2018 comprised of one loan with a fair value of $226,000 and resulted in an additional provision for loan losses of $30,000.
32
At September 30, 2019, foreclosed real estate valued using Level 3 inputs had a carrying amount of $297,000$250,000 and valuation allowances of $88,000.$221,000, respectively. At September 30, 2020 and December 31, 2018,2019, foreclosed real estate valued using levelLevel 3 inputs had a carrying amount of $260,000 and valuation allowances of $76,000.$53,000 and $51,000, respectively.
Once a loan is foreclosed, the fair value of the real estate owned continues to be evaluated based upon the market value of the repossessed real estate originally securing the loan. At September 30, 2019, foreclosed real estate with a carrying value that had been written down utilizing Level 3 inputs during the nine months ended September 30, 2019 comprised of two properties with a fair value of $81,000 and resulted in an additional provision for loan losses of $2,000 and subsequent write-downs through non-interest expense of $10,000. At December 31, 2018, foreclosed real estate with a carrying value that had been written down utilizing Level 3 inputs during the year ended December 31, 2018 comprised of two properties with a fair value of $203,000 and resulted in an additional provision for loan losses of $20,000 and subsequent write-downs recorded in non-interest expense of $40,000.
29
The carrying amount and estimated fair value of the Company’s financial instruments, whether carried at cost or fair value, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Fair Value Measurements at September 30, 2019 |
| Fair Value Measurements at September 30, 2020 | ||||||||||||||||||||||||||
|
| Carrying |
| Estimated |
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs |
| Carrying |
| Estimated |
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | ||||||||||
|
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 20,558 |
| $ | 20,558 |
| $ | 20,558 |
| $ | - |
| $ | - |
| $ | 71,139 |
| $ | 71,139 |
| $ | 71,139 |
| $ | - |
| $ | - |
Securities available for sale |
|
| 75,093 |
| 75,093 |
| 2,186 |
| 72,907 |
| - |
|
| 81,641 |
| 81,641 |
| 2,374 |
| 79,267 |
| - | ||||||||
Federal Home Loan Bank stock |
|
| 2,055 |
| 2,055 |
| - |
| 2,055 |
| - |
|
| 1,977 |
| 1,977 |
| - |
| 1,977 |
| - | ||||||||
Loans receivable, net |
|
| 462,993 |
| 454,036 |
| - |
| - |
| 454,036 |
|
| 491,268 |
| 489,137 |
| - |
| - |
| 489,137 | ||||||||
Accrued interest receivable |
|
| 2,236 |
| 2,236 |
| - |
| 2,236 |
| - |
|
| 3,145 |
| 3,145 |
| - |
| 3,145 |
| - | ||||||||
Interest Rate Swap |
|
| (156) |
| (156) |
| - |
| (156) |
| - | |||||||||||||||||||
Interest rate swap |
|
| (283) |
| (283) |
| - |
| (283) |
| - | |||||||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deposits |
|
| 471,275 |
| 474,459 |
| - |
| 474,459 |
| - |
|
| 555,538 |
| 558,291 |
| - |
| 558,291 |
| - | ||||||||
Long-term debt |
|
| 34,650 |
| 34,918 |
| - |
| 34,918 |
| - |
|
| 31,350 |
| 32,522 |
| - |
| 32,522 |
| - | ||||||||
Accrued interest payable |
|
| 70 |
| 70 |
| - |
| 70 |
| - |
|
| 71 |
| 71 |
| - |
| 71 |
| - | ||||||||
Off-balance-sheet financial instruments |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at December 31, 2019 | |||||||||||||
|
| Carrying |
| Estimated |
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | |||||
|
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
|
| (Dollars in thousands) | |||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,289 |
| $ | 30,289 |
| $ | 30,289 |
| $ | - |
| $ | - |
Securities available for sale |
|
| 71,201 |
|
| 71,201 |
|
| 2,145 |
|
| 69,056 |
|
| - |
Federal Home Loan Bank stock |
|
| 2,055 |
|
| 2,055 |
|
| - |
|
| 2,055 |
|
| - |
Loans receivable, net |
|
| 470,816 |
|
| 461,058 |
|
| - |
|
| - |
|
| 461,058 |
Accrued interest receivable |
|
| 2,153 |
|
| 2,153 |
|
| - |
|
| 2,153 |
|
| - |
Interest rate swap |
|
| (127) |
|
| (127) |
|
| - |
|
| (127) |
|
| - |
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 483,476 |
|
| 486,487 |
|
| - |
|
| 486,487 |
|
| - |
Long-term debt |
|
| 34,650 |
|
| 34,658 |
|
| - |
|
| 34,658 |
|
| - |
Accrued interest payable |
|
| 79 |
|
| 79 |
|
| - |
|
| 79 |
|
| - |
Off-balance-sheet financial instruments |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at December 31, 2018 | |||||||||||||
|
| Carrying |
| Estimated |
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other Observable Inputs |
| Significant Other Unobservable Inputs | |||||
|
| Amount |
| Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
|
| (Dollars in thousands) | |||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,751 |
| $ | 30,751 |
| $ | 30,751 |
| $ | - |
| $ | - |
Securities available for sale |
|
| 86,193 |
|
| 86,193 |
|
| 1,961 |
|
| 84,232 |
|
| - |
Federal Home Loan Bank stock |
|
| 1,545 |
|
| 1,545 |
|
| - |
|
| 1,545 |
|
| - |
Loans receivable, net |
|
| 392,471 |
|
| 376,774 |
|
| - |
|
| - |
|
| 376,774 |
Accrued interest receivable |
|
| 1,913 |
|
| 1,913 |
|
| - |
|
| 1,913 |
|
| - |
Interest Rate Swap |
|
| (47) |
|
| (47) |
|
| - |
|
| (47) |
|
| - |
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 432,458 |
|
| 435,547 |
|
| - |
|
| 435,547 |
|
| - |
Long-term debt |
|
| 24,650 |
|
| 24,292 |
|
| - |
|
| 24,292 |
|
| - |
Accrued interest payable |
|
| 63 |
|
| 63 |
|
| - |
|
| 63 |
|
| - |
Off-balance-sheet financial instruments |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Note 1110 – Treasury Stock
During the three months ended September 30, 2020, the Company repurchased 42,100 shares of common stock at an average cost of $13.06 per share. During the nine months ended September 30, 2020, the Company repurchased 109,600 shares of common stock at an average cost of $13.12 per share. These shares were repurchased pursuant to the Company’s publicly announced common stock repurchase program. As of September 30, 2020, there were 91,158 shares remaining to be repurchased under the existing stock repurchase program. During the nine months ended September 30, 2020, the Company transferred 20,830 shares of common stock out of treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of $9.39 per share to fund awards that had been granted under the plan. During the nine months ended
30
September 30, 2020, there were 332 shares transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of $9.39 per share due to forfeitures.
During the three months ended September 30, 2019, the Company repurchased 16,990 shares of common stock at an average cost of $14.99 per share. During the nine months ended September 30, 2019, the Company repurchased 68,190 shares of common stock at an average cost of $15.22 per share. These shares were repurchased pursuant to the Company’s publicly announced common stock repurchase program. As of September 30, 2019, there were 116,239 shares remaining to be repurchased under the existing stock repurchase program. During the nine months ended September 30, 2019, the Company transferred 5,186 shares of common stock out of treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of $9.39 per share to fund awards that had been granted under the plan. During the nine months ended September 30, 2019, there were 760 shares transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of $9.88 per share due to stock forfeitures.
During the three months ended September 30, 2018, the Company repurchased 12,100 shares of common stock at an average cost of $17.24 per share. During the nine months ended September 30, 2018, the Company repurchased 46,400 shares of common stock at an average cost of $16.81 per share. These shares were repurchased pursuant to the Company’s publicly announced common stock repurchase program. As of September 30, 2018, there were 108,090 shares remaining to be repurchased under the existing stock repurchase program. During the nine months ended September 30, 2018, the Company transferred 5,329 shares of common stock out of the treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of $9.39 per share to fund awards that had been granted under the plan. During the three and nine months ended September 30, 2018, there were 795 and 10,433 shares, respectively, transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of $9.81 and $9.42 per share, respectively, due to stock forfeitures.
34
Note 1211 – Other Comprehensive Income (Loss)
In addition to presenting the Consolidated Statementsconsolidated statements of Comprehensive Incomecomprehensive income herein, the following table shows the tax effects allocated to the Company’s single component of other comprehensive income (loss) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, 2019 |
| For The Three Months Ended September 30, 2018 | ||||||||||||||
|
| Pre-Tax Amount |
| Tax (Expense) Benefit |
| Net of Tax Amount |
| Pre-Tax Amount |
| Tax Benefit |
| Net of Tax Amount | ||||||
|
| (Unaudited) | ||||||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Net unrealized gains (losses) on securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) arising during the period |
| $ | 262 |
| $ | (55) |
| $ | 207 |
| $ | (591) |
| $ | 124 |
| $ | (467) |
Less: reclassification adjustment related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery on previously impaired investment securities included in net income |
|
| (13) |
|
| 3 |
|
| (10) |
|
| (34) |
|
| 7 |
|
| (27) |
Total Other Comprehensive Income (Loss) |
| $ | 249 |
| $ | (52) |
| $ | 197 |
| $ | (625) |
| $ | 131 |
| $ | (494) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, 2020 |
| For The Three Months Ended September 30, 2019 | ||||||||||||||
|
| Pre-Tax Amount |
| Tax Benefit/Expense |
| Net of Tax Amount |
| Pre-Tax Amount |
| Tax Expense |
| Net of Tax Amount | ||||||
|
| (Unaudited) | ||||||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Net unrealized (losses) gains on securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains arising during the period |
| $ | (155) |
| $ | 33 |
| $ | (122) |
| $ | 262 |
| $ | (55) |
| $ | 207 |
Less: reclassification adjustment related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery on previously impaired investment securities included in net income |
|
| (20) |
|
| 4 |
|
| (16) |
|
| (13) |
|
| 3 |
|
| (10) |
Total Other Comprehensive (Loss) Income |
| $ | (175) |
| $ | 37 |
| $ | (138) |
| $ | 249 |
| $ | (52) |
| $ | 197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, 2019 |
| For The Nine Months Ended September 30, 2018 | ||||||||||||||
|
| Pre-Tax Amount |
| Tax (Expense) Benefit |
| Net of Tax Amount |
| Pre-Tax Amount |
| Tax Benefit |
|
| Net of Tax Amount | |||||
|
| (Unaudited) | ||||||||||||||||
|
| (Dollars in thousands) | ||||||||||||||||
Net unrealized gains (losses) on securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) arising during the period |
| $ | 1,862 |
| $ | (391) |
| $ | 1,471 |
| $ | (1,828) |
| $ | 384 |
| $ | (1,444) |
Less: reclassification adjustment related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery on previously impaired investment securities included in net income |
|
| (39) |
|
| 8 |
|
| (31) |
|
| (124) |
|
| 26 |
|
| (98) |
Total Other Comprehensive Income (Loss) |
| $ | 1,823 |
| $ | (383) |
| $ | 1,440 |
| $ | (1,952) |
| $ | 410 |
| $ | (1,542) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended September 30, 2020 |
| For The Nine Months Ended September 30, 2019 | ||||||||||||||
|
| Pre-Tax Amount |
| Tax Expense |
| Net of Tax Amount |
| Pre-Tax Amount |
| Tax Expense |
|
| Net of Tax Amount | |||||
|
| (Dollars in thousands) | ||||||||||||||||
Net unrealized gains on securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains arising during the period |
| $ | 928 |
| $ | (195) |
| $ | 733 |
| $ | 1,862 |
| $ | (391) |
| $ | 1,471 |
Less: reclassification adjustment related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery on previously impaired investment securities included in net income |
|
| (48) |
|
| 10 |
|
| (38) |
|
| (39) |
|
| 8 |
|
| (31) |
Total Other Comprehensive Income |
| $ | 880 |
| $ | (185) |
| $ | 695 |
| $ | 1,823 |
| $ | (383) |
| $ | 1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The following table presents the amounts reclassified out of the single component of the Company’s accumulated other comprehensive income for the indicated periods:
|
|
|
|
|
|
|
|
| Amounts Reclassified from Accumulated |
|
| ||||
Details about Accumulated Other | Other Comprehensive Income |
| Affected Line Item | ||||
Comprehensive Income | for the three months ended September 30, |
| on the Consolidated | ||||
Components | 2019 |
| 2018 |
| Statements of Income | ||
| (Dollars in thousands) |
|
| ||||
Net unrealized gains and losses on securities available for sale: |
|
|
|
|
|
|
|
Recovery on previously impaired investment securities | $ | (13) |
| $ | (34) |
| Recovery on previously impaired investment securities |
|
| (13) |
|
| (34) |
|
|
Provision for income tax expense |
| 3 |
|
| 7 |
| Income Tax Expense |
Total reclassification for the period | $ | (10) |
| $ | (27) |
| Net Income |
35
|
|
|
|
|
|
|
| |||||||
| Amounts Reclassified from Accumulated |
|
| Amounts Reclassified from Accumulated |
|
| ||||||||
Details about Accumulated Other | Other Comprehensive Income |
| Affected Line Item | Other Comprehensive (Loss) Income |
| Affected Line Item | ||||||||
Comprehensive Income | for the nine months ended September 30, |
| on the Consolidated | |||||||||||
Comprehensive (Loss) Income | for the three months ended September 30, |
| on the Consolidated | |||||||||||
Components | 2019 |
| 2018 |
| Statements of Income | 2020 |
| 2019 |
| Statements of Income | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Net unrealized gains and losses on securities available for sale: |
|
|
|
|
|
|
| |||||||
Net unrealized gains on securities available for sale: |
|
|
|
|
|
|
| |||||||
Recovery on previously impaired investment securities | $ | (39) |
| $ | (124) |
| Recovery on previously impaired investment securities | $ | (20) |
| $ | (13) |
| Recovery on previously impaired investment securities |
|
| (39) |
|
| (124) |
|
| |||||||
Provision for income tax expense |
| 8 |
|
| 26 |
| Income Tax Expense |
| 4 |
|
| 3 |
| Income Tax Expense |
Total reclassification for the period | $ | (31) |
| $ | (98) |
| Net Income | $ | (16) |
| $ | (10) |
| Net Income |
Note 13 – Revenue Recognition
The Company’s non-interest revenue streams primarily result from services it provides to its deposit customers. When a customer makes a deposit, the Company records a liability under ASC 405 “Liabilities” because the Company has an obligation to deliver cash to its customer on demand. A contract between the Company and a deposit account customer is typically documented in writing and is often terminable at will by the customer alone or by both the customer and the Company without penalty. The term of a deposit contract between a customer and the Company will likely be day-to-day or minute-to-minute, and the termination clause is likely similar to a renewal right where each day or minute represents the renewal of the contract. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying ASC Topic 606 "Revenue from Contracts with Customers" ("Topic 606") on the determination of the amount and timing of revenue. The Company’s primary non-interest revenue streams within the scope of ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09") are described in further detail below. The Company has no material unsatisfied performance obligations as of September 30, 2019.
Service Charges on Deposit Accounts
Service charges and fees on deposit accounts consist of transaction-based fees, account maintenance fees, and overdraft service fees for various retail and business deposit customers. Transaction-based fees, such as stop payment charges, are recognized at the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn directly from the customer’s account balance.
Fees, Interchange Income, and Other Service Charges
Fees, interchange income, and other service charges are primarily comprised of debit card income, ATM fees, merchant services income and other service charges. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are used to purchase goods or services from a merchant via a card payment network, such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value. ATM fees are comprised of fees earned whenever a Company’s ATM or debit card is used at a non-Company ATM or a non-Company cardholder uses a Company ATM. ATM fees represent a fixed fee for the convenience to cardholders for accessibility of funds. Merchant services income mainly represents fees charged to merchants serviced by a third party vendor under contract with the Company for debit or credit card processing, and represents a percentage of the underlying transaction value. Other service charges include revenue from services provided to our retail or business customers, which may include fees for wire transfer processing, bill pay services, cashier’s checks and other services. The Company’s performance obligation for fees, interchange income and other service charges are
36
|
|
|
|
|
|
|
|
| Amounts Reclassified from Accumulated |
|
| ||||
Details about Accumulated Other | Other Comprehensive Income |
| Affected Line Item | ||||
Comprehensive Income | for the nine months ended September 30, |
| on the Consolidated | ||||
Components | 2020 |
| 2019 |
| Statements of Income | ||
| (Dollars in thousands) |
|
| ||||
Net unrealized gains on securities available for sale: |
|
|
|
|
|
|
|
Recovery on previously impaired investment securities | $ | (48) |
| $ | (39) |
| Recovery on previously impaired investment securities |
Provision for income tax expense |
| 10 |
|
| 8 |
| Income Tax Expense |
Total reclassification for the period | $ | (38) |
| $ | (31) |
| Net Income |
largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically immediately or in the following month.
Other
Other non-interest income consists of safe deposit rental fees. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.
Gain/Losses on Sale of OREO
The Company records a gain or loss from the sale of other real estate owned (“OREO”) when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company may need to adjust the transaction price and related gain (loss) on sale if a significant financing component is present. Gains (losses) on the sale of OREO are generally recorded in non-interest expense on the consolidated statement of income as an offset to OREO expenses. There were no sales of OREO during the nine months ended September 30, 2019 and 2018 where the Company financed the sale of the property.
Contract Balances
The Company’s non-interest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2019 and December 31, 2018, the Company did not have any significant contract balances.
The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, |
| For the nine months ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
|
| (Dollars in thousands) | ||||||||||
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
In-Scope of Topic 606: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
| $ | 208 |
| $ | 218 |
| $ | 601 |
| $ | 655 |
Fees, interchange income and other service charges |
|
| 227 |
|
| 203 |
|
| 629 |
|
| 595 |
Other |
|
| 9 |
|
| 9 |
|
| 30 |
|
| 30 |
Non-interest Income (in-scope of Topic 606) |
|
| 444 |
|
| 430 |
|
| 1,260 |
|
| 1,280 |
Non-interest Income (out of scope of Topic 606) |
|
| 225 |
|
| 199 |
|
| 544 |
|
| 596 |
Total Non-Interest Income |
| $ | 669 |
| $ | 629 |
| $ | 1,804 |
| $ | 1,876 |
Note 1412 – Subsequent Events
On October 23, 2019,2020, the Board of Directors declared a quarterly cash dividend of $0.12$0.13 per share on the Company’s common stock, payable on November 21, 201919, 2020 to shareholders of record as of November 7, 2019.5, 2020. Lake Shore, MHC (the “MHC”), which holds 3,636,875 shares, or approximately 61.2%62.4% of the Company’s total outstanding stock, has elected to waive receipt of the dividend on its shares. On March 7, 2019,February 28, 2020, the MHC received the non-objection of the Federal Reserve Bank of Philadelphia to waive its right to receive
37
dividends paid by the Company during the twelve months ending February 6, 2020,5, 2021, aggregating up to $0.48$0.50 per share. During the third quarter of 2019, the MHC elected to receive a cash dividend of $0.06 per share, or approximately $218,000, to replenish cash at the top tier holding company for operating expenses. The MHC waived $218,000$436,000 of dividends during the three months ended September 30, 20192020 and $1.1$1.3 million of dividends during the nine months ended September 30, 2019.2020. Cumulatively the MHC has waived approximately $11.9$13.7 million of cash dividends as of September 30, 2019.2020. The dividends waived by the MHC are considered a restriction on the retained earnings of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Safe-Harbor
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.1995, that are based on current expectations, estimates and projections about the Company’s and the Bank’s industry, and management’s beliefs and assumptions. Words such as anticipates, expects, intends, plans, believes, estimates and variations of such words and expressions
32
are intended to identify forward-looking statements. Such statements may be identified by words such as “believe,” “will,” “expect,” “project,” “may,” “could,” “anticipate,” “estimate,” “intend,” “plan,” “targets” and similar expressions. These statements are based upon our current beliefs and expectationsnot guarantees of future performance and are subject to significantcertain risks, uncertainties and uncertainties. Actualassumptions that are difficult to forecast. Therefore, actual results may differ materially from those set forthexpressed or forecast in thesuch forward-looking statements.
Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements as a resultinclude, but are not limited to, those described in Part II, Item 1 of numerous factors.
The following factors, including the factors set forth inQuarterly Report on Form 10-Q for the quarter ended June 30, 2020, Part II, Item 1A of thisthe Quarterly Report on Form 10-Q (if applicable)for the quarter ended March 31, 2020 and in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, among others, could cause actual results to differ materially from2019 and the anticipated results or other expectations expressed in our forward-looking statements:following:
· | general and local economic conditions; |
· | changes in interest rates, deposit flows, demand for mortgages and other loans, real estate values and competition; |
· | the ability of our customers to make loan payments; |
· | the effect of competition on rates of deposit and loan growth and net interest margin; |
· | our ability to continue to control costs and expenses; |
· | changes in accounting principles, policies, or guidelines; |
· | our success in managing the risks involved in our business; |
· | inflation, and market and monetary fluctuations; |
· | the impact of more stringent capital requirements being imposed by banking regulators; |
· | changes in legislation or regulation, including the implementation of the Dodd-Frank |
· | other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. |
Any orand all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements we make may differ from actual outcomes. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to publicly update any forward lookingforward-looking statement, whether as a result of new information, future events or otherwise. For a more complete discussion of certain risks, uncertainties and other factors affecting the Company, refer to the Company’s Risk Factors, contained in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
38
Overview
The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of September 30, 20192020 compared to the consolidated financial condition as of December 31, 20182019 and the consolidated results of operations for the three and nine months ended September 30, 20192020 and 2018.2019.
Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on these balances.
Our operations are also affected by non-interest income, such as service charges and fees and gains and losses on the sales of securities and loans, our provision for loan losses and non-interest expenses which include salaries and employee benefits, occupancy and equipment costs, data processing, professional services, advertising and other general and administrative expenses.
Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in the Western New York area, and our operations and earnings are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by
33
government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company.
To operate successfully, we must manage various types of risk, including but not limited to, interest rate risk, credit risk, liquidity risk, operational and information technology risks, strategic risk, reputation risk and compliance risk. A significant form of market risk for the Company is interest rate risk, as the Company’s assets and liabilities are sensitive to changes in interest rates. Interest rate risk is the exposure of our net interest income to adverse movements in interest rates. Net interest income is our primary source of revenue and interest rate risk is a significant non-credit related risk to which our Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of our assets and liabilities. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancing, the flow and mix of deposits and the fair value of available for sale securities. In recent years, the Company has adjusted its strategies to manage interest rate risk by originating a greater volume of shorter-term, adjustable rate commercial real estate and commercial business loans and increasing its concentration of core deposits, which are less interest rate sensitive. In the third quarter of 2018 and the first quarter of 2020, the Company entered into an interest rate swap arrangementarrangements with a total notional amount of $3.0$6.0 million to convert a portionportions of its interest earning assets into fixed rate residential, one- to four-family real estate loans intoor adjustable rate interest-earning assets, as applicable, to manage its exposure to movements in interest rates.
Credit risk is the risk to our earnings and stockholders’ equity that results from customers, to whom loans have been made, and from issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of this risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased. This risk is managed by policies approved by the Company’s Board of Directors, review of compliance with the policies and periodic reporting and evaluation of loans or securities that are non-performing or demonstrate other characteristics of potential loss.
RECENT MARKET CONDITIONS, RELATED RISKS AND UNCERTAINTIES
During the first nine months of 2020, an outbreak of a novel strain of coronavirus (“COVID-19”), which was originally identified in Wuhan, China, spread to a number of countries around the world, including the United States. COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity and other economic activities have had, are currently having and may for some time continue to have a destabilizing effect on financial markets and economic activity. The COVID-19 pandemic severely restricted the level of economic activity in the Bank’s market areas during 2020. In response to the COVID-19 pandemic, the New York State governor took several preventative and protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed non-essential. Since May 2020, some of these restrictions have been relaxed, resulting in certain industries being able to re-open for business, with appropriate health measures and social distancing protocols put in place. The initial and current restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses, including among others, those in the travel, hospitality and food and beverage industries, and have resulted in a significant number of layoffs and furloughs of employees in the market areas in which we operate.
The extent of the impact of COVID-19 on our operational and financial performance is currently uncertain, cannot be predicted and will depend on certain developments, including, among others, the duration and spread of COVID-19, its impact on our customers, employees and vendors, and governmental, regulatory and private sector responses to the coronavirus.
In light of the changing economic outlook as a result of COVID-19, as well as other factors, the 10-year Treasury yield has fallen to historic lows, and the equity markets have been significantly impacted and remain volatile. In response, the Federal Reserve reduced the target federal funds rate by 150 basis points during March 2020. The Federal Reserve’s actions and other effects of the COVID-19 pandemic may negatively impact our interest income and, therefore, our earnings, financial condition and results of operations. As a
3934
result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact our provision for loan losses. Other financial impacts could occur though such potential impact is unknown at this time.
As of September 30, 2020, the Bank’s capital ratios were in excess of all regulatory requirements. While management believes we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our regulatory capital ratios could be adversely impacted by further credit losses. The Company maintains access to multiple sources of liquidity which could be used to support capital ratios.
PANDEMIC RESPONSE
The Bank’s branches have remained open to serve our customers and local communities during the pandemic. The Company continues to place a high priority on ensuring the safety and health of its customers and employees and has put in place physical enhancements, strict social distancing protocols, and enhanced cleaning measures. The Company encourages its customers to use the branch drive-thru lanes, mobile banking and online banking services or one of the 1,900+ surcharge free ATM locations to promote appropriate social distancing protocols.
The Company implemented a loan modification program for impacted customers, in line with regulatory guidance, allowing customers to defer loan payments. As of June 30, 2020, we had approved loan payment deferral requests of up to 180 days on 219 loans, representing $103.1 million, or 21.1%, of the Bank’s loan portfolio. The number of loan payment deferral requests has decreased and as of September 30, 2020 there were 25 loans, representing $20.8 million, or 4.2%, of the loan portfolio, that were deferring payments. These loans were current at the time of initial modification and were not considered troubled debt restructurings under the CARES Act and the associated interagency guidance. Refer to Note 2 in the Consolidated Financial Statements for additional information.
The table below provides the outstanding loan balance as of October 31, 2020 for those loans that received additional payment deferrals under Section 4013 of the CARES Act (dollars in thousands):
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|
|
Loan Type | Number of Loans |
| Balance Outstanding | Weighted Average Interest Rate | |
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|
|
|
Commercial real estate | 16 | $ | 17,608 | 5.06 | % |
Commercial business | 9 |
| 3,165 | 5.02 |
|
| 25 | $ | 20,773 | 5.05 | % |
Total payment deferral requests on real estate loans were primarily secured by real estate located in Western New York.
35
While many industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, the Company’s management team has considered the categories below to be “at risk” of significant impact. The table below identifies these segments as well as the outstanding loan balance, committed loan balances, and current outstanding payment deferrals for each industry type.
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|
|
| At September 30, 2020 | ||||||||||||
| (dollars in thousands) | ||||||||||||
| Number of |
|
| Balance Outstanding | % of Total Loans |
|
|
| Loan |
| Total Outstanding with Payment Deferrals | ||
Industry Type | Loans |
|
| ($) | Outstanding |
|
|
| Commitments ($) |
| # | $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail (non-essential) | 19 |
| $ | 17,266 | 3.5 | % |
| $ | 280 |
| - | $ | - |
Eating and Drinking Establishments | 41 |
|
| 16,457 | 3.3 |
|
|
| 3,250 |
| 11 |
| 9,990 |
Construction Trades | 49 |
|
| 10,431 | 2.1 |
|
|
| 11,493 |
| - |
| - |
Hotels/Accommodations | 17 |
|
| 11,169 | 2.3 |
|
|
| 854 |
| 4 |
| 6,903 |
Dental and Medical Practices and Gyms | 13 |
|
| 3,690 | 0.7 |
|
|
| 2,063 |
| 1 |
| 193 |
| 139 |
| $ | 59,013 | 12.0 | % |
| $ | 17,940 |
| 16 | $ | 17,086 |
We are participating in the SBA PPP under the CARES Act. The CARES Act authorized the SBA to guarantee loans under a new 7(a) loan program known as the PPP. As a qualified SBA lender, we were automatically authorized to originate PPP loans. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. During the first nine months of 2020, the Bank originated 252 SBA PPP loans for our customers, which totaled $26.9 million. We funded $18.4 million of PPP loans directly with the remaining $8.5 million funded indirectly via our partnership with Pursuit, an SBA lender that operates in the northeast. At September 30, 2020, there were $18.6 million in PPP loans outstanding. Net PPP loan fees are estimated to be $247,000 during the first nine months of 2020 based on current loan forgiveness expectations. In accordance with the SBA terms and conditions on these PPP loans, the Company recorded approximately $247,000 in net fees associated with the processing of these loans. Upon funding the loans, the net fees were deferred and will be amortized over the life of the loans as an adjustment to yield. We are in the process of assisting borrowers who have received PPP loans with the forgiveness application phase of the program. As of September 30, 2020, we have not yet submitted any applications to the SBA for loan forgiveness. It is expected that most customers will apply and receive PPP loan forgiveness during the next six months, upon which any unamortized deferred fees will be recognized as an adjustment to interest income.
Management Strategy
There have been no material changes in the Company’s management strategy from what was disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Critical Accounting Policies
Disclosure of the Company’s significant accounting policies is included in the notes to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. Some of these policies require significant judgment, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management’s evaluation of securities valuation, impairment of securities and income taxes. There have been no material changes in critical accounting policies since December 31, 2018.2019.
Analysis of Net Interest Income
Net interest income represents the difference between the interest we earn on our interest-earning assets, such as commercial and residential mortgage loans and investment securities, and the expense we pay on interest-bearinginterest-
36
bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on them.
40
Average Balances, Interest and Average Yields. The following tables set forth certain information relating to our average balance sheets and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan losses, but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. Interest income on securities does not include a tax equivalent adjustment for bank qualified municipal bonds.tax exempt securities.
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|
|
|
| ||||||||
|
| For the Three Months Ended |
| For the Three Months Ended |
| For the Three Months Ended |
| For the Three Months Ended | ||||||||||||||||||||||||
|
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2020 |
| September 30, 2019 | ||||||||||||||||||||||||
|
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ | ||||||||
|
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-earning deposits & federal funds sold |
| $ | 11,144 |
| $ | 60 |
| 2.15% |
| $ | 32,972 |
| $ | 157 |
| 1.90% |
| $ | 69,561 |
| $ | 15 |
| 0.09% |
| $ | 11,144 |
| $ | 60 |
| 2.15% |
Securities(1) |
| 79,153 |
|
| 606 |
| 3.06% |
| 85,797 |
| 670 |
| 3.12% |
| 79,275 |
|
| 541 |
| 2.73% |
| 79,153 |
| 606 |
| 3.06% | ||||||
Loans |
|
| 451,459 |
|
| 5,653 |
| 5.01% |
|
| 383,810 |
|
| 4,663 |
| 4.86% |
|
| 487,896 |
|
| 5,366 |
| 4.40% |
|
| 451,459 |
|
| 5,653 |
| 5.01% |
Total interest-earning assets |
|
| 541,756 |
|
| 6,319 |
| 4.67% |
|
| 502,579 |
|
| 5,490 |
| 4.37% |
|
| 636,732 |
|
| 5,922 |
| 3.72% |
|
| 541,756 |
|
| 6,319 |
| 4.67% |
Other assets |
|
| 43,542 |
|
|
|
|
|
|
| 40,089 |
|
|
|
|
|
|
| 43,847 |
|
|
|
|
|
|
| 43,542 |
|
|
|
|
|
Total assets |
| $ | 585,298 |
|
|
|
|
| $ | 542,668 |
|
|
|
|
| $ | 680,579 |
|
|
|
|
| $ | 585,298 |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand & NOW accounts |
| $ | 53,578 |
| $ | 14 |
| 0.10% |
| $ | 51,223 |
| $ | 15 |
| 0.12% |
| $ | 85,413 |
| $ | 34 |
| 0.16% |
| $ | 53,578 |
| $ | 14 |
| 0.10% |
Money market accounts |
| 124,923 |
|
| 374 |
| 1.20% |
| 118,713 |
| 238 |
| 0.80% |
| 152,812 |
|
| 163 |
| 0.43% |
| 124,923 |
| 374 |
| 1.20% | ||||||
Savings accounts |
| 53,898 |
|
| 8 |
| 0.06% |
| 52,825 |
| 8 |
| 0.06% |
| 62,842 |
|
| 9 |
| 0.06% |
| 53,898 |
| 8 |
| 0.06% | ||||||
Time deposits |
| 167,378 |
|
| 777 |
| 1.86% |
| 150,178 |
| 522 |
| 1.39% |
| 161,928 |
|
| 627 |
| 1.55% |
| 167,378 |
| 777 |
| 1.86% | ||||||
Borrowed funds & other interest-bearing liabilities |
|
| 32,372 |
|
| 193 |
| 2.38% |
|
| 25,466 |
|
| 172 |
| 2.70% |
|
| 33,037 |
|
| 181 |
| 2.19% |
|
| 32,372 |
|
| 193 |
| 2.38% |
Total interest-bearing liabilities |
| 432,149 |
|
| 1,366 |
| 1.26% |
| 398,405 |
|
| 955 |
| 0.96% |
| 496,032 |
|
| 1,014 |
| 0.82% |
| 432,149 |
|
| 1,366 |
| 1.26% | ||||
Other non-interest bearing liabilities |
| 70,636 |
|
|
|
|
|
| 65,101 |
|
|
|
|
|
| 99,356 |
|
|
|
|
|
| 70,636 |
|
|
|
|
| ||||
Stockholders' equity |
|
| 82,513 |
|
|
|
|
|
| 79,162 |
|
|
|
|
|
| 85,191 |
|
|
|
|
|
| 82,513 |
|
|
|
| ||||
Total liabilities & stockholders' equity |
| $ | 585,298 |
|
|
|
|
| $ | 542,668 |
|
|
|
|
| $ | 680,579 |
|
|
|
|
| $ | 585,298 |
|
|
|
| ||||
Net interest income |
|
|
|
| $ | 4,953 |
|
|
|
|
|
| $ | 4,535 |
|
|
|
|
|
| $ | 4,908 |
|
|
|
|
|
| $ | 4,953 |
|
|
Interest rate spread |
|
|
|
|
|
| 3.41% |
|
|
|
|
|
| 3.41% |
|
|
|
|
|
| 2.90% |
|
|
|
|
|
| 3.41% | ||||
Net interest margin |
|
|
|
|
| 3.66% |
|
|
|
|
| 3.61% |
|
|
|
|
| 3.08% |
|
|
|
|
| 3.66% |
(1) | The tax equivalent adjustment for |
(2) | Annualized. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4137
|
| For the Nine Months Ended |
| For the Nine Months Ended |
| For the Nine Months Ended |
| For the Nine Months Ended | ||||||||||||||||||||||||
|
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2020 |
| September 30, 2019 | ||||||||||||||||||||||||
|
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ |
| Average |
| Interest Income/ |
| Yield/ | ||||||||
|
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) |
| Balance |
| Expense |
| Rate(2) | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest-earning deposits & federal funds sold |
| $ | 18,097 |
| $ | 312 |
| 2.30% |
| $ | 35,002 |
| $ | 439 |
| 1.67% |
| $ | 51,428 |
| $ | 92 |
| 0.24% |
| $ | 18,097 |
| $ | 312 |
| 2.30% |
Securities(1) |
| 83,244 |
|
| 1,945 |
| 3.12% |
|
| 83,481 |
| 1,946 |
| 3.11% |
| 75,102 |
|
| 1,628 |
| 2.89% |
|
| 83,244 |
| 1,945 |
| 3.12% | ||||
Loans |
|
| 421,641 |
|
| 15,676 |
| 4.96% |
|
| 375,989 |
|
| 13,480 |
| 4.78% |
|
| 482,448 |
|
| 16,637 |
| 4.60% |
|
| 421,641 |
|
| 15,676 |
| 4.96% |
Total interest-earning assets |
|
| 522,982 |
|
| 17,933 |
| 4.57% |
|
| 494,472 |
|
| 15,865 |
| 4.28% |
|
| 608,978 |
|
| 18,357 |
| 4.02% |
|
| 522,982 |
|
| 17,933 |
| 4.57% |
Other assets |
|
| 43,062 |
|
|
|
|
|
|
| 38,754 |
|
|
|
|
|
|
| 43,833 |
|
|
|
|
|
|
| 43,062 |
|
|
|
|
|
Total assets |
| $ | 566,044 |
|
|
|
|
| $ | 533,226 |
|
|
|
|
| $ | 652,811 |
|
|
|
|
| $ | 566,044 |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand & NOW accounts |
| $ | 51,351 |
| $ | 40 |
| 0.10% |
| $ | 50,466 |
| $ | 42 |
| 0.11% |
| $ | 73,460 |
| $ | 77 |
| 0.14% |
| $ | 51,351 |
| $ | 40 |
| 0.10% |
Money market accounts |
| 120,572 |
|
| 958 |
| 1.06% |
|
| 112,796 |
| 572 |
| 0.68% |
| 151,012 |
|
| 809 |
| 0.71% |
|
| 120,572 |
| 958 |
| 1.06% | ||||
Savings accounts |
| 53,627 |
|
| 24 |
| 0.06% |
|
| 53,070 |
| 23 |
| 0.06% |
| 59,024 |
|
| 26 |
| 0.06% |
|
| 53,627 |
| 24 |
| 0.06% | ||||
Time deposits |
| 165,071 |
|
| 2,227 |
| 1.80% |
|
| 149,611 |
| 1,464 |
| 1.30% |
| 164,863 |
|
| 2,038 |
| 1.65% |
|
| 165,071 |
| 2,227 |
| 1.80% | ||||
Borrowed funds & other interest-bearing liabilities |
|
| 28,358 |
|
| 510 |
| 2.40% |
|
| 26,834 |
|
| 490 |
| 2.43% |
|
| 34,457 |
|
| 565 |
| 2.19% |
|
| 28,358 |
|
| 510 |
| 2.40% |
Total interest-bearing liabilities |
| 418,979 |
|
| 3,759 |
| 1.20% |
|
| 392,777 |
|
| 2,591 |
| 0.88% |
| 482,816 |
|
| 3,515 |
| 0.97% |
|
| 418,979 |
|
| 3,759 |
| 1.20% | ||
Other non-interest bearing liabilities |
| 65,483 |
|
|
|
|
|
|
| 61,645 |
|
|
|
|
|
| 85,421 |
|
|
|
|
|
|
| 65,483 |
|
|
|
|
| ||
Stockholders' equity |
|
| 81,582 |
|
|
|
|
|
| 78,804 |
|
|
|
|
|
| 84,574 |
|
|
|
|
|
| 81,582 |
|
|
|
| ||||
Total liabilities & stockholders' equity |
| $ | 566,044 |
|
|
|
|
| $ | 533,226 |
|
|
|
|
| $ | 652,811 |
|
|
|
|
| $ | 566,044 |
|
|
|
| ||||
Net interest income |
|
|
|
| $ | 14,174 |
|
|
|
|
|
| $ | 13,274 |
|
|
|
|
|
| $ | 14,842 |
|
|
|
|
|
| $ | 14,174 |
|
|
Interest rate spread |
|
|
|
|
|
| 3.37% |
|
|
|
|
|
|
| 3.40% |
|
|
|
|
|
| 3.05% |
|
|
|
|
|
|
| 3.37% | ||
Net interest margin |
|
|
|
|
|
| 3.61% |
|
|
|
|
|
|
| 3.58% |
|
|
|
|
|
| 3.25% |
|
|
|
|
|
|
| 3.61% |
(1) | The tax equivalent adjustment for |
(2) | Annualized. |
4238
Rate Volume Analysis. The following tables analyze the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The tables show the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates. The effect of a change in volume is measured by applying the average rate during the first period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period. Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the absolute value of the change due to volume and the change due to rate.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended September 30, 2019 |
| Three Months Ended September 30, 2020 | ||||||||||||||
|
| Compared to |
| Compared to | ||||||||||||||
|
| Three Months Ended September 30, 2018 |
| Three Months Ended September 30, 2019 | ||||||||||||||
|
| Rate |
| Volume |
| Net Change |
| Rate |
| Volume |
| Net Change | ||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning deposits & federal funds sold |
| $ | 18 |
| $ | (115) |
| $ | (97) |
| $ | (104) |
| $ | 59 |
| $ | (45) |
Securities |
| (13) |
| (51) |
| (64) |
| (66) |
| 1 |
| (65) | ||||||
Loans, including fees |
|
| 147 |
|
| 843 |
|
| 990 |
|
| (721) |
|
| 434 |
|
| (287) |
Total interest-earning assets |
|
| 152 |
|
| 677 |
|
| 829 |
|
| (891) |
|
| 494 |
|
| (397) |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Demand & NOW accounts |
| (2) |
| 1 |
| (1) |
| 9 |
| 11 |
| 20 | ||||||
Money market accounts |
| 123 |
| 13 |
| 136 |
| (281) |
| 70 |
| (211) | ||||||
Savings accounts |
| - |
| - |
| - |
| - |
| 1 |
| 1 | ||||||
Time deposits |
|
| 190 |
|
| 65 |
|
| 255 |
|
| (125) |
|
| (25) |
|
| (150) |
Total deposits |
|
| 311 |
|
| 79 |
|
| 390 |
|
| (397) |
|
| 57 |
|
| (340) |
Other interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Borrowed funds & other interest-bearing liabilities |
|
| (15) |
|
| 36 |
|
| 21 |
|
| (15) |
|
| 3 |
|
| (12) |
Total interest-bearing liabilities |
|
| 296 |
|
| 115 |
|
| 411 |
|
| (412) |
|
| 60 |
|
| (352) |
Total change in net interest income |
| $ | (144) |
| $ | 562 |
| $ | 418 |
| $ | (479) |
| $ | 434 |
| $ | (45) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2019 | |||||||
|
| Compared to | |||||||
|
| Nine Months Ended September 30, 2018 | |||||||
|
| Rate |
| Volume |
|
| Net Change | ||
|
| (Dollars in thousands) | |||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
Interest-earning deposits & federal funds sold |
| $ | 130 |
| $ | (257) |
| $ | (127) |
Securities |
|
| 5 |
|
| (6) |
|
| (1) |
Loans, including fees |
|
| 513 |
|
| 1,683 |
|
| 2,196 |
Total interest-earning assets |
|
| 648 |
|
| 1,420 |
|
| 2,068 |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
Demand & NOW accounts |
|
| (2) |
|
| - |
|
| (2) |
Money market accounts |
|
| 344 |
|
| 42 |
|
| 386 |
Savings accounts |
|
| - |
|
| 1 |
|
| 1 |
Time deposits |
|
| 599 |
|
| 164 |
|
| 763 |
Total deposits |
|
| 941 |
|
| 207 |
|
| 1,148 |
Other interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
Borrowed funds & other interest-bearing liabilities |
|
| (2) |
|
| 22 |
|
| 20 |
Total interest-bearing liabilities |
|
| 939 |
|
| 229 |
|
| 1,168 |
Total change in net interest income |
| $ | (291) |
| $ | 1,191 |
| $ | 900 |
43
|
39
|
| Nine Months Ended September 30, 2020 | |||||||
|
| Compared to | |||||||
|
| Nine Months Ended September 30, 2019 | |||||||
|
| Rate |
| Volume |
|
| Net Change | ||
|
| (Dollars in thousands) | |||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
Interest-earning deposits & federal funds sold |
| $ | (448) |
| $ | 228 |
| $ | (220) |
Securities |
|
| (135) |
|
| (182) |
|
| (317) |
Loans, including fees |
|
| (1,191) |
|
| 2,152 |
|
| 961 |
Total interest-earning assets |
|
| (1,774) |
|
| 2,198 |
|
| 424 |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
Demand & NOW accounts |
|
| 16 |
|
| 21 |
|
| 37 |
Money market accounts |
|
| (356) |
|
| 207 |
|
| (149) |
Savings accounts |
|
| - |
|
| 2 |
|
| 2 |
Time deposits |
|
| (186) |
|
| (3) |
|
| (189) |
Total deposits |
|
| (526) |
|
| 227 |
|
| (299) |
Other interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
Borrowed funds & other interest-bearing liabilities |
|
| (37) |
|
| 92 |
|
| 55 |
Total interest-bearing liabilities |
|
| (563) |
|
| 319 |
|
| (244) |
Total change in net interest income |
| $ | (1,211) |
| $ | 1,879 |
| $ | 668 |
\
Net interest margin increased fivedecreased 58 basis points to 3.66%3.08% for the three months ended September 30,2020 third quarter as compared to the 2019 from 3.61% for the three months ended September 30, 2018.third quarter. The net interest margin for the 20192020 third quarter was primarily impacted by an increased volumea 95 basis points decrease in the average yield on interest-earning assets when compared to the prior year period primarily due to a decrease in market interest rates and to a lesser extent due to the impact of higher-yielding average loan balances. The average balance of the loan portfolio increased by $67.6 million, or 17.6%,originating lower yielding PPP loans during the three months ended September 30, 20192020. PPP loans have an interest rate of 1.00% under SBA guidelines which along with deferred origination fee income and cost, averaged 1.80%, which is well below traditional loan yields. The decrease in the average yield on interest-earning assets was partially offset by a $36.4 million, or 8.1%, increase in the average balance of the loan portfolio during the 2020 third quarter as compared to the third quarterprior year quarter. The increase in the average balance of 2018the loan portfolio was primarily due to an increase in the average balance of commercial real estate one- to four-family residential real estate and home equity loans,PPP loans. The decrease in net interest margin was partially offset by a decrease in commercial business loans. Furthermore, the overall average yield on interest-earning assets increased 30 basis points during the third quarter of 2019 when compared to the prior year period primarily due to the growth in higher yielding commercial real estate loans. The increase in the average yield earned on interest earning assets was offset by a 30 basis points increase in the average interest rate paid on interest bearing liabilities resultingwhich decreased from 1.26% during the 2019 third quarter to 0.82% during the 2020 third quarter due to the decrease in anmarket interest rate spread of 3.41% for the three months ended September 30, 2019 and 2018.rates. The increasedecrease in the average interest rate paid on interest bearing liabilities during the three months ended September 30, 2020 was partially offset by a $63.2 million increase in the average balance of interest-bearing deposits in comparison to the three months ended September 30, 2019. The increase in the average balance of interest-bearing deposits was primarily due to higher average rates being paid on timedriven by organic growth, the deposit of PPP funds and government stimulus payments into our customers’ deposit accounts and money market accounts as a resultthe impact of increased deposit ratesCOVID-19 on consumer and competition for deposit accounts.business spending and savings levels.
Net interest margin increased threedecreased 36 basis points to 3.25% for the nine months ended September 30, 2020 from 3.61% for the nine months ended September 30, 2019 from 3.58% for the nine months ended September 30, 2018.2019. The net interest margin for the nine months ended September 30, 20192020 was primarily impacted by an increased volumea 55 basis points decrease in the average yield on interest-earning assets when compared to the prior year period primarily due to a decrease in market interest rates and to a lesser extent due to the impact of higher-yielding average loan balances. The average balance of the loan portfolio increased by $45.7 million, or 12.1%,originating lower yielding PPP loans during the nine months ended September 30, 2019 as compared to2020. PPP loans have an interest rate of 1.00% under SBA guidelines which along with deferred origination fee income and cost, averaged 1.80%, which is well below traditional loan yields. The decrease in the average yield on interest-earning assets was partially offset by a $60.8 million, or 14.4%, increase in the average balance of the loan portfolio during the nine months ended September 30, 20182020 as compared to the prior year quarter. The increase in the average balance of the loan portfolio was primarily due to an increase in the average balance of commercial real estate one- to four-family residential real estate and home equity loans,PPP loans. The decrease in net interest
40
margin was partially offset by a decrease in average commercial business loans. Furthermore, the overall average yield on interest-earning assets increased 29 basis points during the nine months ended September 30, 2019 when compared to the prior year period primarily due to the growth in higher yielding commercial real estate loans. The increase in average yield earned on interest earning assets was offset by a 32 basis points increase in the average interest rate paid on interest bearing liabilities which resulted in a three basis points decrease in the interest rate spread to 3.37% fordecreased from 1.20% during the nine months ended September 30, 2019 as comparedto 0.97% during the nine months ended September 30, 2020 due to the same perioddecrease in the prior year.market interest rates. The increasedecrease in the average interest rate paid on interest bearing liabilities during the nine months ended September 30, 2020 was partially offset by a $57.7 million increase in the average balance of interest bearing deposits in comparison to the nine months ended September 30, 2019. The increase in the average balance of interest-bearing deposits was primarily due to higher average rates being paid on timedriven by organic growth, the deposit of PPP funds and government stimulus payments into our customers’ deposit accounts and money market accounts as a resultthe impact of increased deposit ratesCOVID-19 on consumer and competition for deposit accounts.business spending and savings levels.
Comparison of Financial Condition at September 30, 20192020 and December 31, 20182019
Total assets at September 30, 20192020 were $596.8$682.7 million, an increase of $51.1$71.8 million, or 9.4%11.8%, from $545.7$610.9 million at December 31, 2018.2019. The increase in total assets was primarily due to a $70.5$40.9 million increase in cash and cash equivalents driven by deposit growth, a $20.5 million increase in loans receivable, net partially offset by an $11.1and a $10.4 million decreaseincrease in securities available for sale and a $10.2 million decrease in cash and cash equivalents.sale.
Cash and cash equivalents decreasedincreased by $10.2$40.9 million, or 33.1%134.9%, from $30.8$30.3 million at December 31, 20182019 to $20.6$71.1 million at September 30, 2019.2020. The decreaseincrease was primarily due to a $72.1 million increase in deposits, partially offset by a $22.0 million net cash outflow of $71.8 million relating to net loan originations and principal collections, which was partially offset by a $38.8$7.2 million increase in total deposits, a $13.0 million increase innet cash flow received on theoutflow related to securities available for sale portfoliopurchases and paydowns and a $3.3 million net cash outflow to pay down long-term debt. The increase in deposits was primarily due to maturities, prepaymentsorganic growth, the deposit of PPP funds and callsgovernment stimulus payments into our customers’ deposit accounts and the impact of securitiesCOVID-19 on consumer and a $10.0 million increase in long-term debt during the nine months ended September 30, 2019. business spending and savings levels.
Securities available for sale decreasedincreased by $11.1$10.4 million, or 12.9%14.7%, from $71.2 million at December 31, 2019 to $75.1$81.6 million at September 30, 2019 compared to $86.2 million at December 31, 2018.2020. The decreaseincrease was primarily due to the receiptpurchase of $13.0 million in maturities, prepayments and calls of securities, which was partially offset by a $1.9 million increase in unrealized gains on the securities portfolio. The increase in unrealized gains on the securities portfolio was primarily due to a decrease in market interest ratesmaturities, calls and prepayments during the nine monthsmonth period ended September 30, 2019, which increased the value of securities held in the portfolio.
2020.
4441
Net loans receivable increased during the nine months ended September 30, 20192020 as shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| At September 30, |
| At December 31, |
| Change |
| At September 30, |
| At December 31, |
| Change | ||||||||||||
|
| 2019 |
| 2018 |
| $ |
| % |
| 2020 |
| 2019 |
| $ |
| % | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||
Real Estate Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential, one- to four-family(1) |
| $ | 157,051 |
| $ | 155,024 |
| $ | 2,027 |
| 1.3 | % |
| $ | 151,356 |
| $ | 154,749 |
| $ | (3,393) |
| (2.2) | % |
Home equity |
| 45,083 |
| 41,830 |
| 3,253 |
| 7.8 | % |
| 47,073 |
| 45,250 |
| 1,823 |
| 4.0 | % | ||||||
Commercial |
| 202,360 |
| 150,475 |
| 51,885 |
| 34.5 | % |
| 216,571 |
| 211,220 |
| 5,351 |
| 2.5 | % | ||||||
Construction - Commercial |
|
| 32,477 |
|
| 22,252 |
|
| 10,225 |
| 46.0 | % |
|
| 37,338 |
|
| 32,299 |
|
| 5,039 |
| 15.6 | % |
Total real estate loans |
| 436,971 |
| 369,581 |
| 67,390 |
| 18.2 | % |
| 452,338 |
| 443,518 |
| 8,820 |
| 2.0 | % | ||||||
Other Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| 25,596 |
| 21,825 |
| 3,771 |
| 17.3 | % |
| 39,673 |
| 26,720 |
| 12,953 |
| 48.5 | % | ||||||
Consumer |
|
| 1,092 |
|
| 1,156 |
|
| (64) |
| (5.5) | % |
|
| 1,312 |
|
| 1,297 |
|
| 15 |
| 1.2 | % |
Total gross loans |
| 463,659 |
| 392,562 |
| 71,097 |
| 18.1 | % |
| 493,323 |
| 471,535 |
| 21,788 |
| 4.6 | % | ||||||
Allowance for loan losses |
| (4,141) |
| (3,448) |
| (693) |
| 20.1 | % |
| (5,347) |
| (4,267) |
| (1,080) |
| 25.3 | % | ||||||
Net deferred loan costs |
|
| 3,475 |
|
| 3,357 |
|
| 118 |
| 3.5 | % |
|
| 3,292 |
|
| 3,548 |
|
| (256) |
| (7.2) | % |
Loans receivable, net |
| $ | 462,993 |
| $ | 392,471 |
| $ | 70,522 |
| 18.0 | % |
| $ | 491,268 |
| $ | 470,816 |
| $ | 20,452 |
| 4.3 | % |
(1) | Includes one- to four-family construction loans. |
The increase in loans receivable, net was primarily due to an increase in commercial real estate, commercial construction and commercial business loans (primarily PPP loan originations). The outstanding balance of PPP loans was $18.6 million at September 30, 2020. During 2019,the first nine months of 2020, we continue to remainremained strategically focused on originating shorter duration, adjustable rate commercial real estate loans and commercial business loans to diversify our asset mix and to reduceproperly manage interest rate risk. The origination of the SBA guaranteed PPP loans during this time period provided additional interest rate risk protection and to increaseshortened the duration of our net interest margin.loan portfolio.
4542
Loans Past Due and Non-Performing Assets. The following table presents information regarding our non-accrual loans, accruing loans delinquent 90 days or more, non-performing loans, foreclosed real estate, and non-performing and performing loans classified as troubled debt restructurings, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| At September 30, |
| At December 31, |
|
| At September 30, |
| At December 31, |
| ||||
|
| 2019 |
| 2018 |
|
| 2020 |
| 2019 |
| ||||
|
| (Dollars in thousands) |
|
| (Dollars in thousands) |
| ||||||||
Loans past due 90 days or more but still accruing: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Residential, one- to four-family |
| $ | 123 |
| $ | 174 |
|
| $ | 13 |
| $ | 71 |
|
Home equity |
|
| 5 |
| - |
|
|
| - |
| 39 |
| ||
Commercial |
|
| - |
| - |
|
|
| - |
| - |
| ||
Construction – Commercial and Residential, one- to four-family |
|
| - |
| - |
|
|
| 254 |
| - |
| ||
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial |
|
| - |
| - |
|
|
| - |
| - |
| ||
Consumer |
|
| - |
|
| - |
|
|
| - |
|
| - |
|
Total |
| $ | 128 |
| $ | 174 |
|
| $ | 267 |
| $ | 110 |
|
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Residential, one- to four-family |
| $ | 2,342 |
| $ | 2,310 |
|
| $ | 2,664 |
| $ | 2,845 |
|
Home equity |
|
| 665 |
| 337 |
|
|
| 696 |
| 590 |
| ||
Commercial |
|
| 235 |
| 382 |
|
|
| - |
| - |
| ||
Construction – Commercial and Residential, one- to four-family |
|
| - |
| - |
|
|
| - |
| - |
| ||
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial |
|
| 53 |
| 15 |
|
|
| - |
| - |
| ||
Consumer |
|
| 5 |
|
| - |
|
|
| 1 |
|
| 2 |
|
Total non-accrual loans |
|
| 3,300 |
|
| 3,044 |
|
|
| 3,361 |
|
| 3,437 |
|
Total non-performing loans |
|
| 3,428 |
|
| 3,218 |
|
|
| 3,628 |
|
| 3,547 |
|
Foreclosed real estate |
|
| 770 |
|
| 678 |
|
|
| 197 |
|
| 779 |
|
Total non-performing assets |
| $ | 4,198 |
| $ | 3,896 |
|
| $ | 3,825 |
| $ | 4,326 |
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percent of total loans: |
|
| 0.74 | % |
| 0.82 | % | |||||||
Non-performing loans as a percent of total net loans: |
|
| 0.74 | % |
| 0.75 | % | |||||||
Non-performing assets as a percent of total assets: |
|
| 0.70 | % |
| 0.71 | % |
|
| 0.56 | % |
| 0.71 | % |
Troubled debt restructuring: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Loans accounted for on a non-accrual basis |
|
|
|
|
|
|
|
|
|
|
|
| ||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Residential, one- to four-family |
| $ | 30 |
| $ | 34 |
|
| $ | 20 |
| $ | 28 |
|
Performing loans |
|
|
|
|
|
|
|
|
|
|
|
| ||
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Residential, one- to four-family |
| $ | 141 |
| $ | 144 |
|
| $ | 284 |
| $ | 138 |
|
Home equity |
|
| 15 |
| - |
|
Total non-performing loans increased by $210,000,$81,000, or 6.5%2.3%, to $3.4$3.6 million at September 30, 20192020 from $3.2$3.5 million at December 31, 2018,2019, primarily due to an increase in non-performing commercial construction and home equity and commercial business non-accrualloans which was partially offset by a decrease in non-performing residential, one- to four-family real estate loans during the first nine months of 2019, offset by a decrease in non-accrual commercial real estate loans.
2020.
4643
The following table sets forth activity in our allowance for loan losses and other ratios at or for the dates indicated:
|
|
|
|
|
|
|
|
| ||||
|
| At or for the Nine Months Ended September 30, |
| At or for the Nine Months Ended September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 | ||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||
Balance at beginning of year |
| $ | 3,448 |
| $ | 3,283 |
| $ | 4,267 |
| $ | 3,448 |
Provision for loan losses |
|
| 725 |
|
| 315 |
|
| 1,125 |
|
| 725 |
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
|
| (2) |
|
| (23) |
|
| (26) |
|
| (2) |
Home equity |
|
| (4) |
|
| - |
|
| (6) |
|
| (4) |
Commercial |
|
| (10) |
|
| (181) |
|
| - |
|
| (10) |
Construction – Commercial and Residential, one- to four-family |
|
| - |
|
| - |
|
| - |
|
| - |
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| (5) |
|
| - |
Consumer |
|
| (34) |
|
| (32) |
|
| (27) |
|
| (34) |
Total charge-offs |
|
| (50) |
|
| (236) |
|
| (64) |
|
| (50) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential, one- to four-family |
|
| 8 |
| 18 |
|
| - |
|
| 8 | |
Home equity |
|
| 1 |
| 1 |
|
| 1 |
|
| 1 | |
Commercial |
|
| 3 |
|
| - |
|
| 1 |
|
| 3 |
Construction – Commercial and Residential, one- to four-family |
|
| - |
|
| - |
|
| - |
|
| - |
Other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| 1 |
|
| 4 |
|
| - |
Consumer |
|
| 6 |
|
| 6 |
|
| 13 |
|
| 6 |
Total recoveries |
|
| 18 |
|
| 26 |
|
| 19 |
|
| 18 |
Net charge-offs |
|
| (32) |
|
| (210) |
|
| (45) |
|
| (32) |
Balance at end of period |
| $ | 4,141 |
| $ | 3,388 |
| $ | 5,347 |
| $ | 4,141 |
Average loans outstanding |
| $ | 421,641 |
| $ | 375,989 |
| $ | 482,448 |
| $ | 421,641 |
Allowance for loan losses as a percent of total net loans |
| 0.89% |
| 0.87% |
| 1.09% |
| 0.89% | ||||
Allowance for loan losses as a percent of non-performing loans |
| 120.76% |
| 103.48% |
| 147.38% |
| 120.76% | ||||
Ratio of net charge-offs to average loans outstanding (1) |
|
| (0.01)% |
|
| (0.07)% |
|
| (0.01)% |
|
| (0.01)% |
(1) | Annualized |
(1) AnnualizedThe projected economic impact of COVID-19 on the Company’s allowance for loan losses resulted in $828,000 of additional provision for loan losses for the nine months ended September 30, 2020. The additional provision was primarily due to an adjustment of certain qualitative factors in order to take into account the uncertain impact of COVID-19 on economic conditions and borrowers’ ability to repay loans. The remaining $297,000 increase in the provision for loan losses for this period was driven by net charge-offs, an increase in classified loans, growth and changes in the mix of the underlying loan portfolio and changes in the historical loss factor.
47
Other assetsAccrued interest receivable increased $771,000,$1.0 million, or 39.6%46.1%, to $3.1 million at September 30, 2020 from $1.9$2.2 million at December 31, 2018 to $2.7 million at September 30, 2019. The increase was primarily due to an increase in interest receivables on loans for borrowers who have been impacted by the recognitionpandemic and deferred principal and interest payments. At this time, it is expected that the deferred interest on these loans will be collected in full.
44
Other assets decreased $887,000, or 29.9%, to $2.1 million at September 30, 2020 from $3.0 million at December 31, 2019 primarily due to the sale of lease assets onother real estate owned by the consolidated statements of financial condition asBank and a result of the adoption of ASU 2016-02 on January 1, 2019. decrease in current tax receivables.
The table below shows changes in deposit balances by type of deposit account between September 30, 20192020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| At September 30, |
| At December 31, |
| Change |
| At September 30, |
| At December 31, |
| Change | ||||||||||||
|
| 2019 |
| 2018 |
| $ |
| % |
| 2020 |
| 2019 |
| $ |
| % | ||||||||
|
| (Dollars in thousands) |
| (Dollars in thousands) | ||||||||||||||||||||
Core Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Demand deposits and NOW accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-interest bearing |
| $ | 64,701 |
| $ | 55,327 |
| $ | 9,374 |
| 16.9 | % |
| $ | 90,669 |
| $ | 61,229 |
| $ | 29,440 |
| 48.1 | % |
Interest bearing |
|
| 55,174 |
|
| 50,211 |
|
| 4,963 |
| 9.9 | % |
|
| 85,718 |
|
| 56,703 |
|
| 29,015 |
| 51.2 | % |
Money market |
|
| 130,714 |
|
| 119,885 |
|
| 10,829 |
| 9.0 | % |
|
| 154,091 |
|
| 141,398 |
|
| 12,693 |
| 9.0 | % |
Savings |
|
| 53,331 |
|
| 52,050 |
|
| 1,281 |
| 2.5 | % |
|
| 63,870 |
|
| 53,628 |
|
| 10,242 |
| 19.1 | % |
Total core deposits |
|
| 303,920 |
|
| 277,473 |
|
| 26,447 |
| 9.5 | % |
|
| 394,348 |
|
| 312,958 |
|
| 81,390 |
| 26.0 | % |
Non-core Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
| 167,355 |
|
| 154,985 |
|
| 12,370 |
| 8.0 | % |
|
| 161,190 |
|
| 170,518 |
|
| (9,328) |
| (5.5) | % |
Total deposits |
| $ | 471,275 |
| $ | 432,458 |
| $ | 38,817 |
| 9.0 | % |
| $ | 555,538 |
| $ | 483,476 |
| $ | 72,062 |
| 14.9 | % |
The increase in money market and time deposit account balancestotal deposits was primarily due to the Company offering competitive interest ratesan overall increase in its market area to attract funds. Competitionnet core deposits, partially offset by a decrease in our market area has increased as a resulttime deposits. A majority of new banks entrants. Thethe growth in core deposits during the nine months ended September 30, 2020 was due to an increase in core deposit accounts primarily through organic growth, the resultdeposit of PPP funds and government stimulus payments into our customers’ deposit accounts and the impact of COVID-19 on consumer and business spending and savings levels. The Company’s continued strategic focus continues to be centered on growing lower-costorganic growth of low-cost core deposits among its retail and commercial customers in an effort to manage interest expense and strengthen customer relationships.
Our borrowings,Long-term debt consisting of advances from the FHLBNY, increaseddecreased by $10.0$3.3 million, or 40.1%9.5%, from $24.7$34.7 million at December 31, 20182019 to $34.7$31.4 million at September 30, 2019.2020. The additional borrowings were used as part of a balance sheet management strategydecrease was due to take advantage of lower interest rates in an effort to mitigate interest rate risk. Borrowing proceeds were also used to fund loan originations during the first nine months of 2019.Company paying off maturing debt with excess cash on hand.
Total stockholders’ equity increased $2.7by $2.0 million, or 3.3%2.5%, from $79.8$82.8 million at December 31, 20182019 to $82.5$84.9 million at September 30, 2019. 2020. The increase in stockholders’ equity was primarily dueattributed to $3.3 million of net income and an increase of $2.9 million and a $1.4 million increase$695,000 in accumulated other comprehensive income, which was partially offset by stock repurchases of $1.4 million and dividends paid of $1.0 million and the repurchase of common stock for $1.0 million$764,000 during the nine months ended September 30, 2019.2020.
Comparison of Results of Operations for the Three Months Ended September 30, 20192020 and 20182019
General. Net income was $1.2$1.23 million for the three months ended September 30, 2019,2020, or $0.20$0.21 per diluted share, an increase of $154,000,$19,000, or 14.6%1.6%, compared to net income of $1.1$1.21 million, or $0.17$0.20 per diluted share, for the three months ended September 30, 2018. Net2019. The increase in net income for the three months ended September 30, 20192020 primarily reflected a $418,000$102,000 increase in non-interest income, partially offset by a $45,000 decrease in net interest income and a $40,000 increase in non-interest income which was partially offset by a $175,000 increase in provision for loan losses, an $82,000 increase in non-interest expenses and a $47,000$35,000 increase in income tax expense.
Interest Income.Income. Interest income increaseddecreased by $829,000,$397,000, or 15.1%6.3%, to $6.3$5.9 million for the three months ended September 30, 20192020 compared to the three months ended September 30, 20182019 primarily due to an increasea decrease in loan interest income. Loan interest income increaseddecreased by $990,000,$287,000, or 21.2%5.1%, to $5.7$5.4 million for the three months ended September 30, 20192020 compared to the three months ended September 30, 2018,2019, primarily due to a decrease in the average yield on the loan portfolio by 61 basis points from 5.01% for the three months ended September 30, 2019 to 4.40% for the three months ended September 30, 2020. The decrease in the average
45
yield on loans was due to a decrease in market interest rates since September 30, 2019. It was also due to the origination of $26.7 million in PPP loans with an interest rate of 1.00% under SBA guidelines which along with deferred origination fee income and cost, averaged 1.80%, which is well below traditional loan yields. The decrease was partially offset by an increase in the average balance of the loan portfolio by $67.6$36.4 million, or 17.6%8.1%, from
48
$383.8 million for the three months ended September 30, 2018 to $451.5 million for the three months ended September 30, 2019. The average yield on the loan portfolio increased from 4.86%2019 to $487.9 million for the three months ended September 30, 2018 to 5.01% for the three months ended September 30, 2019.2020. The increase in the average balance of loans and average yield on loans was primarily due to an increase in the average balance of higher yielding commercial real estate,loans. commercial construction and commercial business loans (primarily PPP loans).
Investment interest income decreased $64,000,$65,000, or 9.6%10.7%, to $541,000 for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a decrease in the average yield on the investment portfolio by 33 basis points from 3.06% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, due to a decrease in the average balance and average yield of the investment portfolio from $85.8 million and 3.12%2.73% for the three months ended September 30, 2018 to $79.2 million and 3.06% for the three months ended September 30, 2019.2020. The decrease in the average balance and average yield of the investment portfolio was primarily due to securities paydowns and redemptions of “callable” municipal bonds, partially offset by securities purchases since September 30, 2018.2019 at lower average yields.
Other interest income was $60,000decreased by $45,000, or 75.0%, to $15,000 for the three months ended September 30, 2019, a $97,000, or 61.8%, decrease2020 as compared to the three months ended September 30, 2018.2019. The average balance of interest-earning deposits and Federal funds soldyield decreased by $21.8 million, or 66.2%,to 0.09% for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, while the average yield increased to2020 from 2.15% for the three months ended September 30, 2019, while the average balance of other interest earning assets increased from 1.90%$11.1 million for the three months ended September 30, 2018.2019 to $69.6 million for the three months ended September 30, 2020. The decrease in the average balance ofyield on other interest earning deposits and Federal Funds soldassets was primarily due to the use of excess cash to fund loan originations. The increase in the average yield was primarily due to higherlower average rates earned on excess funds, as a result of the volatilitydecrease in short term market interest rates and fed funds rate, since September 30, 2018. 2019. The increase in the average balance of other interest earning assets was primarily due to an increase in average deposits that were only partially used to fund loan originations.
Interest Expense.Interest expense increased $411,000,decreased $352,000, or 43.0%25.8%, to $1.0 million for the three months ended September 30, 2020 compared to $1.4 million for the three months ended September 30, 2019 compared2019. Interest paid on deposits decreased by $340,000, or 29.0%, to $955,000$833,000 for the three months ended September 30, 2018. Interest paid on deposits increased by $390,000, or 49.8%, to $1.2 million for the three months ended September 30, 20192020 when compared to the three months ended September 30, 2018. Deposit2019 primarily due to a decrease in interest paid on deposits. The decrease in interest expense on deposits was primarily impacted bydue to a 40 and 4745 basis points increase, respectively,decrease in the average rate paid on deposits due to the decrease in market interest rates paid on money market and time deposit accounts. Interest expensesince September 30, 2019. The decrease was also impactedpartially offset by a $26.8$63.2 million, or 7.1%15.3%, increase in average deposit balances for the three months ended September 30, 20192020 as compared to the three months ended September 30, 2018.2019. The average balance of deposits for the three months ended September 30, 20192020 was $399.8$463.0 million with an average rate of 1.17%0.72% compared to anthe average deposit balance of $372.9deposits of $399.8 million and an average rate of 0.84%1.17% for the three months ended September 30, 2018.2019. The increase in the average balance of interest-bearing deposits was primarily due to an increase in time depositscore deposit accounts primarily through organic growth, the deposit of PPP funds and money marketgovernment stimulus payments into our customers’ deposit accounts as a resultand the impact of the Company offering higher ratesCOVID-19 on these deposit types to attract funds in its increasingly competitive market area. consumer and business spending and savings levels.
InterestThe interest expense on short-term borrowings and long-term debt increased $41,000,$22,000, or 30.6%15.5%, to $175,000$164,000 for the three months ended September 30, 20192020 when compared to the three months ended September 30, 20182019 primarily due to an increase in the average balance and average yield of advances from the FHLBNY. The average balance of advances from the FHLBNY for the three months ended September 30, 20192020 was $31.6$32.3 million with an average rate of 2.22%2.02% compared to an average balance of $24.7$26.5 million and an average rate of 2.18%2.13% for the three months ended September 30, 2018.2019. The increase in the average balance of FHLBNY advances was due to additional borrowings that allowed the Bank to take advantage of long-term, low fixed-rates to fund loan growth and to managemitigate interest rate risk. The four11 basis points increasedecrease in the average rate paid on FHLBNY advances was primarily due to an increasethe decrease in short-term borrowingsmarket interest rates since September 30, 2018, which had higher rates due to the inverted yield curve.2019.
Provision for Loan Losses.A $300,000 provision to the allowance for loan losses was recorded during the three months ended September 30, 2019, which was a $175,000, or 140.0%, increase in comparison to the provision recorded during the three months ended September 30, 2018.2020 and 2019. The third quarter 2020 provision expense recorded duringwas primarily due to specific reserves required for changes in classification for certain commercial business loans and general reserves for loan originations in the three months ended September 30, 2019 primarily reflected inherent losses on new loans as a resultthird quarter of the $23.0 million, or 5.2%, increase in total gross loans since June 30, 2019.2020.
46
We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit
49
judgment that considers observable trends, conditions, and other relevant environmental and economic factors.
During the three months ended September 30, 2020, the provision consisted of a $179,000 net provision recorded for commercial business loans. This included a $192,000 provision to reflect the $4.3 million increase in classified commercial business loans related to one borrower relationship, partially offset by a $13,000 credit related to a decrease in outstanding commercial business loans, excluding PPP loans. There was a $73,000 net provision for commercial real estate and construction – commercial loans during the three months ended September 30, 2020. This included a $104,000 provision to account for inherent losses in the commercial real estate and construction – commercial loan portfolio due to organic growth. This provision was partially offset by a $31,000 net credit related to changes in certain loss factors used in the model, offset by an increase in criticized and classified commercial real estate loans. A $22,000 net credit provision was recorded for one-to four-family, home equity and consumer loans primarily to reflect a decrease in classified loans during the three months ended September 30, 2020. During the three months ended September 30, 2020, a $70,000 unallocated provision for loan losses was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.
The third quarter 2019 provision included a net provision of $182,000 to account for inherent losses in the commercial real estate portfolio, including commercial construction loans, as a result of organic growth, as well as to account for changes in relevant environmental and economic factors. The quarterly provision also included a $104,000 net provision on the commercial business loan portfolio as a result of organic growth during the quarter, as well as to reflect changes in relevant environmental and economic factors. Additionally, a net provision of $14,000 was posted to reflect changes in classified loans on the one- to four- family, home equity and consumer loan portfolios as well as to adjust the unallocated portion of the allowance due to the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the portfolio.
During the three months ended September 30, 2018, the Company recorded a $125,000 provision to the allowance for loan losses. The provision primarily consisted of a $249,000 provision for commercial real estate loans, which consisted of a $150,000 general allowance, to reflect inherent losses resulting from organic growth and to reflect relevant environmental and economic factors, a $121,000 specific allowance related to charge-offs on two previously impaired commercial real estate loans that were foreclosed upon during the third quarter of 2018 and a $22,000 credit provision for a decrease in criticized/classified commercial real estate loans. The provision also included a $128,000 credit provision for commercial real estate – construction loans and commercial business loans as a result of a decrease in the total portfolio balances for these loan types during the third quarter of 2018.
Refer to Note 4 of the Notes to the Consolidated Financial Statements for additional details on the provision for loan losses.
Non-interestNon-Interest Income. Non-interest income increased by $40,000,$102,000, or 6.4%15.2%, to $771,000 for the three months ended September 30, 2020 as compared to $669,000 for the three months ended September 30, 2019 as compared to $629,000 for the three months ended September 30, 2018.2019. The increase was primarily due to a $27,000 increase in unrealized gains on equity securities, a $25,000 increase in earnings on bank owned life insurance, a $23,000$157,000 increase in gains on the sale of loans and a $16,000$38,000 increase in unrealized gains on derivative contracts, partially offset by a $66,000 decrease in service charges and fees which were partially offset byand a $31,000$28,000 increase in unrealized losses on a derivative contract and a $21,000 decrease in recoveries on previously impairedequity securities when compared to the prior year quarter.
Non-interest Expenses. Non-interest expenses increased $82,000, or 2.1%, from $3.8 million forduring the three months ended September 30, 20182020 as compared to the prior year period. The increase in gains on the sale of loans was driven by an increase in the volume of low, fixed-rate residential mortgage loans originated for sale during the three months ended September 30, 2020 due to a decrease in market rates. We sell certain low, fixed rate mortgages into the secondary market to manage interest rate risk. The increase in unrealized gains on derivative contracts was due to net changes in the fair market value of interest rate swap products. The decrease in service charges and fees was primarily due to the waiver of certain ATM fees and other service charges to provide relief to customers during the COVID-19 pandemic.
Non-Interest Expenses.Non-interest expenses were $3.9 million for the three months ended September 30, 2020 and 2019. SalaryOther expenses decreased $128,000, or 35.2%, primarily due to a decrease in travel, foreclosure and other real estate owned expenses. Salaries and employee benefits increased $28,000,$61,000, or 1.3%, primarily due to annual salary increases, new hires and higher expenses related to retirement benefits, partially offset by lower expenses related to stock compensation awards. Occupancy and equipment costs increased by $45,000, or 7.8%, primarily due to increases in software and technology maintenance costs, property taxes and building maintenance costs. Advertising expenses increased by $17,000, or 11.3%, due to costs related to the development of marketing campaigns and an increase in sponsorships. Other expenses increased by $33,000, or 10.0%2.9%, primarily due to an increase in other real estate owned expenses. The increase in non-interest expenses was also due to increases in data processing costs as a result of growth in loan and deposit products andemployee salaries, partially offset by an increase in digital services offered. These increases were partially offset by a decrease indeferred salary expense related to loan originations and decreases to stock-based compensation expenses and health insurance costs. FDIC Insurance expense of $39,000, or 97.5%,increased $43,000 for the three months ended September 30, 2020 due to the receipt of a small bank assessment credit during the three months ended September 30, 2019. Occupancy and equipment expenses increased $15,000, or 2.4%, primarily due to increases in software and technology maintenance costs, equipment depreciation and additional cleaning expense related to COVID-19.
47
Income Taxes Expense.Income tax expense increased by $47,000, or 32.6%, from $144,000was $226,000 for the three months ended September 30, 20182020, an increase of $35,000, or 18.3%, as compared to $191,000 for the three months ended September 30, 2019. The increase in income tax expense increasedwas primarily due to an increase in income before taxes and an increase in the effective tax rate during the three months ended September 30, 2019.rate. The effective tax rate for the three months ended September 30, 2020 and 2019 was 15.5% and 2018 was 13.6% and 12.0%, respectively. The higherincrease in effective tax rate was primarily due to a lowerdecrease in the mix of tax-exempt income derived from our municipal bond portfolio in relation to our pre-tax income duringfor the three months ended September 30, 2019.current period.
50
Comparison of Results of Operations for the Nine Months Ended September 30, 20192020 and 20182019
General. Net income was $2.9$3.3 million for the nine months ended September 30, 2019,2020, or $0.48$0.56 per diluted share, a decreasean increase of $85,000,$400,000, or 2.8%13.7%, compared to net income of $3.0$2.9 million, or $0.49$0.48 per diluted share, for the nine months ended September 30, 2018.2019. The decreaseincrease in net income for the nine months ended September 30, 2019 was2020 primarily the result ofreflected a $492,000$668,000 increase in net interest income, a $214,000 decrease in non-interest expenses a $410,000 increase in the provision for loan losses and a $72,000 decrease$30,000 increase in non-interest income, partially offset by a $900,000$400,000 increase in net interest income.provision for loans losses and a $112,000 increase in income tax expense.
Interest Income. Interest income increased by $424,000, or 2.4%, to $18.4 million for the nine months ended September 30, 2019 was $17.9 million, an increase of $2.1 million, or 13.0%,2020 compared to the nine months ended September 30, 20182019 primarily due to an increase in loan interest income. Loan interest income increased by $2.2$1.0 million, or 16.3%6.1%, to $15.7$16.6 million for the nine months ended September 30, 20192020 compared to $13.5 million for the nine months ended September 30, 2018,2019, primarily due to an increase in the average balance of loansthe loan portfolio by $45.7$60.8 million, or 12.1%14.4%, from $376.0$421.6 million for the nine months ended September 30, 20182019 to $421.6$482.4 million for the nine months ended September 30, 2020. The increase in the average balance of loans was primarily due to an increase in the average balance of commercial real estate, commercial construction and PPP commercial business loans. The average yield on the loan portfolio decreased by 36 basis points from 4.96% for the nine months ended September 30, 2019 to 4.60% for the nine months ended September 30, 2020. The decrease in the average yield on loans was due to a decrease in market interest rates since September 30, 2019. It was also due to the origination of PPP loans during the first nine months of 2020 with an interest rate of 1.00% under SBA guidelines which along with deferred origination fee income and cost averaged 1.80%, which is well below traditional loan yields.
Investment interest income decreased $317,000, or 16.3%, to $1.6 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, primarily due to a decrease in the average balance of the investment portfolio from $83.2 million for the nine months ended September 30, 2019 to $75.1 million for the nine months ended September 30, 2020. The average yield on the investment portfolio decreased 23 basis points from 3.12% for the nine months ended September 30, 2019 to 2.89% for the nine months ended September 30, 2020. The decrease in the average balance and average yield of the investment portfolio was primarily due to securities paydowns and redemptions of “callable” municipal bonds, partially offset by securities purchases since September 30, 2019 at lower average yields.
Other interest income decreased by $220,000, or 70.5%, to $92,000 for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The average yield on the loan portfolio increased 18 basis points from 4.78%decreased to 0.24% for the nine months ended September 30, 20182020 from 2.30% for the nine months ended September 30, 2019, while the average balance of other interest earning assets increased from $18.1 million for the nine months ended September 30, 2019 to 4.96%$51.4 million for the nine months ended September 30, 2020. The decrease in the average yield on other interest earning assets was primarily due to lower average rates earned on excess funds, as a result of the decrease in short term market interest rates since September 30, 2019. The increase in the average balance of other interest earning assets was primarily due to an increase in average deposits that were only partially used to fund loan originations.
Interest Expense. Interest expense decreased $244,000, or 6.5%, to $3.5 million for the nine months ended September 30, 2020 compared to $3.8 million for the nine months ended September 30, 2019 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by $299,000, or 9.2%, to $3.0 million for the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019. The decrease in interest expense on deposits was primarily due to a 23 basis points decrease in the
48
average rate paid on deposits due to the decrease in market interest rates since September 30, 2019. The decrease was partially offset by a $57.7 million, or 14.8%, increase in average deposit balances for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The average balance of deposits for the nine months ended September 30, 2020 was $448.4 million with an average rate of 0.88% compared to the average balance of deposits of $390.6 million and an average rate of 1.11% for the nine months ended September 30, 2019. The increase in the average balance of loansinterest-bearing deposits was due to an increase in core deposit accounts primarily through organic growth, the deposit of PPP funds and average yieldgovernment stimulus payments into our customers’ deposit accounts and the impact of COVID-19 on loans wasconsumer and business spending and savings levels.
The interest expense on long-term debt increased $104,000, or 25.4%, to $513,000 for the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019 primarily due to an increase in the average balance of higher yielding commercial real estate loans.
Other interest income was $312,000 for the nine months ended September 30, 2019, a $127,000, or 28.9%, decrease as compared to the nine months ended September 30, 2018. The average balance in other interest earning assets and Federal Funds sold decreased from $35.0 million for the nine months ended September 30, 2018 to $18.1 million for the nine months ended September 30, 2019 while the average yield increased to 2.30% for the nine months ended September 30, 2019 from 1.67% for the nine months ended September 30, 2018. The decrease in the average balance of interest earning deposits and Federal Funds sold was primarily due to the use of excess cash to fund loan originations. The increase in the average yield was primarily due to higher average rates earned on excess funds, as a result of the volatility in short term market rates since September 30, 2018.
Interest Expense. Interest expense was $3.8 million, an increase of $1.2 million, or 45.1%, for the nine months ended September 30, 2019, when compared to the same nine month period in 2018. Interest paid on deposits increased by $1.1 million, or 54.6%, to $3.2 million for the nine months ended September 30, 2019 when compared to the nine months ended September 30, 2018. Interest expense was primarily impacted by a 38 and 50 basis points increase, respectively, in the average interest rates paid on money market and time deposit accounts. The increase was also due to a $24.7 million, or 6.7%, increase in average deposit balances for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018. The average balance of deposits for the nine months ended September 30, 2019 was $390.6 million with an average rate of 1.11% compared to an average balance of $365.9 million and an average rate of 0.77% for the nine months ended September 30, 2018. The increase in the average balance of interest-bearing deposits was primarily due to an increase in time deposits and money market accounts as a result of the Company offering higher rates on these deposit types to attract funds in its increasingly competitive market area.
The interest expense on short-term borrowings and long-term debt increased $42,000, or 10.2%, to $455,000 for the nine months ended September 30, 2019 when compared to the nine months ended September 30, 2018 primarily due to an increase in the average balance and average yield of advances from the FHLBNY. The average balance of advances from the FHLBNY for the nine months ended September 30, 20192020 was $27.6$33.7 million with an average rate of 2.20%2.03% compared to an average balance of $26.0$25.2 million and an average rate of 2.12%2.17% for the nine months ended September 30, 2018.2019. The increase in the average balance of FHLBNY advances was due to additional borrowings that allowed the Bank to take advantage of long term, low fixed-rates to fund loan growth and mitigate interest rate risk during the nine months ended September 30, 2019.risk. The eight14 basis points increasedecrease in the average rate paid on FHLBNY advances was primarily due to an increasethe decrease in short-term borrowingsmarket interest rates since September 30, 2018, which had higher rates2019. The increase in long-term debt was partially offset by a $46,000 decrease in short-term debt during the nine months ended September 30, 2020 due to the inverted yield curve.paydowns.
Provision for Loan Losses. A $725,000$1.1 million provision to the allowance for loan losses was recorded during the nine months ended September 30, 2019, which was a $410,000, or 130.2%, increase in comparison2020 compared to the
51
provision recorded during$725,000 for the nine months ended September 30, 2018.2019. The $400,000 increase in the provision expense recorded duringwas primarily due to an adjustment of certain qualitative factors to take into account the nine months ended September 30, 2019 primarily reflected inherentimpact of COVID-19 and related economic conditions on borrowers’ ability to repay loans. We expect economic uncertainty to continue which may result in additional increases to the allowance for loan losses on new loans as a result of a $71.2 million, or 18.1%, year to datein future periods. The current period provision was also impacted by an increase in total gross loans since December 31, 2018.criticized commercial real estate and commercial business loans.
We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors.
During the nine months ended September 30, 2020, the Company recorded a $933,000 net provision for commercial real estate and construction – commercial loans. This consisted of a $693,000 provision to reflect an adjustment of certain qualitative factors to take into account the uncertain impacts of COVID-19 on economic conditions and borrowers’ ability to repay loans and a $156,000 general allowance to reflect inherent losses within the portfolio due to organic growth. It also included an $84,000 provision to reflect the $11.9 million increase in criticized and classified commercial real estate loans, which consists primarily of one loan relationship which is well-collateralized and has strong support by its guarantors. A $183,000 net provision was recorded for commercial business loans which reflected adjustments to certain qualitative factors relating to the COVID-19 impact on economic conditions and an increase in classified loans. The provision also reflected a credit allowance to account for a $5.7 million decrease in outstanding commercial business loans, excluding PPP loans, during the nine months ended September 30, 2020. A $44,000 provision was recorded for one-to four-family, home equity and consumer loans primarily to reflect an increase in classified loans during the nine months ended September 30, 2020. A $35,000 unallocated credit provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.
The provision to the allowance for loan losses recorded during the nine months ended September 30, 2019 included a $1.1 million net provision to account for inherent losses in the commercial real estate portfolio, including commercial construction loans, as a result of organic growth and to account for changes in relevant environmental and economic factors, which was partially offset by a credit due to reductions in criticized and classified commercial real estate loans. A $270,000 net credit was recorded on the commercial business loan
49
portfolio to account for reductions in criticized and classified commercial business loans during the nine months ended September 30, 2019, changes in the related environmental factors used to qualitatively assess inherent loan losses on commercial business loans and changes in the historical average net charge-off rate, which was partially offset by a provision to account for inherent losses on the $3.8 million, or 17.3%, increase in commercial business loans since December 31, 2018. An $18,000 net credit to the provision was recorded for one-to four-family, home equity and consumer loans due to changes in the related environmental factors used to qualitatively assess inherent loan losses on these types of loans, partially offset by a provision to reflect a net increase in classified loans during the nine months ended September 30, 2019. Lastly, a $53,000 credit was recorded on the unallocated provision for loan losses, to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the portfolio.
During the nine months ended September 30, 2018, the Company recorded a $315,000 provision to the allowance for loan losses. The provision consisted of a $473,000 net provision for commercial real estate loans, primarily to account for inherent losses on new loans due to organic growth and to account for charge-offs on two previously impaired commercial real estate loans that were foreclosed upon during the third quarter of 2018, partially offset by a credit for a decrease in criticized/classified commercial real estate loans. The provision also consisted of a $65,000 provision for commercial business loans as a result of an increase in criticized and classified loans in this portfolio. The provision was partially offset by a $98,000 credit provision on construction – commercial real estate loans, primarily due to a, decrease in this loan portfolio since December 31, 2017 and a $90,000 credit provision on one-to four-family, home equity, construction – one- to four- family and consumer loans. The credit provision on one-to four-family, home equity, construction – one- to four- family and consumer loans was primarily due to changes in the related environmental factors used to qualitatively assess inherent loan losses and a decrease in the historical average net charge-off rate for these loan types over the last five years, partially offset by net charge-offs recorded during the nine months ended September 30, 2018. During the nine months ended September 30, 2018, a credit provision of $35,000 was recorded to adjust the unallocated portion of the allowance primarily due to the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the portfolio.
Refer to Note 4 of the Notes to the Consolidated Financial Statements for additional details on the provision for loan losses.
Non-Interest Income. Non-interest income decreasedincreased by $72,000,$30,000, or 3.8%1.7%, from $1.9 million for the nine months ended September 30, 2018 to $1.8 million for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. The decreaseincrease was primarily attributeddue to a $125,000 unrealized loss$304,000 increase in gains on a derivative contract,the sale of loans. This was driven by an $85,000increase in the volume of residential mortgage loans originated for sale during the nine months ended September 30, 2020 due to the decrease in recoveries of previously impaired investment securities andmarket rates. We sell certain low, fixed rate mortgages into the secondary market to manage interest rate risk. The increase in non-interest income was partially offset by a $26,000$139,000 decrease in service charges and fees during the nine months ended September 30, 2019 as compared2020 primarily due to the nine months ended September 30, 2018. These decreases werewaiver of certain ATM fees and other service charges to provide relief to customers during the COVID-19 pandemic. The increase was also partially offset by a $97,000 increase in earnings on bank owned life insurance, a $48,000an $81,000 increase in unrealized gainlosses on equity securities and a $19,000$47,000 increase in gainsunrealized losses on the sale of loans for the nine months ended September 30, 2019 when comparedderivative contracts due to the same nine monthsdecrease in 2018.market interest rates.
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Non-Interest Expenses. Non-interest expenses increased by $492,000, or 4.3%, from $11.4were $11.7 million for the nine months ended September 30, 20182020, a decrease of $214,000 or 1.8%, as compared to $11.9 million for the nine months ended September 30, 2019. Salaries and employee benefits increased $327,000,decreased $198,000, or 5.3%3.0%, primarily due to annualan increase in deferred salary increases, incentivesexpense related to PPP loan originations and retirement expensesdecreases in stock-based compensation expense and health insurance costs, partially offset by lower stock compensationan increase in employee salaries. Other expenses decreased $126,000, or 12.9%, primarily due to a decrease in travel, foreclosure and higher deferred salaries related to loan originations. Occupancyother real estate owned expenses. These decreases were partially offset by an increase in occupancy and equipment increased by $120,000,expenses of $66,000, or 6.9%3.4%, primarily due to increases in equipment, software and technology maintenance costs, equipment depreciation and depreciation, building maintenance and property taxes.additional cleaning expense related to COVID-19. Advertising expenses increased by $47,000, or 9.9%, due to the development of marketing campaigns and an increase in sponsorships. Data processing expense increased $22,000$17,000, or 3.3%, primarily due to an increase in the number of customer accountspromotional expenses. Postage and transactions and professional services expensesupplies increased $19,000 primarily due to an increase in legal expenses. These increases were partially offset by a decrease in FDIC Insurance expense of $43,000,$23,000, or 37.7%12.7%, due to the receipt of a small bank assessment credit during the nine months ended September 30, 2019.2020, primarily due to additional supply purchases to protect the health and safety of customers and employees as a result of the pandemic.
Income Taxes Expense. Income tax expense increased by $11,000, or 2.4%, from $458,000was $581,000 for the nine months ended September 30, 20182020, an increase of $112,000, or 23.9%, as compared to $469,000 for the nine months ended September 30, 2019. The increase in income tax expense increase was primarily due to an increase in income before taxes and an increase in the effective tax rate, partially offset by a decrease in income before taxes.rate. The effective tax rate for the nine months ended September 30, 2020 and 2019 was 14.9% and 13.9%, while the effective tax rate for the nine months ended September 30, 2018 was 13.2%.respectively. The increase in the effective tax rate was primarily due to a decrease in the projected mix of tax-exempt income derived from our municipal bond portfolio and bank-owned life insurance in relation to our projection of pre-tax income for the current year.
.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to fund loan commitments, to pay the deposit withdrawal requirements of our customers as well as to fund current and planned expenditures. Our primary sources of funds consist of deposits, scheduled amortization and prepayments of loans and securities, maturities and sales of investments and loans, excess cash, and interest earning deposits at other financial institutions, and funds provided from operations. We have written agreements with the FHLBNY, which allows us to borrow the maximum lending values designated by the type of collateral pledged. As of September 30, 2019,2020, the maximum amount that we can borrow from the FHLBNY was $112.0$106.0 million and was collateralized by a pledge of certain fixed-rate
50
residential, one- to four-family loans. At September 30, 2019,2020, we had outstanding advances under this agreement of $34.7$31.4 million. We have a written agreement with the Federal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities, and allows us to borrow up to the value of the securities pledged, which was equal to a book value of $10.0$10.9 million and a fair value of $10.3$11.2 million as of September 30, 2019.2020. There were no balances outstanding with the Federal Reserve Bank at September 30, 2019.2020. We have also established lines of credits with correspondent banks for $22.0$31.0 million, of which $20.0$29.0 million is unsecured and the remaining $2.0 million will be secured by a pledge of our securities when a draw is made. There were no borrowings on these lines as of September 30, 2019.2020.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. We have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic.
Our primary investing activities include the origination of loans and the purchase of investment securities. For the nine months ended September 30, 2019,2020, we originated loans of approximately $135.1$117.3 million as compared to approximately $96.6$135.1 million of loans originated during the nine months ended September 30, 2018.2019. Loan originations exceeded principal repayments and other deductions during the first nine months of 20192020 by $71.8$22.0 million. Purchases of investment securities totaled $20.3 million during the nine months ended September 30, 2020. We did not purchase any investment securities during the nine months ended September 30, 2019. Purchases of investment securities totaled $10.8 million during the nine months ended September 30, 2018. These activities were funded primarily through deposit growth, principal payments received on loans and securities, borrowings and cash reserves.
53
As described elsewhere in this report, the Company has loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date. The Company believes it has sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were $471.3$555.5 million at September 30, 2019,2020, as compared to $432.5$483.5 million at December 31, 2018. Total deposit growth was primarily in time deposits and net core deposits and the growth was primarily attributed to the Company’s offering of higher interest rates to attract funding in its increasingly competitive market area.2019. Approximately $84.6$101.2 million of time deposit accounts are scheduled to mature within one year as of September 30, 2019.2020. Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.
We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLBNY, will be carefully considered as we monitor our liquidity needs. Therefore, in order to minimize our cost of funds, we may consider additional borrowings from the FHLBNY in the future.
We do not anticipate any material capital expenditures in 2019.2020. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.
Capital
As of January 1, 2015, newFederal regulations that substantially amended therequire a federal savings bank to meet certain capital requirements became applicable to us. These regulations implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act,standards, as discussed in the “Supervision“Supervision and Regulation –- Federal Banking Regulation – Capital Requirements” section included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have developed a “Community Bank Leverage Ratio” (the ratio of a bank’s(bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A “qualifying community bank” thatmay elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance
51
with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.Basel III. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the new Community Bank Leverage Ratio at 9.00%. A financial institution can electPursuant to the CARES Act, the federal banking agencies issued final rules to set the Community Bank Leverage Ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the Community Bank Leverage Ratio will increase to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the Community Bank Leverage Ratio requirement will return to 9%. The Bank elected to be subject to this new definition afterwhen it becomesbecame effective on January 1, 2020. In the interim, the Basel III rules remain in effect.
As of September 30, 2019, as shown2020, the Bank was considered a “qualifying community bank” and its Community Bank Leverage Ratio was 11.69% so it was deemed to be in compliance with all other capital and leverage requirements, including the table below, the Bank’s Tier 1 and risk-based capital levels exceeded levels necessaryrequirements to be considered “Well Capitalized”“well capitalized” under Prompt Corrective Action provisions, as determined by the Office of the Comptroller of the Currency (the “OCC”), our primary regulator.
54
The Bank’s actual capital amounts and ratios and those required by the regulatory standards in effect as of the dates presented are as follows:
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At September 30, 2019 |
| Actual Ratio |
| Minimum For Capital Adequacy Purposes |
| To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||
Common Equity Tier 1 ("CET1") capital (to risk-weighted assets) |
| 17.01 | % |
| >= | 4.50 | % |
| >= | 6.50 | % |
Tier 1 capital (to risk-weighted assets) |
| 17.01 | % |
| >= | 6.00 | % |
| >= | 8.00 | % |
Total capital (to risk-weighted assets) |
| 17.93 | % |
| >= | 8.00 | % |
| >= | 10.00 | % |
Tier 1 Leverage (to adjusted total assets) |
| 13.18 | % |
| >= | 4.00 | % |
| >= | 5.00 | % |
At December 31, 2018 |
| Actual Ratio |
| Minimum For Capital Adequacy Purposes |
| To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||
CET 1 capital (to risk-weighted assets) |
| 19.70 | % |
| >= | 4.50 | % |
| >= | 6.50 | % |
Tier 1 capital (to risk-weighted assets) |
| 19.70 | % |
| >= | 6.00 | % |
| >= | 8.00 | % |
Total capital (to risk-weighted assets) |
| 20.59 | % |
| >= | 8.00 | % |
| >= | 10.00 | % |
Tier 1 Leverage (to adjusted total assets) |
| 13.99 | % |
| >= | 4.00 | % |
| >= | 5.00 | % |
In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of September 30, 2019, the Bank's capital conservation buffer was 9.93% exceeding the minimum of 2.50% for 2019.
statutes.
Off-Balance Sheet Arrangements
Other than loan commitments and antwo interest rate swap agreementagreements that isare not designated as a hedging instrument,instruments, as previously noted, above, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 87 in the Notes to our Consolidated Financial Statements for a summary of loan commitments outstanding as of September 30, 2019.2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required as the Company is a smaller reporting company.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
55
There have been noIn addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material changes inupdates and additions to the Company’s risk factors from thosepreviously disclosed in itsour Annual Report on Form 10-K.10-K for the year ended December 31, 2019 as filed with the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary
52
statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.
The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.
In December 2019, a coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. New York State was under a shelter in place at home order for most of the 2020 second quarter. This resulted in an unprecedented slow-down in economic activity, a steep, rapid increase in unemployment and stock market volatility. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. The State of New York and certain federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and passed legislation that has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We do have certain back-office employees working remotely to promote social distancing in our buildings and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated, and how to continue to safely re-open businesses and improve economic conditions. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
•a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;
•our cyber security risks are increased as the result of an increase in the number of employees working remotely;
•we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
•Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.
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Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reports information regarding repurchases by Lake Shore Bancorp of its common stock in each month of the quarter ended September 30, 2019:2020:
COMPANY PURCHASES OF EQUITY SECURITIES
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Period |
| Total Number of Shares Purchased |
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| 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 (1) |
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July 1 through July 31, 2019 |
| 9,600 |
| $ | 15.05 |
| 9,600 |
| 7,390 |
August 1 through August 31, 2019 |
| 7,390 |
|
| 14.92 |
| 7,390 |
| - |
September 1 through September 30, 2019 |
| - |
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| - |
| - |
| 116,239 |
Total |
| 16,990 |
| $ | 14.99 |
| 16,990 |
| 116,239 |
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Period |
| Total Number of Shares Purchased |
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| 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 (1) |
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July 1 through July 31, 2020 |
| 21,300 |
| $ | 13.45 |
| 21,300 |
| 8,239 |
August 1 through August 31, 2020 |
| 4,300 |
|
| 11.89 |
| 4,300 |
| 107,658 |
September 1 through September 30, 2020 |
| 16,500 |
|
| 12.85 |
| 16,500 |
| 91,158 |
Total |
| 42,100 |
| $ | 13.06 |
| 42,100 |
| 91,158 |
(1) | On |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| 101.INS |
| XBRL Instance Document* | |||||
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| 101.SCH |
| XBRL Taxonomy Extension Schema Document* | |||||
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| 101.CAL |
| XBRL Taxonomy Calculation Linkbase Document* | |||||
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| 101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document* | |||||
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| 101.LAB |
| XBRL Taxonomy Label Linkbase Document* | |||||
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| 101.PRE |
| XBRL Taxonomy Presentation Linkbase Document* |
________________
*Filed herewith.
5654
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.
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| LAKE SHORE BANCORP, INC. |
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| (Registrant) |
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November | By: | /s/ Daniel P. Reininga |
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| Daniel P. Reininga |
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| President and Chief Executive Officer |
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| (Principal Executive Officer) |
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November | By: | /s/ Rachel A. Foley |
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| Rachel A. Foley |
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| Chief Financial Officer |
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| (Principal Financial Officer) |
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November | By: | /s/ Steven W. Schiavone |
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| Steven W. Schiavone |
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| Controller |
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| (Principal Accounting Officer) |
5755