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 March 31, 2021September 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-254209001-40612
(Exact name of registrant as specified in its charter)
| 86-3947794 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
185 E Lincoln Highway
Coatesville, PA 19320
(Address of Principal Executive Offices)
(610) 384-8282
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of Each Class | Trading symbol | Name of Exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer☐ |
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| | | | | |
| | | | | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As Common Stock, $0.01 par value - 2,714,967 shares outstanding as of June 25, 2021, there were 0 shares of the registrant’s common shares outstanding.November 10, 2023.
TABLE OF CONTENTS
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| | Notes to Condensed Consolidated Financial Statements (Unaudited) | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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2
PB Bankshares, Inc.
Quarterly Report on Form 10-Q
For the quarterly period ended March 31, 2021
EXPLANATORY NOTE
PB Bankshares, Inc. (the “Company”) was formed to serve as the holding company for Prosper Bank upon the completion of Prosper Bank’s mutual-to-stock conversion. As of March 31, 2021, the Company had no assets or liabilities and had not conducted any business activities other than organizational activities. Accordingly, the unaudited consolidated financial statements and the other financial information contained in this quarterly report on Form 10-Q relate solely to Prosper Bank.
The unaudited consolidated financial statements and other financial information contained in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements of Prosper Bank as of and for the years ended December 31, 2020 and 2019 contained in the Company’s definitive prospectus dated May 14, 2021 (the “Prospectus”) as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on May 24, 2021.
3
PART I —FINANCIAL INFORMATION
Item 1. Financial Statements
PB BANKSHARES, INC.
Condensed Consolidated Balance Sheets
(In thousands)dollars in thousands, except per share data)
| | | | | | | |
|
| March 31, | | | | ||
| | 2021 | | December 31, | | ||
| | (Unaudited) |
| 2020* | | ||
Assets |
| |
|
| |
| |
Cash and due from banks | | $ | 25,549 | | $ | 25,899 | |
Federal funds sold | |
| 14,470 | |
| 24,592 | |
Interest bearing deposits with banks | |
| 100 | |
| 100 | |
| | | | | | | |
Cash and cash equivalents | |
| 40,119 | |
| 50,591 | |
| | | | | | | |
Debt securities available-for-sale, at fair value | |
| 28,839 | |
| 25,877 | |
Equity securities | |
| 851 | |
| 864 | |
Restricted stocks, at cost | |
| 898 | |
| 1,046 | |
Loans receivable, net of allowance for loan losses of $2,924 at March 31, 2021 and $2,854 at December 31, 2020 | |
| 198,859 | |
| 186,045 | |
Premises and equipment, net | |
| 2,067 | |
| 2,106 | |
Deferred income taxes | |
| 764 | |
| 672 | |
Accrued interest receivable | |
| 960 | |
| 851 | |
Bank owned life insurance | |
| 6,680 | |
| 6,639 | |
Other assets | |
| 1,029 | |
| 633 | |
| | | | | | | |
Total Assets | | $ | 281,066 | | $ | 275,324 | |
| | | | | | | |
Liabilities and Equity | |
|
| |
|
| |
| | | | | | | |
Liabilities | |
|
| |
|
| |
Deposits | | $ | 241,085 | | $ | 231,416 | |
Long-term borrowings | |
| 16,846 | |
| 20,553 | |
Accrued expenses and other liabilities | |
| 1,326 | |
| 1,386 | |
| | | | | | | |
Total Liabilities | |
| 259,257 | |
| 253,355 | |
| | | | | | | |
Commitments and contingent liabilities – see Note 7 | |
|
| |
|
| |
| | | | | | | |
Equity | |
|
| |
|
| |
Retained earnings | |
| 21,931 | |
| 21,880 | |
Accumulated other comprehensive (loss) income | |
| (122) | |
| 89 | |
| | | | | | | |
Total Equity | |
| 21,809 | |
| 21,969 | |
| | | | | | | |
Total Liabilities and Equity | | $ | 281,066 | | $ | 275,324 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
*Derived from the audited financial statements of Prosper Bank.
4
PB BANKSHARES, INC.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Interest and Dividend Income | | |
|
| |
| |
Loans, including fees | | $ | 2,144 | | $ | 2,104 | |
Securities | |
| 93 | |
| 156 | |
Other | |
| 6 | |
| 32 | |
Total Interest and Dividend Income | |
| 2,243 | |
| 2,292 | |
| | | | | | | |
Interest Expense | |
|
| |
|
| |
Deposits | |
| 467 | |
| 459 | |
Borrowings | |
| 109 | |
| 140 | |
Total Interest Expense | |
| 576 | |
| 599 | |
| | | | | | | |
Net interest income | |
| 1,667 | |
| 1,693 | |
| | | | | | | |
Provision for Loan Losses | |
| 69 | |
| 359 | |
| | | | | | | |
Net interest income after provision for loan losses | |
| 1,598 | |
| 1,334 | |
| | | | | | | |
Non-Interest Income | |
|
| |
|
| |
Service charges on deposit accounts | |
| 44 | |
| 44 | |
(Loss) gain on equity investments | |
| (15) | |
| 13 | |
Bank owned life insurance income | |
| 41 | |
| 31 | |
Debit card income | |
| 51 | |
| 44 | |
Other service charges | |
| 19 | |
| 16 | |
Other income | |
| 13 | |
| 13 | |
Total Non-Interest Income | |
| 153 | |
| 161 | |
| | | | | | | |
Non-Interest Expenses | |
|
| |
|
| |
Salaries and employee benefits | |
| 917 | |
| 844 | |
Occupancy and equipment | |
| 153 | |
| 134 | |
Data and item processing | |
| 243 | |
| 206 | |
Advertising and marketing | |
| 11 | |
| 16 | |
Professional fees | |
| 86 | |
| 118 | |
Directors’ fees | |
| 61 | |
| 59 | |
FDIC insurance premiums | |
| 47 | |
| 13 | |
Other real estate owned, net | |
| — | |
| (30) | |
Debit card expenses | |
| 37 | |
| 35 | |
Other | |
| 141 | |
| 96 | |
Total Non-Interest Expenses | |
| 1,696 | |
| 1,491 | |
| | | | | | | |
Income before income tax expense (benefit) | |
| 55 | |
| 4 | |
| | | | | | | |
Income Tax Expense (Benefit) | |
| 4 | |
| (5) | |
| | | | | | | |
Net Income | | $ | 51 | | $ | 9 | |
| | | | | | | |
| | September 30, | | | | | |
| | 2023 | | December 31, | | ||
| | (Unaudited) |
| 2022 | | ||
|
| | | | | | |
Assets |
| |
|
| |
| |
Cash and due from banks | | $ | 19,859 | | $ | 15,918 | |
Federal funds sold | |
| 4,823 | |
| 1,186 | |
Interest earning deposits with banks | |
| 503 | |
| 100 | |
| | | | | | | |
Cash and cash equivalents | |
| 25,185 | |
| 17,204 | |
| | | | | | | |
Debt securities available-for-sale, at fair value | |
| 40,667 | |
| 52,047 | |
Equity securities, at fair value | |
| 752 | |
| 762 | |
Restricted stocks, at cost | |
| 2,464 | |
| 2,251 | |
Loans receivable, net of allowance for credit losses of $4,468 at September 30, 2023 and $3,992 at December 31, 2022 | |
| 325,350 | |
| 300,855 | |
Premises and equipment, net | |
| 2,124 | |
| 1,693 | |
Deferred income taxes, net | |
| 1,826 | |
| 1,656 | |
Accrued interest receivable | |
| 1,327 | |
| 1,123 | |
Bank owned life insurance | |
| 8,178 | |
| 7,487 | |
Other assets | |
| 1,339 | |
| 1,469 | |
| | | | | | | |
Total Assets | | $ | 409,212 | | $ | 386,547 | |
| | | | | | | |
Liabilities and Stockholders' Equity | |
|
| |
|
| |
| | | | | | | |
Liabilities | |
|
| |
|
| |
Deposits | | $ | 306,521 | | $ | 289,495 | |
Borrowings | |
| 51,887 | |
| 47,638 | |
Accrued expenses and other liabilities | |
| 4,222 | |
| 3,427 | |
| | | | | | | |
Total Liabilities | |
| 362,630 | |
| 340,560 | |
| | | | | | | |
Commitments and contingencies - see note 8 | | | | | | | |
| | | | | | | |
Stockholders' Equity | |
|
| |
|
| |
Preferred Stock, $0.01 par value, 10,000,000 shares authorized; -0- issued and outstanding at September 30, 2023 and December 31, 2022 | | | — | | | — | |
Common Stock, $0.01 par value, 40,000,000 shares authorized; 2,744,967 (including 108,115 restricted shares) and 2,845,076 (including 108,115 restricted shares) issued and outstanding at September 30, 2023 and December 31, 2022, respectively | |
| 26 | |
| 27 | |
Additional paid-in capital | | | 24,786 | | | 25,721 | |
Retained earnings | |
| 26,149 | |
| 24,779 | |
Unearned ESOP shares, 199,962 shares at September 30, 2023 and December 31, 2022 | |
| (2,608) | |
| (2,608) | |
Accumulated other comprehensive loss | |
| (1,771) | |
| (1,932) | |
| | | | | | | |
Total Stockholders' Equity | |
| 46,582 | |
| 45,987 | |
| | | | | | | |
Total Liabilities and Stockholders' Equity | | $ | 409,212 | | $ | 386,547 | |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
.
53
PB BANKSHARES, INC.
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | |
|
| Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2023 |
| 2022 | | 2023 |
| 2022 | | ||||
|
| | | | | | | | | | | | |
Interest and Dividend Income |
| |
|
| |
| | |
|
| |
| |
Loans, including fees | | $ | 4,380 | | $ | 3,362 | | $ | 12,533 | | $ | 9,015 | |
Securities | |
| 337 | |
| 150 | |
| 738 | |
| 331 | |
Other | |
| 422 | |
| 171 | |
| 1,284 | |
| 272 | |
Total Interest and Dividend Income | |
| 5,139 | |
| 3,683 | |
| 14,555 | |
| 9,618 | |
| | | | | | | | | | | | | |
Interest Expense | |
|
| |
|
| |
|
| |
|
| |
Deposits | |
| 1,645 | |
| 466 | |
| 3,961 | |
| 1,374 | |
Borrowings | |
| 453 | |
| 229 | |
| 1,286 | |
| 562 | |
Total Interest Expense | |
| 2,098 | |
| 695 | |
| 5,247 | |
| 1,936 | |
| | | | | | | | | | | | | |
Net interest income | |
| 3,041 | |
| 2,988 | |
| 9,308 | |
| 7,682 | |
| | | | | | | | | | | | | |
Provision for Credit Losses | |
| 140 | |
| 346 | |
| 570 | |
| 639 | |
| | | | | | | | | | | | | |
Net interest income after provision for credit losses | |
| 2,901 | |
| 2,642 | |
| 8,738 | |
| 7,043 | |
| | | | | | | | | | | | | |
Noninterest Income | |
|
| |
|
| |
|
| |
|
| |
Service charges on deposit accounts | |
| 39 | |
| 40 | |
| 130 | |
| 136 | |
Loss on equity securities | |
| (24) | |
| (33) | |
| (24) | |
| (100) | |
Bank owned life insurance income | |
| 50 | |
| 44 | |
| 141 | |
| 131 | |
Debit card income | |
| 59 | |
| 51 | |
| 165 | |
| 149 | |
Other service charges | |
| 20 | |
| 19 | |
| 87 | |
| 55 | |
Loss on disposal of premises and equipment | | | — | | | — | | | (40) | | | — | |
Other income | |
| 41 | |
| 20 | |
| 123 | |
| 39 | |
Total Noninterest Income | |
| 185 | |
| 141 | |
| 582 | |
| 410 | |
| | | | | | | | | | | | | |
Noninterest Expenses | |
|
| |
|
| |
|
| |
|
| |
Salaries and employee benefits | |
| 1,279 | |
| 1,216 | |
| 3,970 | |
| 3,256 | |
Occupancy and equipment | |
| 180 | |
| 173 | |
| 521 | |
| 491 | |
Data and item processing | |
| 268 | |
| 254 | |
| 798 | |
| 747 | |
Advertising and marketing | |
| 60 | |
| 37 | |
| 158 | |
| 84 | |
Professional fees | |
| 170 | |
| 186 | |
| 515 | |
| 503 | |
Directors’ fees | |
| 107 | |
| 60 | |
| 322 | |
| 182 | |
FDIC insurance premiums | |
| 46 | |
| 38 | |
| 138 | |
| 76 | |
Pennsylvania shares tax | |
| 72 | |
| 84 | |
| 221 | |
| 247 | |
Debit card expenses | |
| 44 | |
| 36 | |
| 118 | |
| 105 | |
Other | |
| 206 | |
| 187 | |
| 629 | |
| 522 | |
Total Noninterest Expenses | |
| 2,432 | |
| 2,271 | |
| 7,390 | |
| 6,213 | |
| | | | | | | | | | | | | |
Income before income tax expense | |
| 654 | |
| 512 | |
| 1,930 | |
| 1,240 | |
| | | | | | | | | | | | | |
Income Tax Expense | |
| 141 | |
| 98 | |
| 420 | |
| 234 | |
| | | | | | | | | | | | | |
Net Income | | $ | 513 | | $ | 414 | | $ | 1,510 | | $ | 1,006 | |
Earnings per common share - basic | | $ | 0.21 | | $ | 0.16 | | $ | 0.61 | | $ | 0.39 | |
Earnings per common share - diluted | | $ | 0.21 | | $ | 0.16 | | $ | 0.60 | | $ | 0.39 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PB BANKSHARES, INC.
Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss)
(In thousands)
(Unaudited)
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
| | 2021 |
| 2020 | | ||
Net Income | | $ | 51 | | $ | 9 | |
| | | | | | | |
Other Comprehensive (Loss) Income | |
|
| |
|
| |
Unrealized (losses) gains on debt securities available-for-sale: | |
|
| |
|
| |
Unrealized holding gains (losses) arising during period | |
| (265) | |
| 412 | |
Tax effect | |
| 54 | |
| (85) | |
| | | | | | | |
| |
| (211) | |
| 327 | |
| | | | | | | |
Total Comprehensive (Loss) Income | | $ | (160) | | $ | 336 | |
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2023 |
| 2022 | | 2023 |
| 2022 | | ||||
|
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net Income | | $ | 513 | | $ | 414 | | $ | 1,510 | | $ | 1,006 | |
| | | | | | | | | | | | | |
Other Comprehensive Income (Loss) | |
|
| |
|
| |
|
| |
|
| |
Unrealized gains (losses) on debt securities available-for-sale: | |
|
| |
|
| |
|
| |
|
| |
Unrealized holding gains (losses) arising during period | |
| (2) | |
| (581) | |
| 204 | |
| (2,182) | |
Tax effect | |
| 1 | |
| 122 | |
| (43) | |
| 458 | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) | |
| (1) | |
| (459) | |
| 161 | |
| (1,724) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total Comprehensive Income (Loss) | | $ | 512 | | $ | (45) | | $ | 1,671 | | $ | (718) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
65
PB BANKSHARES, INC.
Condensed Consolidated Statements of Stockholders’ Equity
Three and nine months ended September 30, 2023 and 2022
(In thousands)
(Unaudited)
| | | | | | | | | |
|
| | |
| Accumulated |
| | | |
| | | | | Other | | | | |
| | Retained | | Comprehensive | | | | ||
| | Earnings | | Income (Loss) | | Total | |||
Balance, January 1, 2020 | | $ | 22,295 | | $ | (92) | | $ | 22,203 |
| | | | | | | | | |
Net income | |
| 9 | |
| — | |
| 9 |
Other comprehensive income | |
| — | |
| 327 | |
| 327 |
| | | | | | | | | |
Balance, March 31, 2020 | |
| 22,304 | |
| 235 | |
| 22,539 |
| | | | | | | | | |
Balance, January 1, 2021 | |
| 21,880 | |
| 89 | |
| 21,969 |
| | | | | | | | | |
Net income | |
| 51 | |
| — | |
| 51 |
Other comprehensive loss | |
| — | |
| (211) | |
| (211) |
| | | | | | | | | |
Balance, March 31, 2021 | | $ | 21,931 | | $ | (122) | | $ | 21,809 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Accumulated |
| | | ||
| | | | | Additional | | | | | | Unearned | | Other | | | | ||
| | Common | | Paid-In | | Retained | | ESOP | | Comprehensive | | | | |||||
| | Stock | | Capital | | Earnings | | Shares | | Loss | | Total | ||||||
Balance, July 1, 2022 | | $ | 28 | | $ | 26,176 | | $ | 23,257 | | $ | (2,753) | | $ | (1,547) | | $ | 45,161 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 414 | |
| — | |
| — | |
| 414 |
Repurchased common stock, 37,789 shares | | | — | | | (498) | | | — | | | — | | | — | | | (498) |
Other comprehensive loss | | | — | | | — | | | — | | | — | | | (459) | | | (459) |
| | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 | | $ | 28 | | $ | 25,678 | | $ | 23,671 | | $ | (2,753) | | $ | (2,006) | | $ | 44,618 |
| | | | | | | | | | | | | | | | | | |
Balance, July 1, 2023 | | $ | 27 | | $ | 24,892 | | | 25,636 | | $ | (2,608) | | $ | (1,770) | | $ | 46,177 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 513 | |
| — | |
| — | |
| 513 |
Repurchased common stock, 18,155 shares | | | (1) | | | (244) | | | — | | | — | | | — | | | (245) |
Stock based compensation expense | | | — | | | 138 | | | — | | | — | | | — | | | 138 |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| — | |
| (1) | |
| (1) |
| | | | | | | | | | | | | | | | | | |
Balance, September 30, 2023 | | $ | 26 | | $ | 24,786 | | $ | 26,149 | | $ | (2,608) | | $ | (1,771) | | $ | 46,582 |
| | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | $ | 28 | | $ | 26,176 | | $ | 22,665 | | $ | (2,753) | | $ | (282) | | $ | 45,834 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 1,006 | |
| — | |
| — | |
| 1,006 |
Repurchased common stock, 37,789 shares | | | — | | | (498) | | | — | | | — | | | — | | | (498) |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| — | |
| (1,724) | |
| (1,724) |
| | | | | | | | | | | | | | | | | | |
Balance, September 30, 2022 | | $ | 28 | | $ | 25,678 | | $ | 23,671 | | $ | (2,753) | | $ | (2,006) | | $ | 44,618 |
| | | | | | | | | | | | | | | | | | |
Balance, January 1, 2023 | | $ | 27 | | $ | 25,721 | | $ | 24,779 | | $ | (2,608) | | $ | (1,932) | | $ | 45,987 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 1,510 | |
| — | |
| — | |
| 1,510 |
Repurchased common stock, 100,109 shares | | | (1) | | | (1,341) | | | — | | | — | | | — | | | (1,342) |
Adoption of CECL | | | — | | | — | | | (140) | | | — | | | — | | | (140) |
Stock based compensation expense | | | — | | | 406 | | | — | | | — | | | — | | | 406 |
Other comprehensive income | |
| — | |
| — | |
| — | |
| — | |
| 161 | |
| 161 |
| | | | | | | | | | | | | | | | | | |
Balance, September 30, 2023 | | $ | 26 | | $ | 24,786 | | $ | 26,149 | | $ | (2,608) | | $ | (1,771) | | $ | 46,582 |
| | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
76
PB BANKSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
|
| Three Months Ended | | | Nine Months Ended | | | ||||||||
| | March 31, | | | September 30, | | | ||||||||
| | 2021 | | 2020 | |
| 2023 | | 2022 | | |||||
Cash Flows from Operating Activities |
| |
|
| |
| | | | | | | | | |
Net income | | $ | 51 | | $ | 9 | | | $ | 1,510 | | $ | 1,006 | | |
Adjustments to reconcile change in net income to net cash provided by operating activities: | |
|
| |
|
| | ||||||||
Provision for loan losses | |
| 69 | |
| 359 | | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| | | |||||||
Provision for credit losses | |
| 570 | |
| 639 | | | |||||||
Depreciation and amortization | |
| 55 | |
| 49 | | |
| 242 | |
| 220 | | |
Loss on disposal of premises and equipment | | | 40 | | | — | | | |||||||
Net accretion of securities premiums and discounts | |
| (11) | |
| (22) | | |
| (377) | |
| (92) | | |
Deferred income tax benefit | |
| (38) | |
| (97) | | |
| (176) | |
| (184) | | |
Loss (gain) on equity securities | |
| 15 | |
| (13) | | ||||||||
Loss on equity securities | |
| 24 | |
| 100 | | | |||||||
Deferred loan fees, net | |
| (13) | |
| (12) | | |
| 62 | |
| 58 | | |
Realized gain on sale of other real estate owned | |
| — | |
| (30) | | ||||||||
Earnings on bank owned life insurance | |
| (41) | |
| (31) | | |
| (141) | |
| (131) | | |
Stock-based compensation expense | | | 406 | | | — | | | |||||||
Increase in accrued interest receivable and other assets | |
| (505) | |
| (198) | | |
| (149) | |
| (268) | | |
(Decrease) increase in accrued expenses and other liabilities | |
| (60) | |
| 259 | | ||||||||
Increase in accrued expenses and other liabilities | |
| 649 | |
| 550 | | | |||||||
| | | | | | | | | | | | | | | |
Net Cash (Used in) Provided by Operating Activities | |
| (478) | |
| 273 | | ||||||||
Net Cash Provided by Operating Activities | |
| 2,660 | |
| 1,898 | | | |||||||
| | | | | | | | | | | | | | | |
Cash Flows from Investing Activities | |
|
| |
|
| | |
|
| |
|
| | |
Activity in debt securities available-for-sale: | |
|
| |
|
| | |
|
| |
|
| | |
Purchases | |
| (4,499) | |
| (3,250) | | | | (18,584) | | | (19,853) | | |
Maturities, calls, and principal repayments | |
| 1,281 | |
| 5,401 | | |
| 30,545 | |
| 6,173 | | |
Redemption of restricted stocks | |
| 148 | |
| 117 | | ||||||||
Dividends on equity securities reinvested | | | (14) | | | (8) | | | |||||||
Purchase of restricted stocks | | | (213) | | | (1,098) | | | |||||||
Purchase of additional bank owned life insurance | | | (550) | | | — | | | |||||||
Net increase in loans receivable | |
| (12,870) | |
| (9,671) | | |
| (25,158) | |
| (52,882) | | |
Purchases of premises and equipment | |
| (16) | |
| (8) | | |
| (638) | |
| (87) | | |
| | | | | | | | | | | | | | | |
Net Cash Used in Investing Activities | |
| (15,956) | |
| (7,411) | | |
| (14,612) | |
| (67,755) | | |
| | | | | | | | | | | | | | | |
Cash Flows from Financing Activities | |
|
| |
|
| | |
|
| |
|
| | |
Net increase in deposits | |
| 9,669 | |
| 19,526 | | |
| 17,026 | |
| 38,498 | | |
Repurchased common stock | | | (1,342) | | | (498) | | | |||||||
Advances of borrowings | | | 13,650 | | | 29,000 | | | |||||||
Repayments of borrowings | |
| (3,707) | |
| (2,914) | | |
| (9,401) | |
| (5,269) | | |
| | | | | | | | | | | | | | | |
Net Cash Provided by Financing Activities | |
| 5,962 | |
| 16,612 | | |
| 19,933 | |
| 61,731 | | |
| | | | | | | | | | | | | | | |
(Decrease) increase in cash and cash equivalents | |
| (10,472) | |
| 9,474 | | ||||||||
Increase (decrease) in cash and cash equivalents | |
| 7,981 | |
| (4,126) | | | |||||||
| | | | | | | | | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | |
| 50,591 | | | 12,969 | | |
| 17,204 | | | 26,864 | | |
| | | | | | | | | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 40,119 | | $ | 22,443 | | | $ | 25,185 | | $ | 22,738 | | |
| | | | | | | | | | | | | | | |
Supplementary Cash Flows Information | |
|
| |
|
| | |
|
| |
|
| | |
Interest paid | | $ | 602 | | $ | 609 | | | $ | 4,972 | | $ | 1,893 | | |
Income taxes | | $ | — | | $ | — | | ||||||||
Noncash transfer of loans to other real estate owned | | $ | — | | $ | — | | ||||||||
Right-to-use lease assets and liability | | | — | | | 247 | | | |||||||
Income taxes paid | | | 331 | | | 274 | | | |||||||
| | | | | | | | | |||||||
Supplementary Non-Cash Flows Information | |
|
| |
|
| | | |||||||
Unrealized gain (loss) on debt securities available-for-sale | | $ | 204 | | $ | (2,182) | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.statements.
87
1. Basis of Presentation
Organization and Nature of Operations
ProsperPB Bankshares, Inc., a Maryland corporation (the “Company”) is the holding company of Presence Bank (the “Bank”) and was formed in connection with the conversion of the Bank from the mutual to the stock form of organization. On July 14, 2021, the mutual to stock conversion of the Bank was completed and the Company became the parent holding company for the Bank. Shares of the Company began trading on the Nasdaq Capital Market on July 15, 2021. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Bank”).
The Bank is a state-chartered savings bank established in 1919. The main office is located in Coatesville, Pennsylvania with 3three other branches located in New Holland, Oxford, and Georgetown, Pennsylvania. The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans primarily secured by real estate and, to a lesser extent, consumer loans. The Bank competes with other banking and financial institutions in its primary market communities encompassing Chester, Cumberland, Dauphin, Lancaster, and Lebanon Counties in Pennsylvania. The Bank is regulated by the Federal Deposit Insurance Corporation (the “FDIC”) and the Pennsylvania Department of Banking and Securities (the “PADOB”).
Principles of Consolidation
The consolidated financial statements include accounts of the Company and its wholly-owned subsidiary, the Bank. The Bank also includeincludes the accounts of CSB Investments, Inc. (“CSB”), a wholly-owned subsidiary of the Bank located in Wilmington, Delaware. The sole purpose of CSB is to maintain and manage the Bank’s investment portfolio. All significant intercompany accounts and transactions have been eliminated in consolidation.
Risks and Uncertainties
The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Bank’s customers operate and could impair their ability to fulfill their financial obligations to the Bank. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Bank operates. While there has been no material impact to the Bank’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Bank. The Bank’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Bank could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Bank’s operations, the Bank is disclosing potentially material items of which it is aware.
COVID-19 mitigation measures have been lifted in Pennsylvania. The masking order will be lifted on June 28, 2021 or when 70 percent of adults are fully vaccinated, whichever comes first. Fully vaccinated Pennsylvanians may choose not to wear a mask unless they are required by a business or organization. The Bank lifted their mask mandate for fully vaccinated customers and associates on June 9, 2021.
The Conversion and Our Organizational Structure
On March 8, 2021, the Board of Trustees of the Bank unanimously adopted a Plan of Conversion whereby the Bank will convert from the mutual form of ownership to the stock form of ownership. PB Bankshares, Inc. will become the stock holding company of the Bank and will offer for sale shares of common stock to certain current and former depositors of the Bank and potentially others in a subscription and community offering. The proposed Plan of Conversion is subject to approval by the FDIC, the PADOB, the Federal Reserve Board and by affirmative vote of a least a majority of the votes eligible to be cast either in person or by proxy by depositors of the Bank. December 31, 2019 has been established as the eligibility record date for determining the eligible account holders entitled to receive first priority nontransferable subscription rights to subscribe for PB Bankshares, Inc. common stock. The stock is priced at $10.00 per share. In addition, the Bank’s Board of Trustees adopted an employee stock ownership plan (“ESOP”), which is permitted to subscribe for up to 8% of the common stock to be outstanding following the completion of the conversion and the stock offering.
9
The costs of the conversion and the issuing of the common stock will be deferred and deducted from the sales proceeds of the offering. If the conversion is unsuccessful, all deferred costs will be charged to operations. As of March 31, 2021, $396,000 of conversion costs had been incurred, included in other assets on the consolidated balance sheet.
Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information.information and with the instructions to the Securities and Exchange Commission’s Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments considered necessary (consisting only of normal recurring accruals) for a fair presentation have been included. Operating results for the three and nine month periodperiods ended March 31, 2021September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2021.2023 or any other interim periods. For further information, refer to the audited consolidated financial statements and notes thereto for the yearsyear ended December 31, 2020 and 2019 contained2022 as filed in the Company’s definitive prospectus dated May 14, 2021 asannual report on Form 10-K filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on May 24, 2021.
The Bank has evaluated subsequent events through the date of issuance of the financial statements included herein.March 28, 2023.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of financial conditionconsolidated balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loancredit losses on loans, the valuation of deferred tax assets, and estimation of fair values.
While management uses available information to recognize estimated losses on loans, future additions to the allowance for loancredit losses may be necessary based on changes in economic conditions and underlying collateral values, if any. In addition, the FDIC and PADOB, as an integral part of their examination process, periodically review the Bank’s allowance for loancredit losses. These agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examinations.
8
2. Recent Accounting Pronouncements
This section provides a summary description of recent ASUs issued by the FASB to the ASC that had or that management expects may have an impact on the financial statements issued upon adoption. The Company is classified as an emerging growth company and has elected 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. Effective dates reflect this election.
Recently Issued, But Not Yet EffectiveAdopted Accounting Pronouncements
During FebruaryIn September 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The ASU was initially effective for non-public business entities’ financial statements issued for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU 2020-05. Under ASU 2020-05, private companies may apply the new leases standard for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted. Due to the
10
Company’s extended transition period election, the amendments are effective for fiscal years beginning after December 15, 2021. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.
During June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of allas amended, requires an entity to measure expected credit losses for financial assets heldcarried at the reporting dateamortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions andAmong other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition,things, the ASU amendsalso amended the accountingimpairment model for credit losses on available-for-sale debtavailable for sale securities and addressed purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. The ASU iswas effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application is permitted. Due to the Company’s extended transition period election,Company on January 1, 2023. The adjustment recorded at adoption established a reserve for unfunded loan commitments of $177,000. This adjustment, net of tax, reduced the amendments are effective for fiscal years beginning after December 15, 2022. Theopening retained earnings of the Company is currently assessingand the impact that ASU 2016-13 will have on its consolidated financial statements and will hire a vendor to assist with expected credit loss projections.Bank by $140,000 as of the date of adoption.
During August 2018,In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes toas part of its post-implementation review of the Disclosure Requirementscredit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for Defined Benefit Plans.” These amendments modifytroubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted whileloan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the following disclosure requirements have been added: the weighted-average interest crediting ratesamendments require a public business entity to disclose current-period gross write-offs for cash balance plansfinancing receivables and other plans with promised interest crediting rates and an explanationnet investment in leases by year of the reasons for significant gains and losses related to changesorigination in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2021. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-14 to have a material impact on its consolidated financial statements.
During May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief.”vintage disclosures. The amendments in this ASU provide entities that have certain instruments withinshould be applied prospectively, except for the scopetransition method related to the recognition and measurement of Subtopic 326-20 withTDRs, an entity has the option to irrevocably electapply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the fair value optionperiod of adoption. ASU 2022-02 was effective for the Company on January 1, 2023. There was no material impact to the Company at adoption.
The following table illustrates the impact of adopting ASC 326 (in thousands):
| | | | | | | | | |
| | December 31, 2022 | | January 1, 2023 | | January 1, 2023 | |||
| | As Previously | | | | | As Reported | ||
| | Reported | | Impact of | | Under | |||
|
| (Incurred Loss) |
| ASC 326 | | ASC 326 | |||
Assets: | | | | | | | | | |
Loans, net | | $ | 300,855 | | $ | — | | $ | 300,855 |
| | | | | | | | | |
Deferred income taxes, net | | | 1,656 | | | 37 | | | 1,693 |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Reserve for credit losses on unfunded commitments | | | — | | | 177 | | | 177 |
| |
| | | | | | | |
Total equity: | | $ | 45,987 | | $ | (140) | | $ | 45,847 |
The following accounting policies have been updated in Subtopic 825-10, applied on an instrument-by-instrument basis for eligible instruments, uponconnection with the adoption of Topic 326. The fair value option election does notASC 326 and apply to held-to-maturity debt securities. An entity that electsperiods beginning after December 31, 2022. Accounting policies applying to prior periods are described in the fair value option should subsequently measure those instruments at fair value with changes in fair value flowing through earnings. The effective date and transition methodology for the amendments in ASU 2019-05 are the same as in ASU 2016-13. The Company is currently assessing the impact that ASU 2019-05 will have on its consolidated financial statements.
2022 Annual Report.
During November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU addresses issues raised by stakeholders during the implementation
9
Allowance for Credit Losses on Financial Instruments.” Among other narrow-scope improvements,Loans: The allowance for credit losses on loans is established through charges to earnings in the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describesform of a situation in which an organization recognizes a full or partial write-offprovision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the amortized cost basisloan and the estimated net realizable value or fair value of a financial asset, but then later determinesthe collateral, if collateral dependent, when management believes that the amount written off, or a portioncollectability of that amount, will in fact be recovered. While applying the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.
The allowance represents management’s current estimate of expected credit losses standard, stakeholders questioned whetherover the contractual term of loans, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected recoveries were permittedto be collected. No allowance for credit loss is recorded on assetsaccrued interest receivable and amounts written-off are reversed by an adjustment to interest income. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. Loans that had already shownshare common risk characteristics are evaluated collectively using a discounted cash flow approach for all loans. The discounted cash flow approach used by the Company utilizes loan-level cash flow projections and pool-level assumptions. For all loan pools, cash flow projections and estimated expected losses are based in part on benchmarked peer data.
Management’s estimate of the allowance for credit deteriorationlosses on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the loss estimation process. This includes forecasts that are reasonable and supportable concerning expectations of future economic conditions. The reasonable and supportable forecast period is a year. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
These qualitative risk factors include:
1. | Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices. |
2. | National, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans. |
3. | Nature and volume of the portfolio and terms of loans. |
4. | Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications. |
5. | Existence and effect of any concentrations of credit and changes in the level of such concentrations. |
6. | Effect of external factors, such as competition and legal and regulatory requirements. |
7. | Experience, ability, and depth of lending management and other relevant staff. |
8. | Quality of loan review and Board of Director oversight. |
9. | The effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses. |
10. | Changes in inflationary environment. |
11. | Changes in the interest rate environment. |
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of purchase (also known as PCD assets). In responsethe evaluation. Adjustments to this question, the ASU permits organizationsfactors are supported through documentation of changes in conditions in a narrative accompanying the allowance for credit losses calculation for our loan portfolio.
10
The evaluation also considers the following risk characteristics of each loan portfolio segment:
● | One- to four-family residential real estate loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral. |
● | Commercial real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project. |
● | Construction loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project. |
● | Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability. |
● | Consumer loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. These loans are typically either unsecured or secured by rapidly depreciating assets. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. |
Loans that do not share common risk characteristics with other loans are evaluated individually and are not included in the collective analysis. The allowance for credit losses on loans that are individually evaluated may be estimated based on their expected cash flows, or, in the case of loans for which repayment is expected substantially through the operation or sale of collateral when the borrower is experiencing financial difficulty, may be measured based on the fair value of the collateral less estimated costs to record expected recoveries on PCD assets. In additionsell.
An unallocated component of the allowance for loan losses is maintained to other narrow technical improvements,cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the ASU also reinforces existing guidance that prohibits organizations from recording negative allowancesallowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for available-for-sale debt securities. The effective dateestimating specific and transition methodologygeneral losses in the portfolio.
Reserve for the amendments in ASU 2019-11 are the same as in ASU 2016-13.Unfunded Commitments: The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancelable by the Company. The reserve for unfunded commitments is currently assessingmeasured based on the impact that ASU 2019-11 will haveprinciples utilized in estimating the allowance for credit losses on its consolidated financial statements.loans and an estimate of the amount of unfunded commitments expected to be advanced. Changes in the reserve for unfunded commitments are recorded through the provision for credit losses.
11
During December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-12 will have on its consolidated financial statements.
During January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. The amendments in the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements.
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.The Company does not have any loans and other financial instruments that are directly or indirectly influenced by LIBOR.
Recently Adopted Accounting Pronouncements
In December 2020, the Consolidated Appropriates Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the Paycheck Protection Program (PPP) loan program and treatment of certain loan modifications related to the COVID-19 pandemic. See Note 4 for the further discussion of COVID-19 loans.
12
3. Debt and Equity Securities
The amortized cost, gross unrealized gains and losses, and fair value of securities available-for-sale and equity securities are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | |
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||||
March 31, 2021 | | Amortized Cost | | Gains | | Losses | | Fair Value | ||||||||||||||||
September 30, 2023 | | Amortized Cost | | Gains | | Losses | | Fair Value | ||||||||||||||||
Debt securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Agency bonds | | $ | 21,752 | | $ | 1 | | $ | (183) | | $ | 21,570 | | $ | 24,243 | | $ | — | | $ | (1,924) | | $ | 22,319 |
Treasury securities | | | 15,816 | | | — | | | (29) | | | 15,787 | ||||||||||||
Mortgage-backed securities | |
| 155 | |
| 19 | |
| — | |
| 174 | |
| 86 | |
| 1 | |
| (1) | |
| 86 |
Collateralized mortgage obligations | |
| 6,930 | |
| 165 | |
| — | |
| 7,095 | |
| 2,763 | |
| — | |
| (288) | |
| 2,475 |
Total available-for-sale debt securities | | $ | 28,837 | | $ | 185 | | $ | (183) | |
| 28,839 | | $ | 42,908 | | $ | 1 | | $ | (2,242) | | $ | 40,667 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Mutual funds (fixed income) | | | | |
|
| |
|
| | $ | 851 | | | | |
|
| |
|
| | $ | 752 |
| | | | | | | | | | | | |
| | | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
December 31, 2020 |
| Amortized Cost | | Gains | | Losses | | Fair Value | ||||
Debt securities: |
| |
|
| |
|
| |
|
| |
|
Agency bonds | | $ | 17,254 | | $ | 22 | | $ | (1) | | $ | 17,275 |
Mortgage-backed securities | |
| 164 | |
| 20 | |
| — | |
| 184 |
Collateralized mortgage obligations | |
| 8,192 | |
| 226 | |
| — | |
| 8,418 |
Total available-for-sale debt securities | | $ | 25,610 | | $ | 268 | | $ | (1) | |
| 25,877 |
Equity securities: | |
| | | | | | | | | | |
Mutual funds (fixed income) | | |
| |
|
| |
|
| | $ | 864 |
| | | | | | | | | | | | |
| | | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
December 31, 2022 |
| Amortized Cost | | Gains | | Losses | | Fair Value | ||||
Debt securities: |
| |
|
| |
|
| |
|
| |
|
Agency bonds | | $ | 21,243 | | $ | — | | $ | (2,126) | | $ | 19,117 |
Treasury securities | | | 29,859 | | | 2 | | | (42) | | | 29,819 |
Mortgage-backed securities | |
| 97 | |
| 2 | |
| — | |
| 99 |
Collateralized mortgage obligations | |
| 3,293 | |
| — | |
| (281) | |
| 3,012 |
Total available-for-sale debt securities | | $ | 54,492 | | $ | 4 | | $ | (2,449) | | $ | 52,047 |
| | | | | | | | | | | | |
Equity securities: | |
| | | | | | | | | | |
Mutual funds (fixed income) | | |
| |
|
| |
|
| | $ | 762 |
The table below indicates the length of time individual available-for-sale securities have been in a continuous unrealized loss position at March 31, 2021September 30, 2023 and December 31, 20202022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2021 | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
September 30, 2023 | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized | ||||||
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | ||||||||||||
Agency bonds | | $ | 20,069 | | $ | (183) | | $ | — | | $ | — | | $ | 20,069 | | $ | (183) | | $ | 2,994 | | $ | (4) | | $ | 19,325 | | $ | (1,920) | | $ | 22,319 | | $ | (1,924) |
Treasury securities | | | 15,787 | | | (29) | | | — | | | — | | | 15,787 | | | (29) | ||||||||||||||||||
Mortgage-backed securities | | | 59 | | | (1) | | | — | | | — | | | 59 | | | (1) | ||||||||||||||||||
Collateralized mortgage obligations | |
| 171 | |
| — | |
| — | |
| — | |
| 171 | |
| — | |
| — | | | — | |
| 2,475 | |
| (288) | |
| 2,475 | |
| (288) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 20,240 | | $ | (183) | | $ | — | | $ | — | | $ | 20,240 | | $ | (183) | ||||||||||||||||||
Total | | $ | 18,840 | | $ | (34) | | $ | 21,800 | | $ | (2,208) | | $ | 40,640 | | $ | (2,242) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
December 31, 2022 | | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||||||||||||||||||||
|
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized |
| | |
| Unrealized | ||||||
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses | ||||||||||||
Agency bonds | | $ | 1,249 | | $ | (1) | | $ | — | | $ | — | | $ | 1,249 | | $ | (1) | | $ | — | | $ | — | | $ | 19,117 | | $ | (2,126) | | $ | 19,117 | | $ | (2,126) |
Treasury securities | | | 9,928 | | | (42) | | | — | | | — | | | 9,928 | | | (42) | ||||||||||||||||||
Collateralized mortgage obligations | |
| 6 | |
| — | |
| — | |
| — | |
| 6 | |
| — | |
| 1,479 | | | (106) | |
| 1,533 | |
| (175) | |
| 3,012 | |
| (281) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,255 | | $ | (1) | | $ | — | | $ | — | | $ | 1,255 | | $ | (1) | ||||||||||||||||||
Total | | $ | 11,407 | | $ | (148) | | $ | 20,650 | | $ | (2,301) | | $ | 32,057 | | $ | (2,449) |
As of March 31, 2021 and December 31, 2020, the mortgage-backed securities and collateralized mortgage obligations included in the securities portfolio consist of securities issued by U.S. government sponsored agencies. There were 0 private label mortgage-backed securities held in the securities portfolio as of March 31, 2021 and December 31, 2020.
At March 31, 2021, 45 agency bonds and 1 collateralized mortgage obligation were in an unrealized loss position for less than 12 months. At December 31, 2020, 4 agency bonds and 1 collateralized mortgage obligation were in an unrealized loss position for less than 12 months. In analyzing an issuer’s financial condition, management considers whether downgrades by bond rating agencies have occurred and industry analysts’ reports.
1312
As of MarchSeptember 30, 2023 and December 31, 2021,2022, the mortgage-backed securities and collateralized mortgage obligations included in the securities portfolio consisted of securities issued by U.S. government sponsored agencies. There were no private label mortgage-backed securities or collateralized mortgage obligations held in the securities portfolio as of September 30, 2023 and December 31, 2022.
At September 30, 2023, 50 agency bonds, five treasury securities, five mortgage-backed securities and 34 collateralized mortgage obligations were in an unrealized loss position. In analyzing an issuer’s financial condition, management considers whether downgrades by bond rating agencies have occurred and industry analysts’ reports.
As of September 30, 2023, management believes that the estimated fair value of securities disclosed above is primarily dependent upon the movement in market interest rates particularly given the negligible inherent credit risk associated with these securities. Although the fair value will fluctuate as the market interest rates move, management believes that these fair values will recover as the underlying portfolios mature and are reinvested in market yielding investments. Additionally, all securities remain highly rated and all issuers have continued to make timely payments of interest and principal.
As the BankCompany does not intend to sell these securities and it is more likely than not that the BankCompany will not be required to sell the securities before recovery of their amortized cost basis, which may be maturity, the Bank doesCompany concluded that a credit loss did not consider these securities to be other-than-temporarily impaired as of March 31, 2021.exist in its portfolio at September 30, 2023, and therefore, no allowance for credit losses was recorded.
There were 0no securities sold during the three and nine months ended March 31, 2021September 30, 2023 or March 31, 2020.September 30, 2022. The amortized cost and fair value of debt securities available-for-sale at March 31, 2021,September 30, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands).
| | | | | | | | | | | | | | | |
| | Available-for-Sale | | Available-for-Sale | |||||||||||
|
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value |
| Yield | |||||
Due less than one year | | $ | — | | $ | — | | $ | 16,828 | | $ | 16,801 | | 5.32 | % |
Due one year through five years | |
| 21,752 | |
| 21,570 | |
| 23,231 | |
| 21,305 | | 2.81 | |
Due after five years through ten years | |
| — | |
| — | |
| — | |
| — | | — | |
Mortgage-backed securities | |
| 155 | |
| 174 | |
| 86 | |
| 86 | | 5.09 | |
Collateralized mortgage obligations | |
| 6,930 | |
| 7,095 | |
| 2,763 | |
| 2,475 | | 1.94 | |
| | | | | | | | | | | | | | | |
| | $ | 28,837 | | $ | 28,839 | |||||||||
Total available-for-sale debt securities | | $ | 42,908 | | $ | 40,667 | | 2.75 | % |
At March 31, 2021September 30, 2023 and December 31, 2020,2022, the BankCompany had securities with fair values totaling $1,995,000$1,830,000 and $2,004,000,$1,810,000, respectively, pledged to secure borrowings.
At March 31, 2021September 30, 2023 and December 31, 2020,2022, the BankCompany had securities with fair values totaling $6,956,000$18,618,000 and $7,810,000,$21,604,000, respectively, pledged primarily for public fund depositors.
13
4. Loans Receivable and Allowance for LoanCredit Losses
On January 1, 2023, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. All loan information presented as of September 30, 2023 is in accordance with ASC 326. All loan information presented as of December 31, 2022 or a prior date is presented in accordance with previously applicable incurred loss GAAP.
The Company’s loans are stated at their face amount and consist of the classes of loans included in the table below. The Company has elected to exclude accrued interest receivable, totaling $1.2 million at September 30, 2023, from the amortized cost basis of loans.
Major classifications of net loans receivable at March 31, 2021September 30, 2023 and December 31, 20202022 are as follows (in thousands):
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Real estate: |
| |
|
| |
|
One- to four-family residential | | $ | 104,205 | | $ | 106,413 |
Commercial | |
| 62,153 | |
| 59,514 |
Construction | |
| 9,427 | |
| 8,700 |
Commercial and industrial | |
| 23,582 | |
| 11,801 |
Consumer loans | |
| 3,040 | |
| 3,056 |
| | | | | | |
| |
| 202,407 | |
| 189,484 |
Deferred loan fees, net | |
| (624) | |
| (585) |
Allowance for loan losses | |
| (2,924) | |
| (2,854) |
| | | | | | |
| | $ | 198,859 | | $ | 186,045 |
| | | | | | |
|
| September 30, |
| December 31, | ||
|
| 2023 |
| 2022 | ||
Real estate: |
| |
|
| |
|
One-to four-family residential | | $ | 107,473 | | $ | 110,387 |
Commercial | |
| 186,406 | |
| 148,567 |
Construction | |
| 9,812 | |
| 20,406 |
Commercial and industrial | |
| 17,002 | |
| 17,874 |
Consumer and other | |
| 9,796 | |
| 8,203 |
| | | | | | |
| |
| 330,489 | |
| 305,437 |
Deferred loan fees, net | |
| (671) | |
| (590) |
Allowance for credit losses | |
| (4,468) | |
| (3,992) |
| | | | | | |
Total loans receivable, net | | $ | 325,350 | | $ | 300,855 |
14
The following table summarizes the activity in the allowance for loancredit losses - loans by loan class for the three months ended March 31, 2021 and information in regard to the allowance for loan losses and the recorded investment in loans receivable by loan class as of March 31, 2021September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | Allowance for Loan Losses | |||||||||||||||||||
|
| | |
| | |
| | |
| | |
| | |
| Ending |
| Ending | ||
| | | | | | | | | | | | | | | | | Balance: | | Balance: | ||
| | | | | | | | | | | | | | | | | Individually | | Collectively | ||
| | | | | | | | | | | | | | | | | Evaluated | | Evaluated | ||
| | Beginning | | | | | | | | Provisions | | Ending | | for | | for | |||||
| | Balance | | Charge-offs | | Recoveries | | (Recovery) | | Balance |
| Impairment |
| Impairment | |||||||
Real Estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,339 | | $ | — | | $ | — | | $ | (35) | | $ | 1,304 | | $ | — | | $ | 1,304 |
Commercial | |
| 1,033 | |
| — | |
| — | |
| (64) | |
| 969 | |
| 7 | |
| 962 |
Construction | |
| 121 | |
| — | |
| — | |
| (14) | |
| 107 | |
| 50 | |
| 57 |
Commercial and industrial | |
| 136 | |
| — | |
| 1 | |
| 85 | |
| 222 | |
| — | |
| 222 |
Consumer | |
| 37 | |
| — | |
| — | |
| — | |
| 37 | |
| — | |
| 37 |
Unallocated | |
| 188 | |
| — | |
| — | |
| 97 | |
| 285 | |
| — | |
| 285 |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,854 | | $ | — | | $ | 1 | | $ | 69 | | $ | 2,924 | | $ | 57 | | $ | 2,867 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans Receivable | | Allowance for Credit Losses - Loans | ||||||||||||||||||||
|
| | |
| Ending |
| Ending | | | | | | | | | | Provisions | | | | ||||
| | | | | Balance: | | Balance: | | | | | | | | | | for Credit | | | | ||||
| | | | | Individually | | Collectively | | Beginning | | | | | | | | Losses - | | Ending | |||||
| | | | | Evaluated | | Evaluated | | Balance | | Charge-offs | | Recoveries | | Loans | | Balance | |||||||
| | Ending | | for | | for | ||||||||||||||||||
| | Balance | | Impairment | | Impairment | ||||||||||||||||||
Real estate: |
| |
|
| |
|
| |
| |||||||||||||||
Real Estate: |
| |
|
| |
|
| |
|
| |
|
| |
| |||||||||
One- to four-family residential | | $ | 104,205 | | $ | 1,535 | | $ | 102,670 | | $ | 1,233 | | $ | — | | $ | — | | $ | 136 | | $ | 1,369 |
Commercial | |
| 62,153 | |
| 1,651 | |
| 60,502 | |
| 2,354 | |
| — | |
| — | |
| 213 | |
| 2,567 |
Construction | |
| 9,427 | |
| 584 | |
| 8,843 | |
| 138 | |
| — | |
| — | |
| (40) | |
| 98 |
Commercial and industrial | |
| 23,582 | |
| — | |
| 23,582 | |
| 209 | |
| — | |
| 1 | |
| 21 | |
| 231 |
Consumer | |
| 3,040 | |
| — | |
| 3,040 | |||||||||||||||
Consumer and other | |
| 112 | |
| — | |
| — | |
| 3 | |
| 115 | |||||||||
Unallocated | |
| 268 | |
| — | |
| — | |
| (180) | |
| 88 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 202,407 | | $ | 3,770 | | $ | 198,637 | | $ | 4,314 | | $ | — | | $ | 1 | | $ | 153 | | $ | 4,468 |
The following table summarizes the activity in the allowance for loan losses by loan class for the three months ended March 31, 2020 and information in regard to the allowance for loan losses and the recorded investment in loans receivable by loan class as of December 31, 2020September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||
| | Allowance for Loan Losses | ||||||||||||||||||||||||||||||||||
|
| | |
| | |
| | |
| | |
| | |
| Ending |
| Ending | |||||||||||||||||
| | | | | | | | | | | | | | | | | Balance: | | Balance: | |||||||||||||||||
| | | | | | | | | | | | | | | | | Individually | | Collectively | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | Evaluated | | Evaluated | | Allowance for Loan Losses | |||||||||||||||
| | Beginning | | | | | | | | Provisions | | Ending | | for | | for | | Beginning | | | | | | | | Provisions | | Ending | ||||||||
| | Balance | | Charge-offs | | Recoveries | | (Recovery) | | Balance |
| Impairment |
| Impairment | | Balance | | Charge-offs | | Recoveries | | (Recovery) | | Balance | ||||||||||||
Real Estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 935 | | $ | — | | $ | — | | $ | 111 | | $ | 1,046 | | $ | — | | $ | 1,046 | | $ | 1,012 | | $ | — | | $ | — | | $ | 23 | | $ | 1,035 |
Commercial | |
| 687 | |
| — | |
| — | |
| 151 | |
| 838 | |
| 42 | |
| 796 | |
| 1,933 | |
| — | |
| — | |
| (119) | |
| 1,814 |
Construction | |
| 42 | |
| — | |
| — | |
| 7 | |
| 49 | |
| — | |
| 49 | |
| 212 | |
| — | |
| — | |
| 24 | |
| 236 |
Commercial and industrial | |
| 29 | |
| — | |
| 3 | |
| 88 | |
| 120 | |
| — | |
| 120 | |
| 109 | |
| — | |
| 2 | |
| 11 | |
| 122 |
Consumer | |
| 13 | |
| — | |
| — | |
| (13) | |
| — | |
| — | |
| — | |||||||||||||||
Consumer and other | |
| 28 | |
| — | |
| — | |
| — | |
| 28 | |||||||||||||||||||||
Unallocated | |
| 133 | |
| — | |
| — | |
| 15 | |
| 148 | |
| — | |
| 148 | |
| 145 | |
| — | |
| — | |
| 407 | |
| 552 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,839 | | $ | — | | $ | 3 | | $ | 359 | | $ | 2,201 | | $ | 42 | | $ | 2,159 | | $ | 3,439 | | $ | — | | $ | 2 | | $ | 346 | | $ | 3,787 |
The following table summarizes the activity in the allowance for credit losses - loans by loan class for the nine months ended September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Allowance for Credit Losses - Loans | ||||||||||||||||
| | Beginning | | | | | | | | | | | | | | |||
| | Balance | | | | | | | | | | Provisions | | | | |||
| | Prior to | | Impact of | | | | | | | | for Credit | | | | |||
| | Adoption of | | Adoption of | | | | | | | | Losses - | | Ending | ||||
| | ASC 326 | | ASC 326 | | Charge-offs | | Recoveries | | Loans | | Balance | ||||||
Real Estate: |
| |
| | |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,156 | | $ | 45 | | $ | — | | $ | 15 | | $ | 153 | | $ | 1,369 |
Commercial | |
| 1,829 | |
| 75 | |
| — | |
| — | |
| 663 | |
| 2,567 |
Construction | |
| 316 | |
| (34) | |
| — | |
| — | |
| (184) | |
| 98 |
Commercial and industrial | |
| 308 | |
| (84) | |
| (144) | |
| 3 | |
| 148 | |
| 231 |
Consumer and other | |
| 87 | |
| 3 | |
| — | |
| — | |
| 25 | |
| 115 |
Unallocated | |
| 296 | |
| (5) | |
| — | |
| — | |
| (203) | |
| 88 |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 3,992 | | $ | — | | $ | (144) | | $ | 18 | | $ | 602 | | $ | 4,468 |
15
The following table summarizes the activity in the allowance for loan losses by loan class for the nine months ended September 30, 2022 (in thousands):
| | | | | | | | | | | | | | | |
| | Allowance for Loan Losses | |||||||||||||
| | Beginning | | | | | | | | Provisions | | Ending | |||
| | Balance | | Charge-offs | | Recoveries | | (Recovery) | | Balance | |||||
Real Estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,217 | | $ | — | | $ | — | | $ | (182) | | $ | 1,035 |
Commercial | |
| 1,357 | |
| — | |
| — | |
| 457 | |
| 1,814 |
Construction | |
| 194 | |
| — | |
| — | |
| 42 | |
| 236 |
Commercial and industrial | |
| 191 | |
| — | |
| 3 | |
| (72) | |
| 122 |
Consumer and other | |
| 33 | |
| — | |
| — | |
| (5) | |
| 28 |
Unallocated | |
| 153 | |
| — | |
| — | |
| 399 | |
| 552 |
| | | | | | | | | | | | | | | |
Total | | $ | 3,145 | | $ | — | | $ | 3 | | $ | 639 | | $ | 3,787 |
The following tables present a breakdown of the provision for credit losses for the periods indicated (in thousands):
| | | | | | |
| | Three Months Ended September 30, | ||||
| | 2023 | | 2022 | ||
Provision for credit losses: |
| |
|
| |
|
Provision for loans | | $ | 153 | | $ | 346 |
Recovery for unfunded commitments | |
| (13) | |
| — |
| | | | | | |
Total provision for credit losses | | $ | 140 | | $ | 346 |
| | | | | | |
| | Nine Months Ended September 30, | ||||
| | 2023 | | 2022 | ||
Provision for credit losses: |
| |
|
| |
|
Provision for loans | | $ | 602 | | $ | 639 |
Recovery for unfunded commitments | |
| (32) | |
| — |
| | | | | | |
Total provision for credit losses | | $ | 570 | | $ | 639 |
The following tables present the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses as of September 30, 2023 and December 31, 2022 (in thousands):
| | | | | | |
|
| September 30, 2023 | ||||
| | |
| Nonaccural | ||
|
| Nonaccrual |
| With No ACL | ||
Real estate: |
| |
|
| |
|
One- to four-family residential | | $ | 175 | | $ | 175 |
Commercial | |
| 419 | |
| 419 |
Commercial and industrial | |
| 220 | |
| 220 |
| | | | | | |
Total | | $ | 814 | | $ | 814 |
16
| | | | | | | | | |
| | Loans Receivable | |||||||
|
| | |
| Ending |
| Ending | ||
| | | | | Balance: | | Balance: | ||
| | | | | Individually | | Collectively | ||
| | | | | Evaluated | | Evaluated | ||
| | Ending | | for | | for | |||
| | Balance | | Impairment | | Impairment | |||
Real estate: |
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 106,413 | | $ | 1,494 | | $ | 104,919 |
Commercial | |
| 59,514 | |
| 1,671 | |
| 57,843 |
Construction | |
| 8,700 | |
| 640 | |
| 6,731 |
Commercial and industrial | |
| 11,801 | |
| — | |
| 13,130 |
Consumer | |
| 3,056 | |
| — | |
| 3,056 |
| | | | | | | | | |
| | $ | 189,484 | | $ | 3,805 | | $ | 185,679 |
| | | | | | |
|
| December 31, 2022 | ||||
| | |
| Nonaccural | ||
|
| Nonaccrual |
| With No ALL | ||
Real estate: |
| |
|
| |
|
One- to four-family residential | | $ | 330 | | $ | 330 |
Commercial | |
| 416 | |
| 416 |
Construction | | | 147 | | | — |
Commercial and industrial | |
| 156 | |
| 156 |
| | | | | | |
Total | | $ | 1,049 | | $ | 902 |
The following table summarizes information in regardpresents the amortized cost basis of collateral-dependent loans to impaired loansborrowers experiencing financial difficulty by loan portfolio class as of March 31, 2021 and for the three months ended March 31, 2021September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Unpaid |
| | |
| Average |
| Interest | |||
| | Recorded | | Principal | | Related | | Recorded | | Income | |||||
| | Investment | | Balance | | Allowance | | Investment | | Recognized | |||||
With no related allowance recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,535 | | $ | 1,548 | | $ | — | | $ | 1,515 | | $ | 13 |
Commercial | |
| 1,171 | |
| 1,171 | |
| — | |
| 1,177 | |
| 15 |
Construction | |
| 370 | |
| 377 | |
| — | |
| 373 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
With an allowance recorded: | |
| | |
|
| |
|
| |
|
| |
|
|
Real estate: | |
|
| |
|
| |
|
| |
|
| |
|
|
One- to four-family residential | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Commercial | |
| 480 | |
| 555 | |
| 7 | |
| 484 | |
| — |
Construction | |
| 214 | |
| 250 | |
| 50 | |
| 239 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
Total: | |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate: | |
|
| |
|
| |
|
| |
|
| |
|
|
One- to four-family residential | | $ | 1,535 | | $ | 1,548 | | $ | — | | $ | 1,515 | | $ | 13 |
Commercial | |
| 1,651 | |
| 1,726 | |
| 7 | |
| 1,661 | |
| 15 |
Construction | |
| 584 | |
| 627 | |
| 50 | |
| 612 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
| | September 30, 2023 | ||||||||||
| | | | | | | Total | | | |||
| | Real Estate | | Non-Real Estate | | Collateral | | Allowance for | ||||
| | Secured | | Secured | | Dependent | | Credit Losses- | ||||
| | Loans | | Loans | | Loans | | Loans | ||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 508 | | $ | — | | $ | 508 | | $ | — |
Commercial | |
| 1,078 | |
| — | |
| 1,078 | |
| — |
Construction | |
| — | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 220 | |
| — | |
| 220 | |
| — |
Consumer and other | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | |
Total | | $ | 1,806 | | $ | — | | $ | 1,806 | | $ | — |
A loan is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” loans include those characterized by the “distinct possibility” that the Company will sustain “some loss” if the deficiencies are not corrected. Loans classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Loans classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for credit losses is not warranted. Loans that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. Loans that are performing as agreed are classified as “pass”.
1617
The following table summarizes information in regard to impaired loans by loan portfolio class as of December 31, 2020 and for the period then ended (in thousands):
| | | | | | | | | | | | | | | |
|
| | |
| Unpaid |
| | |
| Average |
| Interest | |||
| | Recorded | | Principal | | Related | | Recorded | | Income | |||||
| | Investment | | Balance | | Allowance | | Investment | | Recognized | |||||
With no related allowance recorded: |
| |
|
| |
|
| |
|
| |
|
| |
|
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 1,494 | | $ | 1,580 | | $ | — | | $ | 1,562 | | $ | 62 |
Commercial | |
| 1,183 | |
| 1,183 | |
| — | |
| 1,242 | |
| 66 |
Construction | |
| 376 | |
| 383 | |
| — | |
| 380 | |
| 12 |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate: | |
|
| |
|
| |
|
| |
|
| |
|
|
One- to four-family residential | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Commercial | |
| 488 | |
| 561 | |
| 16 | |
| 508 | |
| 23 |
Construction | |
| 264 | |
| 300 | |
| 24 | |
| 264 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
Total: | |
|
| |
|
| |
|
| |
|
| |
|
|
Real estate: | |
|
| |
|
| |
|
| |
|
| |
|
|
One- to four-family residential | | $ | 1,494 | | $ | 1,580 | | $ | — | | $ | 1,562 | | $ | 62 |
Commercial | |
| 1,671 | |
| 1,744 | |
| 16 | |
| 1,750 | |
| 89 |
Construction | |
| 640 | |
| 683 | |
| 24 | |
| 644 | |
| 12 |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| — |
The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2021 and December 31, 2020 (in thousands):
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Real estate: |
| |
|
| |
|
One- to four-family residential | | $ | 1,197 | | $ | 1,600 |
Commercial | |
| 564 | |
| 575 |
Construction | |
| 584 | |
| 640 |
| | | | | | |
| | $ | 2,345 | | $ | 2,815 |
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Bank’s internal risk rating system as of March 31, 2021 (in thousands):
| | | | | | | | | | | | | | | |
|
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 101,213 | | $ | 1,397 | | $ | 1,595 | | $ | — | | $ | 104,205 |
Commercial | |
| 60,618 | |
| 359 | |
| 1,176 | |
| — | |
| 62,153 |
Construction | |
| 8,843 | |
| — | |
| 584 | |
| — | |
| 9,427 |
Commercial and industrial | |
| 23,582 | |
| — | |
| — | |
| — | |
| 23,582 |
Consumer | |
| 3,040 | |
| — | |
| — | |
| — | |
| 3,040 |
| | | | | | | | | | | | | | | |
| | $ | 197,296 | | $ | 1,756 | | $ | 3,355 | | $ | — | | $ | 202,407 |
17
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Bank’sCompany’s internal risk rating system as of December 31, 2020September 30, 2023 (in thousands):; as well as gross charge-offs (in thousands) for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | |
|
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 103,557 | | $ | 850 | | $ | 2,006 | | $ | — | | $ | 106,413 |
Commercial | |
| 57,957 | |
| 364 | |
| 1,193 | |
| — | |
| 59,514 |
Construction | |
| 8,060 | |
| — | |
| 640 | |
| — | |
| 8,700 |
Commercial and industrial | | �� | 11,801 | |
| — | |
| — | |
| — | |
| 11,801 |
Consumer | |
| 3,056 | |
| — | |
| — | |
| — | |
| 3,056 |
| | | | | | | | | | | | | | | |
| | $ | 184,431 | | $ | 1,214 | | $ | 3,839 | | $ | — | | $ | 189,484 |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Loans | |
| | | | | | | | | | | | | | | | | | | | Receivable | |
| | | | | | | | Greater | | | | | | | | Total | | >90 Days | |||
| | 30‑59 Days | | 60‑89 Days | | Than 90 | | Total Past | | | | | Loans |
| and | ||||||
| | Past Due | | Past Due | | Days | | Due | | Current | | Receivables |
| Accruing | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 819 | | $ | — | | $ | 475 | | $ | 1,294 | | $ | 102,911 | | $ | 104,205 | | $ | — |
Commercial | |
| — | |
| — | |
| 479 | |
| 479 | |
| 61,674 | |
| 62,153 | |
| — |
Construction | |
| 128 | |
| — | |
| 584 | |
| 712 | |
| 8,715 | |
| 9,427 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| 23,582 | |
| 23,582 | |
|
|
Consumer | |
| — | |
| — | |
| — | |
| — | |
| 3,040 | |
| 3,040 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 947 | | $ | — | | $ | 1,538 | | $ | 2,485 | | $ | 199,922 | | $ | 202,407 | | $ | — |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Loans | |
| | | | | | | | | | | | | | | | | | | | Receivable | |
| | | | | | | | Greater | | | | | | | | Total | | >90 Days | |||
| | 30‑59 Days | | 60‑89 Days | | Than 90 | | Total Past | | | | | Loans |
| and | ||||||
|
| Past Due |
| Past Due |
| Days |
| Due |
| Current |
| Receivables |
| Accruing | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 790 | | $ | 49 | | $ | 491 | | $ | 1,330 | | $ | 105,083 | | $ | 106,413 | | $ | — |
Commercial | |
| — | |
| — | |
| 488 | |
| 488 | |
| 59,026 | |
| 59,514 | |
| — |
Construction | |
| — | |
| — | |
| 640 | |
| 640 | |
| 8,060 | |
| 8,700 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| 11,801 | |
| 11,801 | |
| |
Consumer | |
| — | |
| — | |
| — | |
| — | |
| 3,056 | |
| 3,056 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
| | $ | 790 | | $ | 49 | | $ | 1,619 | | $ | 2,458 | | $ | 187,026 | | $ | 189,484 | | $ | — |
The Bank may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). The Bank may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the
18
borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.
Additionally, the Bank is working with borrowers impacted by COVID-19 and providing modifications to include principal and interest payment deferrals. These modifications are excluded from troubled debt restructuring classification under Section 4013 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act or under applicable interagency guidance of the federal banking regulators. As of March 31, 2021, we had granted short-term payment deferrals on 87 loans, totaling approximately $24,128,000 in aggregate principal amount, that were otherwise performing. As of March 31, 2021, 82 of these loans, totaling $21,216,000, have returned to normal payment status.
The Bank identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.
NaN loans were modified during the three months ended March 31, 2021 and 2020 which met the definition of a troubled debt restructuring. After a loan is determined to be a troubled debt restructuring, we continue to track its performance under the most recent restructured terms. The commercial loan and construction loan troubled debt restructurings completed in 2017 were in default for the three months ended March 31, 2021 and 2020.
At March 31, 2021 and 2020, there was 0 other real estate owned. There was 0 real estate in process of foreclosure as of March 31, 2021 and December 31, 2020.
5. Borrowings
The Bank has an open-ended line of credit (short-term borrowing) of $45,630,000 to obtain advances from the Federal Home Loan Bank (“FHLB”). Interest on the line of credit is charged at the FHLB’s overnight rate of 0.28% and 0.41% at March 31, 2021 and December 31, 2020 respectively. The Bank had $0 outstanding under this line of credit at March 31, 2021 and December 31, 2020.
The Bank has an unsecured line of credit with Atlantic Community Bankers Bank (“ACBB”) of up to $3,000,000, which expires on June 30, 2021. Interest on the line of credit is charged at 0.50%. The Bank had $0 outstanding under this line of credit at March 31, 2021 and December 31, 2020. In addition to the unsecured line of credit with ACBB, the Bank also has the ability to borrow up to $2,000,000 through the Federal Reserve Bank’s discount window. Funds obtained through the discount window are secured by the Bank’s U.S. Government and agency obligations. There were 0 borrowings outstanding through the discount window at March 31, 2021 and December 31, 2020.
Borrowings from the FHLB at March 31, 2021 and December 31, 2020 consist of the following (dollars in thousands):
| | | | | | | | | | | |
| | March 31, | | December 31, |
| ||||||
| | 2021 | | 2020 |
| ||||||
|
| | |
| Weighted |
| | |
| Weighted |
|
Maturity | | Amount |
| Rate | | Amount |
| Rate | | ||
2021 | |
| 165 |
| 1.25 | |
| 3,872 |
| 2.37 | |
2022 | |
| 8,124 |
| 2.11 | |
| 8,124 |
| 2.11 | |
2023 | |
| 8,557 |
| 2.78 | |
| 8,557 |
| 2.78 | |
| | | | | | | | | | | |
| | $ | 16,846 |
| 2.44 | % | $ | 20,553 |
| 2.44 | % |
Maximum borrowing capacity was approximately $92,511,000 and $88,751,000 at March 31, 2021 and December 31, 2020, respectively. The Bank has 2 letters of credit with FHLB for $4,250,000 at March 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Year of Origination | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | Revolving | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Loans | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Converted to | | | | ||
|
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 |
| Prior |
| Loans |
| Term Loans |
| Total | |||||||||
Real estate: one- to four-family residential |
| |
| | |
| | |
| | |
| | |
|
| |
|
| |
|
| |
|
| |
|
Pass | | $ | 4,717 | | $ | 17,852 | | $ | 18,577 | | $ | 13,272 | | $ | 8,800 | | $ | 32,582 | | $ | 8,981 | | $ | 1,246 | | $ | 106,027 |
Special Mention | | | — | |
| 471 | |
| — | |
| — | |
| — | |
| 592 | |
| — | |
| — | |
| 1,063 |
Substandard | | | — | |
| — | |
| — | |
| — | |
| — | |
| 383 | |
| — | |
| — | |
| 383 |
Total real estate: one- to four-family residential | | $ | 4,717 | | $ | 18,323 | | $ | 18,577 | | $ | 13,272 | | $ | 8,800 | | $ | 33,557 | | $ | 8,981 | | $ | 1,246 | | $ | 107,473 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate: commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 41,449 | | $ | 44,965 | | $ | 49,737 | | $ | 22,522 | | $ | 4,551 | | $ | 19,891 | | $ | 2,213 | | $ | — | | $ | 185,328 |
Special Mention | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | | | — | |
| — | |
| — | |
| — | |
| — | |
| 1,078 | |
| — | |
| — | |
| 1,078 |
Total real estate: commercial | | $ | 41,449 | | $ | 44,965 | | $ | 49,737 | | $ | 22,522 | | $ | 4,551 | | $ | 20,969 | | $ | 2,213 | | $ | — | | $ | 186,406 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate: construction | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 381 | | $ | 7,667 | | $ | 122 | | $ | 119 | | $ | — | | $ | — | | $ | 1,425 | | $ | — | | $ | 9,714 |
Special Mention | | | — | |
| 98 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 98 |
Substandard | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total real estate: construction | | $ | 381 | | $ | 7,765 | | $ | 122 | | $ | 119 | | $ | — | | $ | — | | $ | 1,425 | | $ | — | | $ | 9,812 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 619 | | $ | 3,350 | | $ | 1,643 | | $ | 800 | | $ | 102 | | $ | 246 | | $ | 9,958 | | $ | 64 | | $ | 16,782 |
Special Mention | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | | | 126 | |
| — | |
| — | |
| 94 | |
| — | |
| — | |
| — | |
| — | |
| 220 |
Total commercial and industrial | | $ | 745 | | $ | 3,350 | | $ | 1,643 | | $ | 894 | | $ | 102 | | $ | 246 | | $ | 9,958 | | $ | 64 | | $ | 17,002 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | (144) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (144) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer and other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | — | | $ | 2,011 | | $ | 2,000 | | $ | 991 | | $ | — | | $ | — | | $ | 4,794 | | $ | — | | $ | 9,796 |
Special Mention | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | | | — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total consumer and other | | $ | — | | $ | 2,011 | | $ | 2,000 | | $ | 991 | | $ | — | | $ | — | | $ | 4,794 | | $ | — | | $ | 9,796 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans, gross | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 47,166 | | $ | 75,845 | | $ | 72,079 | | $ | 37,704 | | $ | 13,453 | | $ | 52,719 | | $ | 27,371 | | $ | 1,310 | | $ | 327,647 |
Special Mention | | | — | | | 569 | | | — | | | — | | | — | | | 592 | | | — | | | — | | | 1,161 |
Substandard | | | 126 | |
| — | |
| — | |
| 94 | |
| — | |
| 1,461 | |
| — | |
| — | |
| 1,681 |
Total loans, gross | | $ | 47,292 | | $ | 76,414 | | $ | 72,079 | | $ | 37,798 | | $ | 13,453 | | $ | 54,772 | | $ | 27,371 | | $ | 1,310 | | $ | 330,489 |
Current period gross charge-offs | | $ | — | | $ | — | | $ | (144) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | (144) |
19
6. Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments 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 Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The Bank had the following off-balance sheet financial instruments whose contract amounts represent credit risk at March 31, 2021 and December 31, 2020 (in thousands):
| | | | | | |
|
| March 31, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Commitments to grant loans | | $ | 24,417 | | $ | 15,900 |
Unfunded commitments under lines of credit | |
| 8,214 | |
| 7,612 |
Outstanding loan commitments represent the unused portion of loan commitments available to individuals and companies as long as there is no violation of any condition established in the contract. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based upon management’s credit evaluation of the customer. Various types of collateral may be held, including property and marketable securities. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers.
7. Contingencies
In the normal course of business, the Bank is subject to various lawsuits involving matters generally incidental to its business. As of March 31, 2021 management is of the opinion that the ultimate liability, if any, resulting from any pending actions or proceedings will not have a material effect on the consolidated statement of financial condition or of operations of the Bank.
8. Regulatory Matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of March 31, 2021, the Bank meets all capital adequacy requirements to which it is subject.
Prompt corrective action regulations provide five classifications; well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2021, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (“CBLR framework”), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020 and was elected by the Bank as of December 31, 2020 and March 31, 2021.
2018
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2022 (in thousands):
| | | | | | | | | | | | | | | |
|
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 109,236 | | $ | 607 | | $ | 544 | | $ | — | | $ | 110,387 |
Commercial | |
| 146,999 | |
| — | |
| 1,568 | |
| — | |
| 148,567 |
Construction | |
| 20,259 | |
| — | |
| 147 | |
| — | |
| 20,406 |
Commercial and industrial | |
| 17,472 | |
| — | |
| 402 | |
| — | |
| 17,874 |
Consumer and other | |
| 8,203 | |
| — | |
| — | |
| — | |
| 8,203 |
| | | | | | | | | | | | | | | |
Total loans, gross | | $ | 302,169 | | $ | 607 | | $ | 2,661 | | $ | — | | $ | 305,437 |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Loans | |
| | | | | | | | | | | | | | | | | | | | Receivable | |
| | | | | | | | | | | | | | | | Total | | 90 or More | |||
| | 30‑59 Days | | 60‑89 Days | | 90 or More | | Total Past | | | | | Loans |
| Days and | ||||||
| | Past Due | | Past Due | | Days Past Due | | Due | | Current | | Receivable |
| and Accruing | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 90 | | $ | 34 | | $ | 29 | | $ | 153 | | $ | 107,320 | | $ | 107,473 | | $ | — |
Commercial | |
| 609 | |
| — | |
| — | |
| 609 | |
| 185,797 | |
| 186,406 | |
| — |
Construction | |
| 98 | |
| — | |
| — | |
| 98 | |
| 9,714 | |
| 9,812 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | |
| 17,002 | |
| 17,002 | |
| — |
Consumer and other | |
| — | |
| — | |
| — | |
| — | |
| 9,796 | |
| 9,796 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Total loans, gross | | $ | 797 | | $ | 34 | | $ | 29 | | $ | 860 | | $ | 329,629 | | $ | 330,489 | | $ | — |
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of December 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| Loans | |
| | | | | | | | | | | | | | | | | | | | Receivable | |
| | | | | | | | | | | | | | | | Total | | 90 or More | |||
| | 30‑59 Days | | 60‑89 Days | | 90 or More | | Total Past | | | | | Loans |
| Days and | ||||||
|
| Past Due |
| Past Due |
| Days Past Due |
| Due |
| Current |
| Receivable |
| and Accruing | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One- to four-family residential | | $ | 382 | | $ | — | | $ | 33 | | $ | 415 | | $ | 109,972 | | $ | 110,387 | | $ | — |
Commercial | |
| — | |
| — | |
| 416 | |
| 416 | |
| 148,151 | |
| 148,567 | |
| — |
Construction | |
| — | |
| — | |
| 147 | |
| 147 | |
| 20,259 | |
| 20,406 | |
| — |
Commercial and industrial | |
| — | |
| — | |
| 156 | |
| 156 | |
| 17,718 | |
| 17,874 | |
| — |
Consumer and other | |
| — | |
| — | |
| — | |
| — | |
| 8,203 | |
| 8,203 | |
| — |
| | | | | | | | | | | | | | | | | | | | | |
Total loans, gross | | $ | 382 | | $ | — | | $ | 752 | | $ | 1,134 | | $ | 304,303 | | $ | 305,437 | | $ | — |
The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan. The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash
19
flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.
The Company identifies loans for potential modification 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.
No loans were modified during the three and nine months ended September 30, 2023 and 2022 to borrowers experiencing financial difficulty.
The Company closely monitors the performance of modified loans to understand the effectiveness of its modification efforts. Upon the determination that all or a portion of a modified loan is uncollectible, that amount is charged against the allowance for credit losses. There were no payment defaults during the three and nine months ended September 30, 2023 and 2022 of modified loans.
At September 30, 2023 and December 31, 2022, there was no other real estate owned. There was no real estate in process of foreclosure as of September 30, 2023 and December 31, 2022.
5. Leases
On January 1, 2022, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of right-of-use assets and lease liabilities totaling $247,000 at the date of adoption, which are related to the Company’s lease of premises and equipment used in operations.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
20
The following tables present information about the Company’s leases as of September 30, 2023 and December 31, 2022, and for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
| | | | | | | | | | | | |
| | | September 30, | | | December 31, | | | | | | |
| | | 2023 | | | 2022 | | | | | | |
Right-to-use assets | | $ | 877 | | | 953 | | | | | | |
Lease liability | | $ | 838 | | | 910 | | | | | | |
Weighted average remaining lease term | | | 12.38 | years | | 12.67 | years | | | | | |
Weighted average discount rate | | | 4.57 | % | | 4.43 | % | | | | | |
| | | | | | | | | | | | |
| | | Three Months | | | Three Months | | | Nine Months | | | Nine Months |
| | | Ended | | | Ended | | | Ended | | | Ended |
| | | September 30, | | | September 30, | | | September 30, | | | September 30, |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 |
Operating lease cost | | $ | 24 | | $ | 15 | | $ | 73 | | $ | 47 |
Short-term lease cost | | | 20 | | | — | | | 61 | | | — |
Total lease costs | | $ | 44 | | $ | 15 | | $ | 134 | | $ | 47 |
| | | | | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 33 | | $ | 16 | | $ | 99 | | $ | 48 |
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:
| | | |
| | As of | |
| | September 30, | |
Lease payments due (in thousands): | | 2023 | |
| | | |
Three months ending December 31, 2023 | | $ | 33 |
2024 | |
| 130 |
2025 | | | 122 |
2026 | | | 70 |
2027 | | | 66 |
Thereafter | | | 713 |
Total undiscounted cash flows | | | 1,134 |
Discount | | | 296 |
Lease Liability | | $ | 838 |
6. Borrowings
The Company has an unsecured line of credit with Atlantic Community Bankers Bank (“ACBB”) of up to $7,500,000, expiring on June 30, 2024, which it intends to renew annually. Interest on the line of credit is charged at fed funds rate plus 0.25%. The Company had no outstanding borrowings under the ACBB line of credit at September 30, 2023 and December 31, 2022. The Company has an unsecured line of credit with SouthState Bank, N.A. of up to $5,000,000. There were no borrowings outstanding under the SouthState Bank, N.A. line of credit at September 30, 2023. The Company also has the ability to borrow up to $2,000,000 through the Federal Reserve Bank’s discount window. Funds obtained through the discount window are secured by the Company’s U.S. Government and agency obligations. There were no borrowings outstanding through the discount window at September 30, 2023 and December 31, 2022.
The Company has an open-ended line of credit (short-term borrowing) of $45,630,000 to obtain advances from the Federal Home Loan Bank (“FHLB”). Interest on the line of credit is charged at the FHLB’s overnight rate of 5.68% and 4.45% at September 30, 2023 and December 31, 2022 respectively. The Company had no outstanding borrowings under this line of credit at September 30, 2023 and December 31, 2022.
21
Maximum borrowing capacity with the FHLB was approximately $168,828,000 and $155,601,000 at September 30, 2023 and December 31, 2022, respectively. The Company had three unfunded letters of credit with the FHLB for $14,150,000 at September 30, 2023 and two letters of credit with FHLB that totaled $8,300,000 at December 31, 2022 that were pledged to secure public funds.
Borrowings from the FHLB at September 30, 2023 and December 31, 2022 consist of the following (dollars in thousands):
| | | | | | | | | | | | |
| | September 30, | | | December 31, |
| ||||||
| | 2023 | | | 2022 |
| ||||||
|
| | |
| Weighted |
| | | |
| Weighted |
|
Maturity | | Amount |
| Rate | | | Amount |
| Rate | | ||
2023 | | $ | 2,500 |
| 4.48 | % | | $ | 11,057 |
| 3.16 | % |
2024 | |
| 11,500 |
| 5.34 | | |
| 11,500 | | 4.55 | |
2026 | | | 1,946 | | 1.32 | | | | 2,559 | | 1.32 | |
2027 | | | 19,500 | | 2.69 | | | | 19,500 | | 2.69 | |
2028 | | | 13,650 | | 4.00 | | | | — | | — | |
2032 | |
| 2,791 |
| 1.83 | | |
| 3,022 |
| 1.83 | |
| | | | | | | | | | | | |
Total borrowings | | $ | 51,887 |
| 3.61 | % | | $ | 47,638 |
| 3.12 | % |
7. Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments 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 in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
The Company had the following off-balance sheet financial instruments whose contract amounts represent credit risk at September 30, 2023 and December 31, 2022 (in thousands):
| | | | | | |
|
| September 30, |
| December 31, | ||
| �� | 2023 |
| 2022 | ||
Commitments to grant loans | | $ | 32,995 | | $ | 41,154 |
Unfunded commitments under lines of credit | |
| 12,830 | |
| 11,520 |
Standby letters of credit | |
| 2,766 | |
| 3,029 |
| | | | | | |
Total off-balance sheet financial instruments | | $ | 48,591 | | $ | 55,703 |
Outstanding loan commitments represent the unused portion of loan commitments available to individuals and companies as long as there is no violation of any condition established in the contract. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based upon management’s credit evaluation of the customer. Various types of collateral may be held, including property and marketable securities. The credit risk involved in these financial instruments is essentially the same as that involved in extending loan facilities to customers.
8. Contingencies
In April 2020, the normal course of business, the Company is subject to various lawsuits involving matters generally incidental to its business. As of September 30, 2023, management is of the opinion that the ultimate liability, if any, resulting from any
22
pending actions or proceedings will not have a material effect on the consolidated statement of financial condition or of operations of the Company.
9. Stock-Based Compensation
The Company’s stockholders approved the PB Bankshares, Inc. 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”) at the Annual Meeting on September 28, 2022. An aggregate of 388,815 shares of authorized but unissued common stock of the Company was reserved for future grants of incentive and nonqualified stock options and restricted stock awards and restricted stock units under the 2022 Equity Incentive Plan. Of the 388,815 authorized shares, the maximum number of shares of the Company’s common stock that may be issued under the 2022 Equity Incentive Plan pursuant to the exercise of stock options is 277,725 shares, and the maximum number of shares of the Company’s common stock that may be issued as restricted stock awards or restricted stock units is 111,090 shares.
The product of the number of shares granted and the grant date market price of the Company’s common stock determine the fair value of restricted stock under the Company’s 2022 Equity Incentive Plan. Management recognizes compensation expense for the fair value of restricted stock on a straight-line basis over the requisite service period for the entire award. As of September 30, 2023 and December 31, 2022, there were 13,628 and 14,628 shares available for future awards under this plan, respectively. The shares available for future award includes 10,653 and 11,653 shares available for incentive and non-qualified stock options as of September 30, 2023 and December 31, 2022, respectively, and 2,975 shares available for restricted stock awards as of those same dates. The stock options and restricted shares vest over a five-year period.
Stock option expense was $71,000 and $208,000 for the three month and nine month periods ended September 30, 2023, respectively. At September 30, 2023, total unrecognized compensation cost related to stock options was $1,137,000.
A summary of the Company’s stock option activity and related information for the three and nine month periods ended September 30, 2023 was as follows (dollars in thousands, except per share data):
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 | ||||||||||
| | | | | | | Weighted-Average | | | |||
| | | | | | | Remaining | | | |||
| | | | | Weighted-Average | | Contractual Life | | Aggregate Intrinsic | |||
| | Options | | Exercise Price | | (in years) | | Value | ||||
Outstanding, July 1, 2023 | | | 266,072 | | $ | 12.28 | | | 9.38 | | $ | — |
Granted | |
| 1,000 | |
| 13.80 | |
| 9.75 | |
| — |
Exercised | |
| — | |
| — | |
| — | |
| — |
Forfeited | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Outstanding, September 30, 2023 | | | 267,072 | | $ | 12.29 | |
| 9.13 | | $ | 15 |
Exercisable, September 30, 2023 | | | — | | $ | — | | | — | | $ | — |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2023 | ||||||||||
| | | | | | | Weighted-Average | | | |||
| | | | | | | Remaining | | | |||
| | | | | Weighted-Average | | Contractual Life | | Aggregate Intrinsic | |||
| | Options | | Exercise Price | | (in years) | | Value | ||||
Outstanding, January 1, 2023 | | | 266,072 | | $ | 12.28 | | | 9.88 | | $ | — |
Granted | |
| 1,000 | |
| 13.80 | |
| 9.75 | |
| — |
Exercised | |
| — | |
| — | |
| — | |
| — |
Forfeited | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | |
Outstanding, September 30, 2023 | | | 267,072 | | $ | 12.29 | |
| 9.13 | | $ | 15 |
Exercisable, September 30, 2023 | | | — | | $ | — | | | — | | $ | — |
23
Restricted stock expense was $67,000 and $198,000 for the three month and nine month periods ended September 30, 2023, respectively. At September 30, 2023, the unrecognized compensation expense relating to non-vested stock outstanding was $1,096,000.
A summary of the Company’s restricted stock activity and related information for the three and nine month periods ended September 30, 2023, is as follows:
| | | | | | |
| | Three Months Ended September 30, 2023 | ||||
| | | | | Weighted-Average | |
| | | Number of | | Grant Date | |
| | Shares | | Fair Value | ||
Non-vested, July 1, 2023 | | | 108,115 | | $ | 12.28 |
Granted | |
| — | |
| — |
Vested | |
| — | |
| — |
Forfeited | | | — | | | — |
| | | | | | |
Non-vested at September 30, 2023 | | | 108,115 | | $ | 12.28 |
| | | | | | |
| | Nine Months Ended September 30, 2023 | ||||
| | | | | Weighted-Average | |
| | | Number of | | Grant Date | |
| | Shares | | Fair Value | ||
Non-vested, January 1, 2023 | | | 108,115 | | $ | 12.28 |
Granted | |
| — | |
| — |
Vested | |
| — | |
| — |
Forfeited | | | — | | | — |
| | | | | | |
Non-vested at September 30, 2023 | | | 108,115 | | $ | 12.28 |
10. Regulatory Matters
The Bank is subject to regulatory capital requirements administered by federal banking agencies issued an interim final ruleagencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2023, the Bank met all capital adequacy requirements to which it was subject.
Prompt corrective action regulations provide five classifications; well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2023, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that made temporary changesnotification that management believes have changed the Bank’s category.
The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the CBLR framework, pursuantminimum but below the conservation buffer will face limitations on dividends, stock repurchases and certain discretionary bonus payments to section 4012management based on the amount of the CARES Act, andshortfall. Under Basel III rules, banks must hold a second interim final rule that providedcapital conservation buffer above the adequately capitalized risk-based capital ratios. The required capital conservation buffer is 2.50%.
24
On January 1, 2023, the Company adopted ASC 326. Regulatory capital rules permitted the Bank to phase-in the day-one effects of adopting ASC 326 over a graduated increasethree-year transition period. The Bank elected not to take the phase-in but rather to reduce its regulatory capital in the community bank leverage ratio requirement afterfirst quarter of 2023 for the expirationday-one effects of adopting ASC 326 in the temporary changes implemented pursuant to section 4012amount of the CARES Act.$140,000.
The community bank leverage ratio removesfollowing tables present actual and required capital ratios as of September 30, 2023 under the requirement for qualifying banking organizationsBasel III Capital Rules. Bank capital levels required to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying banking organizations that elect to usebe considered well capitalized are based upon prompt corrective action regulations. As of December 31, 2022 the Bank had elected the community bank leverage ratio framework and that maintain a leverage ratio of greater than the required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the final rules the community bank leverage ratio minimum requirement is 8.5% for calendar year 2021 and 9% for calendar year 2022 and beyond. The final rule allows for a two-quarter grace period to improve a ratio that falls below the required level, provided that the bank maintains a leverage ratio of 7.5% for calendar year 2021 and 8% for calendar year 2022 and beyond. The Bank has a two quarter grace period (until the quarter ending September 30, 2021) to increase its CBLR to 8.5%(“CBLR” framework).
Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of March 31, 2021,September 30, 2023, the Bank was a qualifying community banking organization as defined by the federal banking agencies, andbut elected to measure capital adequacy underrevert back to the CBLR framework.risk weighting framework without restriction.
Actual and required capital amounts (in thousands) and ratios are presented below at quarter-end.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | To be Well Capitalized under | | | | | | | | | | | | To be Well Capitalized under | | |||||||||
| | | | | | | | | Prompt Corrective Action | | | | | | | | | For Capital | | | Prompt Corrective Action | | |||||||||
March 31, 2021 | | Actual | | | | Provisions | | ||||||||||||||||||||||||
September 30, 2023 | | Actual | | | Adequacy Purposes | | | Provisions | | ||||||||||||||||||||||
|
| Amount |
| Ratio |
| | | Amount |
| Ratio | |
| Amount |
| Ratio | | | Amount |
| Ratio | | | Amount |
| Ratio | | |||||
Total capital (to risk-weighted assets) | | $ | 43,179 | | 13.27 | % | | $ | 26,023 | | 8.00 | % | | $ | 32,529 | | 10.00 | % | |||||||||||||
Tier 1 capital (to risk-weighted assets) | | $ | 39,112 | | 12.02 | % | | $ | 19,518 | | 6.00 | % | | $ | 26,023 | | 8.00 | % | |||||||||||||
Common equity (to risk-weighted assets) | | $ | 39,112 | | 12.02 | % | | $ | 14,638 | | 4.50 | % | | $ | 21,144 | | 6.50 | % | |||||||||||||
Tier 1 capital (to average assets) | | $ | 21,931 |
| 7.94 | % | (1) | | $ | 23,472 |
| 8.50 | % | | $ | 39,112 | | 9.84 | % | | $ | 15,902 | | 4.00 | % | | $ | 19,878 | | 5.00 | % |
(1) Within grace period.
| | | | | | | | | | | | | |
| | | | | | | | To be Well Capitalized under |
| ||||
| | | | | | | | Prompt Corrective Action |
| ||||
December 31, 2020 | | Actual | | | | Provisions |
| ||||||
|
| Amount |
| Ratio |
| | | Amount |
| Ratio |
| ||
Tier 1 capital (to average assets) | | | 21,880 |
| 8.15 | % | | | | 21,471 |
| 8.00 | % |
| | | | | | | | | | | | | |
| | | | | | | | To be Well Capitalized under |
| ||||
| | | | | | | | Prompt Corrective Action |
| ||||
December 31, 2022 | | Actual | | | | Provisions |
| ||||||
|
| Amount |
| Ratio |
| | | Amount |
| Ratio |
| ||
Tier 1 capital (to average assets) | | | 37,987 |
| 10.00 | % | | | $ | 33,998 |
| 9.00 | % |
9.
25
11. Earnings Per Share
The factors used in the earning per share computation follow (dollars in thousands, except per share data):
| | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | | ||||
| September 30, | | September 30, | | September 30, | | September 30, | | ||||
| 2023 | | 2022 | | 2023 | | 2022 | | ||||
Net income | $ | 513 | | $ | 414 | | $ | 1,510 | | $ | 1,006 | |
| | | | | | | | | | | | |
Weighted average common shares outstanding |
| 2,643,955 | |
| 2,762,919 | |
| 2,687,605 | |
| 2,772,420 | |
Less: Average unearned ESOP shares |
| (199,962) | |
| (211,071) | |
| (199,962) | |
| (211,071) | |
| | | | | | | | | | | | |
Weighted average shares outstanding (basic) | | 2,443,993 | | | 2,551,848 | | | 2,487,643 | | | 2,561,349 | |
| | | | | | | | | | | | |
Dilutive common stock equivalents | | 21,875 | | | — | | | 17,276 | | | — | |
| | | | | | | | | | | | |
Weighted average shares outstanding (diluted) | | 2,465,868 | | | 2,551,848 | | | 2,504,919 | | | 2,561,349 | |
| | | | | | | | | | | | |
Basic earnings per common share | $ | 0.21 | | $ | 0.16 | | $ | 0.61 | | $ | 0.39 | |
Diluted earnings per common share | $ | 0.21 | | $ | 0.16 | | $ | 0.60 | | $ | 0.39 | |
12. Fair Value of Financial Instruments
The BankCompany groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 - Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose
21
value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is determined at a reasonable point within the range that is most representative of fair value under current market conditions.
26
Management uses its best judgment in estimating the fair value of the Bank’sCompany’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 BankCompany could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective quarter ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each quarter end.
An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used by the BankCompany in estimating fair value disclosures for its financial assets and liabilities:
Debt and Equity Securities (Carried at Fair Value)
The fair value of debt and equity securities (carried at fair value) 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 and equity securities without relying exclusively on quoted market prices for the specific debt and equity securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
ImpairedIndividually Evaluated Collateral Dependent Loans (Generally Carried at Fair Value)
ImpairedThe estimated fair value of individually evaluated collateral dependent loans are those that are accounted for under FASB ASC 310, Accounting by Creditors for Impairment of a Loan (“FASB ASC 310”), in which the Bank has measured impairment generallyis based on the net fair value of the loan’s collateral. Fairunderlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other assets. The value of real estate collateral is generally determined using a market valuation approach based uponon an appraisal conducted by an independent, third-party appraisalslicensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Any fair value adjustments are recorded in the properties, or discounted cash flows based uponperiod incurred as a provision for credit losses on the expected proceeds.Consolidated Statements of Income. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. At MarchSeptember 30, 2023, there were no individually evaluated collateral dependent loans with a specific reserve. At December 31, 2021,2022, the fair value consistsconsisted of the recorded investment in the collateral dependent loans of $637,000,$52,000, which was net of a valuation allowance of $57,000. At December 31, 2020, the fair value consists of the recorded investment in the loans of $712,000, net of a valuation allowance of $40,000. Impaired$95,000. Collateral dependent individually evaluated loans are included in Loans Receivable in the table below.below, which details the fair value of all the Company’s financial instruments.
Off-Balance Sheet Financial Instruments (DisclosedFor assets measured at Cost)
Fair values forfair value on a recurring basis, the Bank’s off-balance sheet financial instruments (lending commitmentsfair value measurements by level within the fair value hierarchy used at September 30, 2023 and letters of credit)December 31, 2022 are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing. The fair values are considered immaterial.as follows (in thousands):
| | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
September 30, 2023 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Agency bonds | | $ | 22,319 | | $ | — | | $ | 22,319 | | $ | — |
Treasury securities | | | 15,787 | | | 15,787 | | | — | | | — |
Mortgage-backed securities | |
| 86 | |
| — | |
| 86 | |
| — |
Collateralized mortgage obligations | |
| 2,475 | |
| — | |
| 2,475 | |
| — |
Mutual funds | |
| 752 | |
| 752 | |
| — | |
| — |
| | | | | | | | | | | | |
Total assets measured at fair value on a recurring basis | | $ | 41,419 | | $ | 16,539 | | $ | 24,880 | | $ | — |
2227
For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2021 and December 31, 2020 are as follows (in thousands):
| | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
March 31, 2021 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Agency bonds | | $ | 21,570 | | $ | — | | $ | 21,570 | | $ | — |
Mortgage-backed securities | |
| 174 | |
| — | |
| 174 | |
| — |
Collateralized mortgage obligations | |
| 7,095 | |
| — | |
| 7,095 | |
| — |
Mutual funds | |
| 851 | |
| 851 | |
| — | |
| — |
| | | | | | | | | | | | |
| | $ | 29,690 | | $ | 851 | | $ | 28,839 | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | |
| | |
| Quoted |
| | |
| | | ||
| | | | | Prices in | | | | | | | | | | | Prices in | | | | | | | ||
| | | | | Active | | Significant | | | | | | | | Active | | Significant | | | | ||||
| | | | | Markets for | | Other | | Significant | | | | | Markets for | | Other | | Significant | ||||||
| | | | | Identical | | Observable | | Unobservable | | | | | Identical | | Observable | | Unobservable | ||||||
| | | | | Assets | | Inputs | | Inputs | | | | | Assets | | Inputs | | Inputs | ||||||
December 31, 2020 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||||||||||||||
December 31, 2022 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||||||||||||||
Agency bonds | | $ | 17,275 | | $ | — | | $ | 17,275 | | $ | — | | $ | 19,117 | | $ | — | | $ | 19,117 | | $ | — |
Treasury securities | | | 29,819 | | | 29,819 | | | — | | | — | ||||||||||||
Mortgage-backed securities | |
| 184 | |
| — | |
| 184 | |
| — | |
| 99 | |
| — | |
| 99 | |
| — |
Collateralized mortgage obligations | |
| 8,418 | |
| — | |
| 8,418 | |
| — | |
| 3,012 | |
| — | |
| 3,012 | |
| — |
Mutual funds | |
| 864 | |
| 864 | |
| — | |
| — | |
| 762 | |
| 762 | |
| — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 26,741 | | $ | 864 | | $ | 25,877 | | $ | — | ||||||||||||
Total assets measured at fair value on a recurring basis | | $ | 52,809 | | $ | 30,581 | | $ | 22,228 | | $ | — |
For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2021September 30, 2023 and December 31, 20202022 are as follows (in thousands):
| | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
March 31, 2021 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Impaired loans | | $ | 637 | | $ | — | | $ | — | | $ | 637 |
| | | | | | | | | | | | |
| | $ | 637 | | $ | — | | $ | — | | $ | 637 |
| | | | | | | | | | | | |
| | | Quoted | | | | | |||||
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
September 30, 2023 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Individually evaluated collateral dependent loans | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | |
Total assets measured at fair value on a nonrecurring basis | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
December 31, 2022 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Impaired loans | | $ | 52 | | $ | — | | $ | — | | $ | 52 |
| | | | | | | | | | | | |
Total assets measured at fair value on a nonrecurring basis | | $ | 52 | | $ | — | | $ | — | | $ | 52 |
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to measure fair value at September 30, 2023 and December 31, 2022 (dollars in thousands):
| | | | | | | | | |
September 30, 2023 | | | | ||||||
Asset Description | | Fair Value | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) | |
Individually evaluated collateral dependent loans | | $ | — | | Appraisal of collateral | | Selling expenses and discounts (1) | | N/A |
2328
| | | | | | | | | | | | |
|
| | |
| Quoted |
| | |
| | | |
| | | | | Prices in | | | | | | | |
| | | | | Active | | Significant | | | | ||
| | | | | Markets for | | Other | | Significant | |||
| | | | | Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
December 31, 2020 | | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Impaired loans | | $ | 712 | | $ | — | | $ | — | | $ | 712 |
| | | | | | | | | | | | |
| | $ | 712 | | $ | — | | $ | — | | $ | 712 |
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Bank has utilized Level 3 inputs to measure fair value at March 31, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | | |
March 31, 2021 |
| | |
| |
| |
| |
Asset Description | | Fair Value | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) | |
Impaired loans | | $ | 637 | | Appraisal of collateral | | Selling expenses and discounts (1) | | 9.2% - 67.2% (50.7%) |
| | | | | | | | | | | | | | | | | | |
December 31, 2020 |
| | |
| |
| |
| | |||||||||
December 31, 2022 | December 31, 2022 |
| |
| |
| | |||||||||||
Asset Description | | Fair Value | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) | | Fair Value | | Valuation Technique | | Unobservable Input | | Range (Weighted Average) | ||
Impaired loans | | $ | 712 | | Appraisal of collateral | | Selling expenses and discounts (1) | | 9.2% - 38.1% (28.8%) | | $ | 52 | | Appraisal of collateral | | Selling expenses and discounts (1) | | 68.4% (68.4%) |
(1) | Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. |
The carrying amounts and fair values of the Bank’sCompany’s financial instruments as of the indicated dates are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2021 | | December 31, 2020 | | | | September 30, 2023 | | December 31, 2022 | ||||||||||||||||
|
| Fair Value |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Fair Value |
| Carrying |
| Estimated |
| Carrying |
| Estimated | ||||||||
(In thousands) | | Hierarchy | | Amounts | | Fair Values | | Amounts | | Fair Values | | Hierarchy | | Amounts | | Fair Values | | Amounts | | Fair Values | ||||||||
Financial assets: |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents |
| 1 | | $ | 40,119 | | $ | 40,119 | | $ | 50,591 | | $ | 50,591 |
| 1 | | $ | 25,185 | | $ | 25,185 | | $ | 17,204 | | $ | 17,204 |
Debt securities - available-for-sale |
| 2 | |
| 28,839 | |
| 28,839 | |
| 25,877 | |
| 25,877 |
| 1 & 2 | |
| 40,667 | |
| 40,667 | |
| 52,047 | |
| 52,047 |
Equity securities |
| 1 | |
| 851 | |
| 851 | |
| 864 | |
| 864 |
| 1 | |
| 752 | |
| 752 | |
| 762 | |
| 762 |
Restricted stocks |
| 2 | |
| 898 | |
| 898 | |
| 1,046 | |
| 1,046 |
| 2 | |
| 2,464 | |
| 2,464 | |
| 2,251 | |
| 2,251 |
Loans, net |
| 3 | |
| 198,859 | |
| 201,799 | |
| 186,045 | |
| 188,311 |
| 3 | |
| 325,350 | |
| 320,626 | |
| 300,855 | |
| 303,108 |
Accrued interest receivable |
| 1 | |
| 960 | |
| 960 | |
| 851 | |
| 851 |
| 1 | |
| 1,327 | |
| 1,327 | |
| 1,123 | |
| 1,123 |
Bank owned life insurance | | 2 | | | 8,178 | | | 8,178 | | | 7,487 | | | 7,487 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities: |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Demand deposits, savings, and money market |
| 1 | |
| 156,169 | |
| 156,169 | |
| 145,517 | |
| 145,517 |
| 1 | |
| 190,154 | |
| 190,154 | |
| 176,370 | |
| 176,370 |
Certificates of deposit |
| 2 | |
| 84,916 | |
| 86,271 | |
| 85,899 | |
| 87,431 |
| 2 | |
| 116,367 | |
| 108,587 | |
| 113,125 | |
| 106,818 |
Long-Term borrowings |
| 2 | |
| 16,846 | |
| 17,440 | |
| 20,553 | |
| 21,279 | ||||||||||||||
Borrowings |
| 2 | |
| 51,887 | |
| 52,134 | |
| 47,638 | |
| 46,990 | ||||||||||||||
Accrued interest payable |
| 1 | |
| 203 | |
| 203 | |
| 228 | |
| 228 |
| 1 | |
| 699 | |
| 699 | |
| 424 | |
| 424 |
10. Non-Interest13. Noninterest Revenues
Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investments. In addition, certain non-interestnoninterest income streams such as gains on equity investments, income associated with bank owned life insurance, and loan fees are also not in scope of the new guidance. Topic 606 is applicable to non-interestnoninterest revenue streams such as service charges on deposit accounts and gains on sale of other real estate owned. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Non-interestNoninterest revenue streams in-scope of Topic 606 are discussed below.
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Service Fees on Deposit Accounts
Service charges on deposit accounts consist of fees on depository accounts, which includes NSF fees, miscellaneous deposit-based service fees, monthly maintenance fees for consumer and commercial, and account analysis and related fees (commercial).
Service charges and fees charged daily are a result of an event or service being provided on the day with the BankCompany recognizing the revenue on the same day. The BankCompany has determined that all performance obligations for daily service charges and fees are met on the same day as the transaction and, therefore, should be recognized as these occur.
Monthly maintenance/service charges and fees are charged on the last day of the month (i.e. the same month as charges are incurred) after the system has completed its processing. The BankCompany has determined that all performance obligations for monthly fees are typically met during the month or the same day as the customer has not
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met its obligation. As monthly fees are typically incurred by the Customercustomer throughout the month, the fees should be recognized upon completion of the month since the performance obligations have been met for those services.
Account analysis service charges and fees are recorded on a monthly basis on the last day of the month. The BankCompany has determined that all performance obligations for account analysis fees are met during the month.
Debit Card Income
Debit card income consists of interchange fees from consumer debit card networks and other card related services. Interchange rates are set by the card networks. Interchange fees are based on purchase volumes and other factors and are recognized as transactions occur.
Gains on Sale of Other Real Estate Owned
The sale of other real estate owned is currently recognized on the closing date of sale when all performance obligations have been met, and control of the asset has been transferred to the buyer. Any gains are included in non-interestnoninterest expenses in the consolidated statements of operations.income.
For the Bank,Company, there are no other material revenue streams within the scope of Topic 606. The following tables present non-interesttable presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended March 31, 2021September 30, 2023 and 20202022 (in thousands):
| | | | | | | |
| | Three Months Ended | | ||||
| | March 31, | | ||||
Non-interest income | | 2021 |
| 2020 | | ||
In scope of Topic 606 Service charges on deposit accounts | | $ | 44 |
| | 44 | |
Debit card income | |
| 51 |
| | 44 | |
Other service charges | |
| 19 |
| | 16 | |
Other non-interest income | |
| 13 |
| | 13 | |
Non-interest income (in scope for Topic 606) | |
| 127 |
| | 117 | |
Non-interest income (out of scope for Topic 606) | |
| 26 |
| | 44 | |
Total non-interest income | | $ | 153 | | $ | 161 | |
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| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
Noninterest income in scope of Topic 606 |
| 2023 |
| 2022 | | 2023 |
| 2022 | | ||||
Service charges on deposit accounts | | $ | 39 |
| $ | 40 | | $ | 130 |
| $ | 136 | |
Debit card income | |
| 59 | | | 51 | |
| 165 |
| | 149 | |
Other service charges | |
| 20 |
| | 19 | |
| 87 |
| | 55 | |
Loss on sale of premises and equipment | | | — | | | — | | | (40) | | | — | |
Other noninterest income | |
| 41 |
| | 20 | |
| 123 |
| | 39 | |
Noninterest income (in scope for Topic 606) | |
| 159 |
| | 130 | |
| 465 |
| | 379 | |
Noninterest income (out of scope for Topic 606) | |
| 26 |
| | 11 | |
| 117 |
| | 31 | |
Total noninterest income | | $ | 185 | | $ | 141 | | $ | 582 | | $ | 410 | |
Contract Balances
A contract assets balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Bank’s non-interestCompany’s noninterest revenue streams are largely based on transaction activity, or standard month-end revenue accruals. Consideration is often received immediately or shortly after the BankCompany satisfies its performance obligation and revenue is recognized. The BankCompany does not typically enter into long-term contracts with
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customers, and therefore, does not experience significant contract balances. As of MarchSeptember 30, 2023 and December 31, 2021 and 2020,2022, the BankCompany did not have any significant contract balances.
Contract Acquisition Costs
In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize as an expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The BankCompany utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the assets that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606 the BankCompany did not capitalize any contract acquisition cost.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the accompanying financial statements. You should read the information in this section in conjunction with the business and financial information regarding Prosperthe Company and Bank provided in this Form 10-Q and in the Company’s prospectus dated May 14, 2021 asAnnual Report on Form 10-K filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on May 24, 2021.March 28, 2023.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
· | statements of our goals, intentions and expectations; |
· | statements regarding our business plans, prospects, growth and operating strategies; |
· | statements regarding the asset quality of our loan and investment portfolios; and |
· | estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
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• | our ability to |
| recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock; |
• | fluctuations in real estate values and both residential and commercial real estate marketconditions; |
• | demandforloansanddepositsinourmarketarea; |
• | our ability to implement and change our businessstrategies; |
• | competitionamongdepositoryandotherfinancialinstitutions; |
• | inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financialinstruments; |
• | the rate of delinquencies and amounts of loanscharged-off; |
• | adverse changes in the |
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• | ourabilitytosuccessfullyintegrateintoouroperationsanyassets,liabilities,customers,systemsand management personnel we may acquire and our ability to realize related revenue synergiesand cost savings within expected time frames, and any goodwill charges related thereto; |
• | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting OversightBoard; |
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Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
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Overview
Our business has traditionally focused on originating fixed-rate one- to four-family residential real estate loans and offering retail deposit accounts. In September 2019, we hired our current president and chief executive officer, Janak M. Amin, and under his leadership team we have begun the process of developingdeveloped a commercial lending infrastructure, with a particular focus on expanding our commercial real estate and commercial and industrial loan portfolios to diversify our balance sheet, improve our interest rate risk exposure and increase interest income. Our primary market area now consists of Chester and Lancaster Counties and the surrounding Pennsylvania counties of Cumberland, Dauphin, and Lebanon. Management has also emphasized the importance of attracting commercial deposit accounts from its customers. As a result of these initiatives and the completion of our initial public stock offering on July 14, 2021, we were able to grow and strengthen our balance sheet. There was an increase in our consolidated assets by $5.7of $22.7 million, or 2.1%5.9%, from $275.3$386.5 million at December 31, 20202022 to $281.1$409.2 million at March 31, 2021September 30, 2023 and an increase in our deposits by $9.7of $17.0 million, or 4.2%5.9%, from $231.4$289.5 million at December 31, 20202022 to $241.1$306.5 million at March 31, 2021.September 30, 2023.
Our results of operations depend primarily on our net interest income and, to a lesser extent, noninterest income. Net interest income is the difference between the interest income we earn on our interest-earninginterest- earning assets, consisting primarily of loans, debt securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of savings accounts, demand accounts, money market accounts, certificates of deposit and borrowings. Noninterest income consists primarily of debit card income, service charges on deposit accounts, earnings on bank owned life insurance, other service charges and other income. Our results of operations also are affected by our provision for loancredit losses and noninterest expense.expenses. Noninterest expenseexpenses consists primarily of salaries and employee benefits, occupancy and equipment, data and item processing costs, advertising and marketing, professional fees, directors’ fees, FDIC insurance premiums, Pennsylvania shares tax, debit card expenses, and other expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities.
For the three months ended March 31, 2021,September 30, 2023, we reported net income of $51,000$513,000 compared to net income of $9,000$414,000 for the three months ended March 31, 2020.September 30, 2022. The period over period increase in earnings of $42,000$99,000 was primarily attributable to increases in net interest income and noninterest income, and a decrease in the provision for loancredit losses, partially offset by increases in noninterest expenses and income tax expense, and decreasesexpense.
For the nine months ended September 30, 2023, we reported net income of $1,510,000 compared to net income of $1,006,000 for the nine months ended September 30, 2022. The period over period increase in earnings of $504,000 was primarily attributable to increases in net interest income and noninterest income.
Impact of COVID-19 Outbreak
During the first quarter of 2020, global financial markets experienced significant volatility resulting from the spread of COVID-19. In March 2020, the World Health Organization declared COVID-19income, and a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has restricted the level of economic activitydecrease in our market area. In response to the pandemic, the governments of the Commonwealth of Pennsylvania and of most other states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. As of March 31, 2021, many of these restrictions have been removed and many non-essential businesses have been allowed to re-open in a limited capacity, adhering to social distancing and disinfection guidelines. These measures have dramatically increased unemployment in the United States and have negatively impacted many businesses, and thereby threatened the repayment ability of some of our borrowers.
To address the economic impact of COVID-19 in the United States, the CARES Act was signed into law on March 27, 2020. The CARES Act included a number of provisions that affected us, including accounting relief for TDRs. The CARES Act also established the PPP through the Small Business Administration (“SBA”), which allowed us to lend money to small businesses to help maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meets certain other requirements. We originated approximately $4.3 million of PPP loans in the first quarter of 2021.
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In response to the COVID-19 pandemic, we implemented protocols and processes to help protect our employees, customers and communities. These measures included:
We have implemented various consumer and commercial loan modification programs to provide our borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act and recent COVID-19 related legislation, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under U.S. GAAP through the earlier of January 1, 2022, or 60 days after the national emergency concerning COVID-19 declared by the President of the United States terminates. In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date are not TDRs.
As of March 31, 2021, we had granted short-term payment deferrals on 87 loans, totaling approximately $24.1 million in aggregate principal amount, that were otherwise performing. As of March 31, 2021, 82 of these loans, totaling $21.2 million, had returned to normal payment status with five loans and $2.9 million remaining in deferral status.
Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our business and results of operations, which could include, but not be limited to: decreased demand for our products and services, protracted periods of lower interest rates, increased noninterest expenses, including operational losses, and increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses, partially offset by increases in noninterest expenses and net charge-offs.income tax expense.
Critical Accounting PoliciesEstimates
The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policiesestimates discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
In 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable
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to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following represents our critical accounting policies:33
Allowance for loan losses.credit losses on loans. TheWe establish the allowance for loancredit losses represents management’s estimate of losses inherentthrough charges to earnings in the loan portfolio asform of the statement of financial condition date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loancredit losses. Loan losses and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for credit losses for the difference between the carrying value of the loan losses, and subsequentthe estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of a loan receivable is charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for loancredit losses is maintained(“ACL”) at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluationSeptember 30, 2023 represents the Company’s current estimate of the adequacylifetime credit losses expected from its loan portfolio. Management estimates the ACL by projecting a lifetime loss rate conditional on a forecast of economic parameters and other qualitative adjustments, for the allowance. Theloans’ expected remaining term.
Management’s judgment in determining the level of the allowance is based on our pastevaluations of historical loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio,losses, current economic conditions and otherreasonable and supportable forecasts relevant factors. This evaluationto the collectability of loans. In addition, management’s estimate of expected credit losses is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established whenbased on the discounted cash flows (or collateral value or observable market price) ofover the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. The general component covers poolsremaining life of loans by loan class including constructionheld for investment, and commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential mortgages and consumer loans. These poolschanges in expected prepayment behavior may result in changes in the remaining life of loans and expected credit losses.
The allowance may be affected materially by a variety of qualitative factors that the Company considers to reflect its current judgement of various events and risks that are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.not measured in our statistical procedures. These qualitative risk factors include: (1) lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices; (2) national, regional, and local economic and business conditions as well as the condition of various market segments, including the value of underlying collateral for collateral dependent loans; (3) nature and volume of the portfolio and terms of loans; (4) volume and severity of past due, classified and nonaccrual loans as well as loan modifications; (5) existence and effect of any concentrations of credit and changes in the level of such concentrations; (6) effect of external factors, such as competition and legal and regulatory requirements; (7) experience, ability, and depth of lending department management and other relevant staff; and (8) quality of loan review and board of trustee oversight. Each factordirectors oversight; (9)The effect of other external factors (i.e. competition, legal and regulatory requirements); (10) the level of estimated credit losses change in the inflationary environment; (11) the level of estimated credit losses change in the interest rate environment. This evaluation is assigned a valueinherently subjective because it requires estimates that are susceptible to reflect improving, stable or declining conditions based on management’s best judgment using relevantsignificant revision as more information available atbecomes available. In evaluating the time of the evaluation. As a result of the COVID-19 pandemic, we increased certain of our qualitative loan portfolio risk factors relating to local and national economic conditions as well as industry conditions and concentrations, which have experienced deterioration due to the effects of the COVID-19 pandemic. An unallocated componentlevel of the allowance, for loan losses is maintainedwe consider a range of possible assumptions and outcomes related to cover uncertainties that could affect management’s estimate of probable losses.the various factors identified above. The unallocated componentlevel of the allowance reflects the margin of imprecision inherentis particularly sensitive to changes in the underlying assumptions usedactual and forecasted probability of default of benchmarked banks and changes in current conditions or reasonably expected future conditions affecting the methodologies for estimating specific and general losses in the portfolio.collectability of loans.
Although we believe that we use the best information available to establish the allowance for loancredit losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the FDIC and the PADOB, as an integral part of their examination process, periodically review our allowance for loancredit losses, and as a result of such reviews, we may have to adjust our allowance for loancredit losses. However, regulatory agencies are not directly involved in establishing the allowance for loancredit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Deferred tax assets. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial
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statement recognition of revenue and expenses. We also estimate a reserve for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision.
In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies, thesestrategies. These assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income
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may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.
Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. In evaluating the need for a valuation allowance, we must estimate our taxable income in future years and the impact of tax planning strategies. If we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.
Estimation of fair values. Fair values for securities available-for-sale are obtained from an independent third-party pricing service. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities. Management generally makes no adjustments to the fair value quotes provided by the pricing source. The fair values of foreclosed real estate and the underlying collateral value of impairedindividually evaluated collateral dependent loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.
Comparison of Financial Condition at March 31, 2021September 30, 2023 and December 31, 20202022
Total assets. assets. Total assets increased $5.7$22.7 million or 2.1%, to $281.1$409.2 million at March 31, 2021September 30, 2023 from $275.3$386.5 million at December 31, 2020,2022. The increase in assets was primarily reflectingdue to increases in net loans receivable and debt securities available-for-sale,cash and cash equivalents, partially offset by a decrease in debt securities available-for-sale. Growth was driven by maturity of short-term treasury securities that were not reinvested in additional securities and instead used to enhance commercial loan growth and our cash position. Gross loans increased $25.1 million, or 8.2%, to $330.5 million at September 30, 2023 from $305.4 million at December 31, 2022, primarily due to growth in the commercial real estate portfolio. Cash and cash equivalents.equivalents increased $8.0 million to $25.2 million at September 30, 2023 from $17.2 million at December 31, 2022. Debt securities available-for-sale decreased $11.3 million to $40.7 million at September 30, 2023 from $52.0 million at December 31, 2022, primarily due to the maturity of short-term treasury securities.
Net loans receivable increased $12.8$24.5 million, or 6.9%8.1%, to $198.9$325.4 million at March 31, 2021September 30, 2023 from $186.0$300.9 million at December 31, 20202022 primarily due to increasesthe increase in commercial and industrial,the commercial real estate and construction loans. Commercial and industrial loans increased $11.8 million, or 99.8%, to $23.6 million at March 31, 2021 from $11.8 million at December 31, 2020.portfolio. Commercial real estate loans increased $2.6$37.8 million, or 4.4%25.5%, to $62.2$186.4 million at March 31, 2021September 30, 2023 from $59.5$148.6 million at December 31, 2020. Construction loans increased $727,000, or 8.4%, to $9.4 million at March 31, 2021 from $8.7 million at December 31, 2020. One- to four-family residential real estate loans decreased $2.2 million, or 2.1%, to $104.2 million at March 31, 2021 from $106.4 million at December 31, 2020.2022. The increase in commercial real estate and commercial and industrial loans was primarily due to the continued implementation of our strategy to expand our commercial loan portfolio to diversify our balance sheet. We also originated $4.3Consumer and other loans increased $1.6 million, in PPPor 19.4%, to $9.8 million at September 30, 2023 from $8.2 million at December 31, 2022. Construction real estate loans during the first quarter of 2021 which are classified as commercialdecreased $10.6 million, or 51.9%, to $9.8 million at September 30, 2023 from $20.4 million at December 31, 2022 primarily due to construction completion and industrialconversion to real estate loans. The decrease in one-One- to four-family residential loans decreased $2.9 million, or 2.6%, to $107.5 million at September 30, 2023 from $110.4 million at December 31, 2022 primarily due to loan payments. Commercial and industrial loans decreased $872,000, or 4.9%, to $17.0 million at September 30, 2023 from $17.9 million at December 31, 2022 primarily due to loan payoffs.
Management is monitoring the commercial real estate portfolio and concentration, assessing its associated risks. As part of its risk management process, the Bank segments and stress tests its commercial real estate portfolio. As of September 30, 2023, approximately 73% or $109.5 million of the non-owner occupied commercial real estate loan portfolio was primarily the result of customers refinancing their loans elsewhere at lower rates as we continuedsubject to reduce our investment instress testing (loans having exposure under $250,000 and investor one- to four-family residentialfour- family properties generally are not subject to stress testing). At September 30, 2023, the commercial real estate portfolio has an average Loan-to-Value ratio of 62.9% and a Debt Service Coverage ratio of 1.38 times, exclusive of any sponsor or guarantor support. The commercial real estate portfolio is diverse with respect to both property type as well as location with concentrations limited. Two segments, office space and hospitality, are the subject of market scrutiny with these segments’ exposure and selected credit metrics outlined below.
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The Bank has reviewed its loan portfolio for exposure to office space given the uncertainty and potential risks associated with vacancy, future demand, and repricing risk for these assets. The Bank’s exposure to this segment is minimal with only $9.5 million in non-owner-occupied office space at September 30, 2023. Notably the five loans as partcomprising the office segment are all medical related, which the Bank believes has not suffered the same decline that the general office market has experienced. The office space loan portfolio has an average Loan-to-Value ratio of our business strategy.73.3% and Debt Service Coverage ratio of 1.42 times, exclusive of any sponsor or guarantor support at September 30, 2023.
The Bank’s hospitality portfolio is also an area of market focus. Loan exposure to this segment totaled $17.4 million (five hotel properties) at September 30, 2023. At September 30, 2023, the average Loan-to-Value ratio of the Bank’s hospitality portfolio was 56.1% with Debt Service Coverage ratio of 1.99 times, exclusive of any sponsor or guarantor support. The Bank believes guarantor support for the hospitality sector is strong and loans are supported by experienced hotel operators.
Cash and cash equivalents increased $8.0 million, or 46.4%, to $25.2 million at September 30, 2023 from $17.2 million at December 31, 2022 due to an increase in fed funds sold and cash and due from banks. The increase was due to the maturity of $30.0 million of short-term treasury securities, whereas only $19.0 million were reinvested in short term agency bonds and treasury securities.
Debt securities available-for-sale increased $3.0decreased $11.4 million, or 11.4%21.9%, to $28.8$40.7 million at March 31, 2021September 30, 2023 from $25.9$52.0 million at December 31, 2020 primarily2022 due to purchasesthe maturity of $4.5$30.0 million of U.S. Government and agency obligations,treasury securities, partially offset by a combinationthe purchase of $1.3$19.0 million of principal repayments on mortgage-backedshort term agency bonds and treasury securities and a $265,000 decrease$161,000 year to date increase in the fair market value of debt securities available-for-saleavailable for sale.
Deposits and borrowings. Total deposits increased $17.0 million, or 5.9%, to $306.5 million at September 30, 2023 from $289.5 million at December 31, 2022. The increase in our deposits reflected a $26.2 million increase in interest-bearing demand deposits accounts and a $3.2 million increase in certificates of deposit, partially offset by an $8.8 million decrease in savings accounts, a $3.3 million decrease in money market accounts and a $375,000 decrease in noninterest-bearing demand deposit accounts due to customers utilizing their deposits or moving deposits to higher yielding deposit products. Demand deposits increased primarily due to management’s continuing focus on increasing the commercial deposit accounts of its customers. The increase in market interest ratescertificates of deposit was due to offering deposit specials to maintain current certificate of deposit customers, partially offset by a decrease in listing service and brokered deposits that were not replaced. Uninsured deposits, excluding public deposits, which are secured with pledged investments and FHLB Letters of Credit, were approximately $37.9 million and $49.8 million, or 12.4% and 17.2% of total deposits at September 30, 2023 and December 31, 2022, respectively.
Total borrowings from the FHLB increased $4.3 million, or 8.9%, to $51.9 million at September 30, 2023 from $47.6 million at December 31, 2022 due to replacement of advances that matured during the first quarter of 2021.2023 and additional borrowing in the second quarter and third quarter of 2023.
Stockholders’ Equity. Stockholders’ equity increased $595,000, or 1.3%, to $46.6 million at September 30, 2023 from $46.0 million at December 31, 2022. The increase was due to an increase of $1.5 million for current nine month period net income and a decrease of $161,000 in accumulated other comprehensive loss as a result of a slight increase in the fair market value of our debt securities available-for-sale year to date 2023, partially offset by the repurchase of 100,109 shares of common stock for $1.3 million.
Comparison of Operating Results for the Three Months Ended September 30, 2023 and September 30, 2022
General. Net income increased $99,000, or 23.9%, to $513,000 for the three months ended September 30, 2023 from $414,000 for the three months ended September 30, 2022. The $99,000 period over period increase in earnings was attributable to a $1.5 million increase in interest and dividend income, a $206,000 decrease in the provision for credit losses and a $44,000 increase in noninterest income, partially offset by a $1.4 million increase in interest expense, a $161,000 increase in noninterest expenses and a $43,000 increase in income tax expense.
Interest and dividend income. Total interest and dividend income increased $1.4 million, or 39.5%, to $5.1 million for the three months ended September 30, 2023 from $3.7 million for the three months ended September 30, 2022. The increase in
3236
Cashinterest and cash equivalents decreased by $10.6 million, or 20.9%, to $40.0 million at March 31, 2021 from $50.6 million at December 31, 2020 due to the use of cash to fund loan originations, purchase debt securities, and pay off maturing Federal Home Loan Bank borrowings.
Deposits and borrowings. Total deposits increased $9.7 million, or 4.2%, to $241.1 million at March 31, 2021 from $231.4 million at December 31, 2020. The increase in our deposits reflected a $5.0 million increase in interest-bearing demand accounts, a $2.2 million increase in money market accounts, a $2.0 million increase in savings accounts, and a $1.5 million increase in noninterest-bearing demand accounts, partially offset by a $983,000 decrease in certificates of deposit. The increase in demand, money market, and savings accountsdividend income was primarily reflected deposit customers increasing cash balances during the COVID-19 pandemic as well as management’s continuing focus on increasing the commercial deposit accounts of its customers during the first quarter of 2021.
Total borrowings from the Federal Home Loan Bank of Pittsburgh decreased $3.7 million, or 18.0%, to $16.8 million at March 31, 2021 from $20.6 million at December 31, 2020 due to principal repayments on and maturities of our advances. The decrease in Federal Home Loan Bank borrowings was also due to higher cash and cash equivalents as a result of an increase in deposits thereby reducing the need for additional liquidity.
Equity.Equity decreased $160,000, or 0.7%, to $21.8 million at March 31, 2021 from $22.0 million at December 31, 2020. The decrease was due to a decrease of $211,000 in accumulated other comprehensive income as a result of a decrease in the fair market value of our debt securities available-for-sale in the first quarter of 2021, partially offset by net income of $51,000.
Comparison of Operating Results for the Three Months Ended March 31, 2021 and March 31, 2020
General. Net income increased $42,000 to $51,000 for the three months ended March 31, 2021 from $9,000 for the three months ended March 31, 2020. The $42,000 period over period increase in earnings was attributable to a $290,000 decrease in the provision for loan losses, partially offset by a $205,000 increase in noninterest expense, a $9,000 increase in income tax expense, a $26,000 decrease in net interest income, and an $8,000 decrease in noninterest income.
Interest income. Total interest income decreased $49,000, or 2.1%, to $2.2 million for the three months ended March 31, 2021 from $2.3 million for the three months ended March 31, 2020. The decrease in interest income resulted from a 92114 basis points decreaseincrease in the average yield on interest-earning assets. The average yield on average interest-earning assets from 4.28%increased to 5.07% for the three months ended March 31, 2020 to 3.36%September 30, 2023 from 3.93% for the three months ended March 31, 2021, partially offset bySeptember 30, 2022. The increase was also due to a $52.9$27.4 million increase period over period in the average balance of interest-earning assets, primarilydriven by a $26.5 million increase in average loan balances, a $1.4 million increase in the average balance of cash and cash equivalents and loans.a $458,000 increase in the average balance of restricted stocks, partially offset by an $886,000 decrease in the average balance of debt and equity securities available for sale.
Interest income on loans, including fees, increased $40,000,$1.0 million, or 1.9%30.3%, to $2.1$4.4 million for the three months ended March 31, 2021September 30, 2023 as compared to $3.4 million for the three months ended March 31, 2020,September 30, 2022, reflecting an 83 basis points increase in the average yield on loans to 5.35% for the three months ended September 30, 2023 from 4.52% for the three months ended September 30, 2022 and an increase in the average balance of loans to $194.6$324.9 million for the three months ended March 31, 2021September 30, 2023 from $176.9$298.4 million for the three months ended March 31, 2020, nearly offset by a 35 basis points decrease in theSeptember 30, 2022. The average yield on loans.loans increased as a result of the higher interest rate environment when new loans were originated and the increase in the variable rate loan yields. The increase in the average balance of loans was due primarily to increasesan increase in the average balancesbalance of commercial real estate and commercial and industrial loans reflecting our strategy to grow commercial lending, partially offset by the decline in the average balance of lending.one-
Interest income on securities and restricted stocks increased $187,000, or 124.7%, to four-family residential loans.The average yield on loans decreased to 4.41%$337,000 for the three months ended March 31, 2021September 30, 2023 from 4.76%$150,000 for the three months ended March 31, 2020, as a result of a decreaseSeptember 30, 2022. The increase in market interest rates since March 31, 2020.
Interest income on debt and equity securities available for sale decreased $54,000, or 40.8%, to $79,000of $168,000 for the three months ended March 31, 2021September 30, 2023 from $133,000 for the three months ended March 31, 2020. The decrease in interest income on debt securities available for saleSeptember 30, 2022 was due to a 119166 basis points decreaseincrease in the average yield on debt and equity securities available for sale to 1.12%2.84% for the three months ended March 31, 2021September 30, 2023 from 2.31%1.18% for the three months ended March 31, 2020,September 30, 2022, partially offset by a decrease in the average balance of debt and equity securities of $886,000, or 2.11%, to $41.1 million for the three months ended September 30, 2023 from $41.9 million for the three months ended September 30, 2022 due to repayments. The increase in the average yield on debt and equity securities was primarily due to the purchase of higher yielding short term agency bonds and treasury securities during 2022 and 2023. Restricted stock income is also included in the interest income on securities. Restricted stock income increased $19,000 for the three months ended September 30, 2023 from the three months ended September 30, 2022 due to a 206 basis points increase in the average yield on restricted stocks to 7.37% for the three months ended September 30, 2023 from 5.31% for the three months ended September 30, 2022 and due to an increase in the average balance of debt securities available for salerestricted stocks of $5.2 million,$458,000, or 22.7%23.3%, to $28.3$2.4 million for the three months ended March 31, 2021September 30, 2023 from $23.0$1.9 million for the three months ended March 31, 2020.September 30, 2022. The increase in average yield on debt securities available for sale decreased due to calls of higher-yielding securities which were replaced by significantly lower-yielding investment securitiesrestricted stock was due to the decrease in market rates since March 31, 2020. The increase inFederal Home Loan Bank dividend increasing and the average balance of debt securities available for sale wasin restricted stocks increased due to purchasesincreases in Federal Home Loan Bank borrowings that requires an increase in our ownership of U.S. Government and agency obligations and mortgage-backed securitiesFederal Home Loan Bank stock.
33
with our excess liquidity during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.
Interest income on cash and cash equivalents decreased $26,000,increased $251,000, or 81.3%146.8%, to $6,000$422,000 for the three months ended March 31, 2021,September 30, 2023, from $32,000$171,000 for the three months ended March 31, 2020.September 30, 2022. The decreaseincrease in interest income on cash and cash equivalents was attributable to a decreasean increase in the average yield on cash and cash equivalents of 91283 basis points to 0.06%4.85% for the three months ended March 31, 2021September 30, 2023 from 0.97%2.02% for the three months ended March 31, 2020 as a result of the decrease in short-term market interest rates since March 31, 2020, partially offset bySeptember 30, 2022 and due to an increase in the average balance of cash and cash equivalents of $30.2$1.4 million, or 228.6%4.2%, to $43.4$34.8 million for the three months ended March 31, 2021September 30, 2023 from $13.2$33.4 million for the three months ended March 31, 2020September 30, 2022 . The increase in the average yield of cash and cash equivalents was due to increased liquidity on our balance sheet as customers increased their savings combined with management’s actionsthe Federal Reserve Bank increasing the Fed Funds rate by 425 basis points during 2022 and 100 basis points year to ensure adequate liquidity during the onset of the COVID-19 pandemic.date at September 30, 2023.
Interest expense. Interest expense decreased $23,000,increased $1.4 million, or 3.8%201.9%, to $576,000$2.1 million for the three months ended March 31, 2021September 30, 2023 20from $599,000$695,000 for the three months ended March 31, 2020September 30, 2022 as a result of a decreaseincreases in interest expense on deposits and borrowings partially offset by anin the rising interest rate environment. The increase in interest expense on deposits. The decrease in interest expense reflectedwas due to a 31177 basis points decreaseincrease in the average cost of interest-bearing liabilities from 1.30%0.89% for the three months ended March 31, 2020September 30, 2022 to 0.99%2.66% for the three months ended March 31, 2021,September 30, 2023, partially offset by a $47.4 million increasedecrease in the average balance of interest-bearing liabilities of $429,000 to $232.0$312.0 million for the three months ended March 31, 2021September 30, 2023 from $184.6$312.4 million for the three months ended March 31, 2020.September 30, 2022.
Interest expense on deposits increased $8,000,$1.2 million, or 1.7%253.0%, to $467,000$1.6 million for the three months ended March 31, 2021September 30, 2023 from $459,000$466,000 for the three months ended March 31, 2020 due to increasesSeptember 30, 2022 as a result of a 187 basis points increase in the average cost of interest-bearing deposits, partially offset by a decrease of $10.5 million in the average balance of our interest-bearing
37
deposits. The increase in the average balancecost of deposits was primarily due to a 198 basis points increase in the average cost of certificates of deposit, traditionally our interest-bearinghigher costing deposits, increased $53.2 million, or 33.0%, to $214.1 million3.16% for the three months ended March 31, 2021September 30, 2023 from $161.0 million1.18% for the three months ended March 31, 2020 due to increases in the average balances of certificates of deposit, money market, savings, interest-bearing demand deposit, and savings accounts.September 30, 2022. The average balancecost of transaction accounts, traditionally our lower costing deposit accounts, consisting of demand, savings, and money market accounts increased by $38.6 million149 basis points to $149.0 million1.92% for the three months ended March 31, 2021September 30, 2023 from $110.4 million0.43% for the three months ended March 31, 2020, partially offset by a decrease in the average cost of transaction accounts of 13 basis points to 0.34% for the three months ended March 31, 2021 from 0.47% for the three months ended March 31, 2020.September 30, 2022. The increase in rates was due to the rising interest rate environment and increased competition. A decrease in the average balance of our transaction accounts primarily reflectedby $40.3 million to $139.8 million for the three months ended September 30, 2023 from $180.1 million for the three months ended September 30, 2022 was due to customers moving money to certificates of deposit customers increasing cash balances during the COVID-19 pandemic and management’s focus on increasing the commercial deposit accountsutilizing their deposits partially offset by an increase of its customers in 2020 and which continued$29.8 million in the first quarteraverage certificates of 2021. Additionally,deposit to $121.5 million for the three months ended September 30, 2023 from $91.7 million for the three months ended September 30, 2022 . The average balance of certificates of deposit traditionally our higher costingincreased due to promotional specials to increase deposits increased by $22.0 million to $85.7 million for the three months ended March 31, 2021 from $63.7 million for the three months ended March 31, 2020, partially offset by a 47 basis points decrease in the average cost of certificates of deposit to 1.59% for the three months ended March 31, 2021 from 2.06% for the three months ended March 31, 2020. The increase in the average balance of certificates of deposit was due to management’s actions to ensure adequate liquidity during the onset of the COVID-19 pandemic in addition to offering higher average rates as compared to other financial institutions in our market area. The weighted averagerising rate paid on deposits decreased 27 basis points to 0.87% for the three months ended March 31, 2021 from 1.14% for the three months ended March 31, 2020 as a result of the decline in market rates of interest as we reduced rates on savings, money market, and demand deposit accounts as well as on new certificates of deposit issued upon the maturing of existing certificates of deposit. environment.
Interest expense on Federal Home Loan Bank borrowings decreased $31,000,increased $224,000, or 22.1%97.8%, to $109,000$453,000 for the three months ended March 31, 2021September 30, 2023 from $140,000 0,0$229,000 for the three months ended March 31, 2020.September 30, 2022. The decreaseincrease in interest expense on Federal Home Loan Bank borrowings was caused by a $5.7 million decrease in our average balance of Federal Home Loan Bank borrowings to $17.9 million for the three months ended March 31, 2021 compared to $23.6 million for the three months ended March 31, 2020 as a result of our increased average cash balances, partially offset byresulted from an increase in the average cost of these funds of eight127 basis points from 2.36%to 3.50% for the three months ended March 31, 2020 to 2.44%September 30, 2023 from 2.23% for the three months ended March 31, 2021September 30, 2022 as lowerhigher cost Federal Home Loan Bank borrowings maturedwere incurred during 2020 and2023 to increase liquidity. There was an increase of $10.0 million in the first quarteraverage Federal Home Loan Bank borrowings to $50.6 million for the three months ended September 30, 2023 from $40.6 million for the three months ended September 30, 2022 as a result of 2021.using Federal Home Loan Bank borrowings to fund loan growth and increase liquidity.
Net interest income. Net interest income decreased $26,000,increased $53,000, or 1.5%1.8%, to $1.7 million$3,041,000 for the three months ended March 31, 2021September 30, 2023 as compared to $2,988,000 for the three months ended March 31, 2020.September 30, 2022. The decreaseincrease in net interest income for the three months ended March 31, 2021September 30, 2023 compared to the three months ended March 31, 2020September 30, 2022 was primarily due to the sharp decreaseincreases in interest ratesincome on loans, cash and cash equivalents and debt securities available-for-sale, partially offset by increases in response to the economic downturn caused by the COVID-19 pandemic. Ourinterest expense on deposits and borrowings. Average net interest margin decreased
34
67 basis points to 2.49% for the three months ended March 31, 2021 from 3.16% for the three months ended March 31, 2020. Our net interest rate spread for the three months ended March 31, 2021 decreased 61 basis points to 2.37% from 2.98% for the three months ended March 31, 2020. Net interest-earning assets increased by $27.9 million to $35.2$91.1 million for the three months ended March 31, 2021September 30, 2023 from $29.7$63.3 million for the three months ended March 31, 2020.September 30, 2022. Our net interest margin decreased 19 basis points to 3.00% for the three months ended September 30, 2023 from 3.19% for the three months ended September 30, 2022. Our net interest rate spread decreased 63 basis points to 2.41% for the three months ended September 30, 2023 from 3.04% for the three months ended September 30, 2022.
Provision for loancredit losses. We establishcharge provisions for loancredit losses which are charged to operations in order to maintain theour allowance for loancredit losses on loans and reserve for unfunded commitments at a level we considerthat is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are both probable and reasonably estimableexpected to be advanced at the consolidated balance sheet date. In determining the level of the allowance for loancredit losses, we consider our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loancredit losses on a quarterly basis and make provisions for loancredit losses in order to maintain the allowance.
Based on our evaluation of the above factors, we recorded a $69,000$140,000 provision for credit losses for the three months ended September 30, 2023 compared to a $346,000 provision for loan losses for the three months ended March 31, 2021 compared to a $359,000 provision for loan losses for the three months ended March 31, 2020.September 30, 2022. The decrease in the provision for loancredit losses was primarily due to adding additional reserves duringdriven by moderated loan growth and a provision for credit losses on loans of $153,000, partially offset by a recovery for unfunded commitments of $13,000 for the first quarter of 2020 to take into account the uncertain impacts of COVID-19 on economic conditions and our borrowers’ ability to repay loans.three months ended September 30, 2023. The allowance for loancredit losses on loans was $2.9$4.5 million, or 1.45%1.35%, of loans outstanding at March 31, 2021September 30, 2023 and $2.9$4.0 million, or 1.51%1.31%, of loans outstanding at December 31, 2020.2022.
To the best of our knowledge, we have recorded allour best estimate of expected losses in the loan losses that are both probableportfolio and reasonable to estimatefor unfunded commitments at March 31, 2021.September 30, 2023. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loancredit losses. In addition, the PADOB and the FDIC, as an integral part of their examination process, will periodically review our allowance for loancredit losses, and as a result of such reviews, we may have to adjust our allowance for loancredit losses.
38
However, regulatory agencies are not directly involved in establishing the allowance for loancredit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.
Noninterest income. Noninterest income information is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | | Three Months Ended | | | | | |
| ||||||||
| | March 31, | | Change |
| | | September 30, | | Change |
| ||||||||||||||
|
| 2021 |
| 2020 |
| Amount |
| Percent |
| |
| 2023 |
| 2022 |
| Amount |
| Percent |
| ||||||
|
| (Dollars in thousands) | | |
| (Dollars in thousands) | | ||||||||||||||||||
Service charges on deposit accounts | | $ | 44 | | $ | 44 | | $ | — |
| — | % | | | $ | 39 | | $ | 40 | | $ | (1) |
| (2.5) | % |
Gain (Loss) on equity investments | |
| (15) | |
| 13 | |
| (28) |
| (215.4) | | | ||||||||||||
Bank owned life insurance | |
| 41 | |
| 31 | |
| 10 |
| 32.3 | | | ||||||||||||
Loss on equity securities | |
| (24) | |
| (33) | |
| 9 |
| (27.3) | | |||||||||||||
Bank owned life insurance income | |
| 50 | |
| 44 | |
| 6 |
| 13.6 | | |||||||||||||
Debit card income | |
| 51 | |
| 44 | |
| 7 |
| 15.9 | | | |
| 59 | |
| 51 | |
| 8 |
| 15.7 | |
Other service charges | |
| 19 | |
| 16 | |
| 3 |
| 18.8 | | | |
| 20 | |
| 19 | |
| 1 |
| 5.3 | |
Other income | |
| 13 | |
| 13 | |
| — |
| — | | | |
| 41 | |
| 20 | |
| 21 |
| 105.0 | |
Total noninterest income | | $ | 153 | | $ | 161 | | $ | (8) |
| (5.0) | % | | | $ | 185 | | $ | 141 | | $ | 44 |
| 31.2 | % |
Noninterest income decreasedincreased by $8,000,$44,000, or 5.0%31.2%, to $153,000$185,000 for the three months ended March 31, 2021September 30, 2023 from $161,000$141,000 for the three months ended March 31, 2020.September 30, 2022. The decreaseincrease in noninterest income resulted primarily from a decreasean increase in gain on equity investments partially offset by increases inother income from bank owned life insurance and debit card income. Loss on equity investments increased $28,000 to $15,000 due toof $21,000, a decrease in the loss on equity investments of $9,000 and an increase in debit card income of $8,000. Other income increased $21,000 due to $22,000 of loan related fee income earned for brokering interest rate swap agreements between the Bank’s customers and counterparties unrelated to the Bank. The loss on equity investments was $9,000 less as a result of less of a decrease in fair market value of the investment during the three months ended March 31, 2021 as compared to a gain of $13,000 for the same period in 2020. Income from bank owned life insurance increased $10,000 due to the purchase of three additional insurance policies totaling $1.8 million in the fourth quarter of 2020.equity investments. Debit card income increased $7,000 as a result of increased volume of transactions when comparing$8,000 due to an increase in debit card usage and charges for the three months ended March 31, 2021 to the same period in 2020.quarter.
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Noninterest Expenses. Noninterest expenses information is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | |
| | | Three Months Ended | | | | | |
| ||||||||
| | March 31, | | Change |
| | | September 30, | | Change |
| ||||||||||||||
|
| 2021 |
| 2020 |
| Amount |
| Percent |
| |
| 2023 |
| 2022 |
| Amount |
| Percent |
| ||||||
|
| (Dollars in thousands) | | |
| (Dollars in thousands) | | ||||||||||||||||||
Salaries and employee benefits | | $ | 917 | | $ | 844 | | $ | 73 |
| 8.6 | % | | | $ | 1,279 | | $ | 1,216 | | $ | 63 |
| 5.2 | % |
Occupancy and equipment | |
| 153 | |
| 134 | |
| 19 |
| 14.2 | | | |
| 180 | |
| 173 | |
| 7 |
| 4.0 | |
Data and item processing | |
| 243 | |
| 206 | |
| 37 |
| 18.0 | | | |
| 268 | |
| 254 | |
| 14 |
| 5.5 | |
Advertising and marketing | |
| 11 | |
| 16 | |
| (5) |
| (31.3) | | | |
| 60 | |
| 37 | |
| 23 |
| 62.2 | |
Professional fees | |
| 86 | |
| 118 | |
| (32) |
| (27.1) | | | |
| 170 | |
| 186 | |
| (16) |
| (8.6) | |
Directors’ fees | |
| 61 | |
| 59 | |
| 2 |
| 3.4 | | | |
| 107 | |
| 60 | |
| 47 |
| 78.3 | |
Federal deposit insurance premiums | |
| 47 | |
| 13 | |
| 34 |
| 261.5 | | | ||||||||||||
Other real estate owned, net | |
| — | |
| (30) | |
| 30 |
| 100.0 | | | ||||||||||||
FDIC insurance premiums | |
| 46 | |
| 38 | |
| 8 |
| 21.1 | | |||||||||||||
Pennsylvania shares tax | | | 72 | |
| 84 | | | (12) |
| (14.3) | | |||||||||||||
Debit card expenses | |
| 37 | |
| 35 | |
| 2 |
| 5.7 | | | |
| 44 | |
| 36 | |
| 8 |
| 22.2 | |
Other | |
| 141 | |
| 96 | |
| 45 |
| 46.9 | | | |
| 206 | |
| 187 | |
| 19 |
| 10.2 | |
Total noninterest expenses | | $ | 1,696 | | $ | 1,491 | | $ | 205 |
| 13.7 | % | | | $ | 2,432 | | $ | 2,271 | | $ | 161 |
| 7.1 | % |
Noninterest expenses increased $205,000,$161,000, or 13.7%7.1%, to $1.7$2.4 million for the three months ended March 31, 2021September 30, 2023 from $1.5$2.3 million for the three months ended March 31, 2020.September 30, 2022. The increase in noninterest expenses was primarily the result of increases in salaries and employee benefits expense of $73,000, other$63,000, Directors’ fees of $47,000 and advertising and marketing expense of $45,000, data and item processing expense of $37,000, FDIC insurance premiums of $34,000, other real estate owned expense of $30,000, and occupancy and equipment expense of $19,000, partially offset by a decrease in professional fees of $32,000.$23,000. Salaries and employee benefits expense increased $73,000$63,000 primarily due to stock-based compensation expense of $105,000 for the third quarter of 2023, the hiring of additional staff and annual salary increases, and the implementation of supplemental executive retirement plans for certain executive officers beginningpartially offset by lower bonus accruals in the third quarter of 2020. Other expense increased $45,000 as a result of added expenses related2023 compared to the implementation of a cloud-based life of loan platformsame period in addition to identity theft restoration services associated with our flagship checking products. Data and item processing expense2022. Directors’ fees increased $37,000$47,000 primarily due to stock-based compensation expense of $33,000 for the third quarter of 2023, adding an additional Director in November 2022 and fee increases to all non-employee Directors. Advertising and marketing expense increased $23,000 due to the increases in information technology expensescontributions or donations of $51,000,$9,000 and core processing expensesan increase in event sponsorships of $18,000 as a result of annual contract increases and additional services, partially offset by a $25,000 decrease in network communications$4,000 quarter over quarter.
Income tax expense due. Income tax expense increased $43,000, or 43.9%, to upgrading to a new phone system and a $7,000 decrease in escrow manager expenses as a result of switching to an in-house product. FDIC insurance premiums increased $34,000 primarily due to increases in the total assessment base and the FDIC quarterly multiplier when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020. Other real estate owned expense was $0$141,000 for the three months ended March 31, 2021 as compared to a $30,000 creditSeptember 30, 2023 from $98,000 for the three months ended March 31, 2020 due to refunds received related to a foreclosed property from the prior year. OccupancySeptember 30, 2022. The effective tax rates were 21.6% and equipment expense increased $19,000 primarily due to increases of $23,000 in building repairs and maintenance and $9,000 in equipment deprecation due to purchases of new equipment, partially offset by a $10,000 decrease in equipment repairs and maintenance. Professional fees decreased $32,000 due to decreases of $45,000 in other professional fees associated with non-recurring interim Chief Financial Officer consultant fees and $9,000 in pension plan administrative costs, partially offset by increases of $9,000 in audit and accounting expenses due to enhancing audit procedures from generally accepted audit standards to Public Company Accounting Oversight Board standards and $11,000 in legal fees.
Income tax expense (benefit). Income tax expense increased $9,000, or 180.0%, to $4,00019.1% for the three monthsmonth periods ended March 31, 2021 from an income tax benefit of $5,000 for the three months ended March 31, 2020.September 30, 2023 and 2022, respectively. The increase in income tax expense for the
39
three months ended March 31, 2021September 30, 2023 as compared to the three months ended March 31, 2020September 30, 2022 was primarily due to an increase in income before income taxes.
36
Tabletaxes and relatively consistent levels of Contentsincome not subject to taxes.
Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $624,000 and $644,000 for the three months ended March 31, 2021 and 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | | For the Three Months Ended September 30, |
| ||||||||||||||||||||||||||||
| | 2021 | | 2020 |
| | | 2023 | | 2022 |
| ||||||||||||||||||||||||
|
| Average |
| | |
| |
| Average |
| | |
| |
| |
| Average |
| | |
| |
| Average |
| | |
| |
| ||||
| | Outstanding | | | | | Average | | Outstanding | | | | | Average |
| | | Outstanding | | | | | Average | | Outstanding | | | | | Average |
| ||||
| | Balance | | Interest | | Yield/Rate (4) | | Balance | | Interest | | Yield/Rate (4) |
| | | Balance | | Interest | | Yield/Rate (4) | | Balance | | Interest | | Yield/Rate (4) |
| ||||||||
| | (Dollars in thousands) |
| | | (Dollars in thousands) |
| ||||||||||||||||||||||||||||
Interest-earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| | |
| |
|
| |
|
|
|
| |
|
| |
|
|
| |
Loans | | $ | 194,611 | | $ | 2,144 |
| 4.41 | % | $ | 176,921 | | $ | 2,104 |
| 4.76 | % | | | $ | 324,867 | | $ | 4,380 |
| 5.35 | % | $ | 298,418 | | $ | 3,362 |
| 4.52 | % |
Debt securities available for sale | |
| 28,265 | |
| 79 |
| 1.12 | % |
| 23,036 | |
| 133 |
| 2.31 | % | | |||||||||||||||||
Debt and equity securities | |
| 41,052 | |
| 292 |
| 2.84 | % |
| 41,938 | |
| 124 |
| 1.18 | % | ||||||||||||||||||
Restricted stocks | |
| 944 | |
| 14 |
| 5.95 | % |
| 1,175 | |
| 23 |
| 7.81 | % | | |
| 2,422 | |
| 45 | | 7.37 | % |
| 1,964 | |
| 26 |
| 5.31 | % |
Cash and cash equivalents | |
| 43,438 | |
| 6 |
| 0.06 | % |
| 13,221 | |
| 32 |
| 0.97 | % | | |
| 34,761 | |
| 422 |
| 4.85 | % |
| 33,349 | |
| 171 |
| 2.02 | % |
Total interest-earning assets | |
| 267,258 | |
| 2,243 |
| 3.36 | % |
| 214,353 | |
| 2,292 |
| 4.28 | % | | |
| 403,102 | |
| 5,139 |
| 5.07 | % |
| 375,669 | |
| 3,683 |
| 3.93 | % |
Noninterest-earning assets | |
| 8,657 | |
| |
|
| |
| 6,461 | |
|
|
|
| | | |
| 14,757 | |
| |
|
| |
| 12,200 | |
|
|
|
| |
Total assets | | $ | 275,915 | | | |
|
| | $ | 220,814 | |
|
|
|
| | | | $ | 417,859 | | | |
|
| | $ | 387,869 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest-bearing demand deposits | | $ | 64,652 | |
| 51 |
| 0.32 | % | $ | 53,523 | |
| 53 |
| 0.39 | % | | | $ | 77,833 | |
| 413 |
| 2.11 | % | $ | 85,097 | |
| 62 |
| 0.29 | % |
Savings deposits | |
| 18,895 | |
| 16 |
| 0.33 | % |
| 17,946 | |
| 25 |
| 0.56 | % | | |
| 14,821 | |
| 12 |
| 0.31 | % |
| 22,983 | |
| 20 |
| 0.36 | % |
Money market deposits | |
| 44,879 | |
| 59 |
| 0.52 | % |
| 25,819 | |
| 53 |
| 0.82 | % | | |
| 47,169 | |
| 252 |
| 2.12 | % |
| 72,045 | |
| 113 |
| 0.63 | % |
Certificates of deposit | |
| 85,719 | |
| 341 |
| 1.59 | % |
| 63,688 | |
| 328 |
| 2.06 | % | | |
| 121,506 | |
| 968 |
| 3.16 | % |
| 91,676 | |
| 271 |
| 1.18 | % |
Total interest-bearing deposits | |
| 214,145 | |
| 467 |
| 0.87 | % |
| 160,976 | |
| 459 |
| 1.14 | % | | |
| 261,329 | |
| 1,645 |
| 2.50 | % |
| 271,801 | |
| 466 |
| 0.63 | % |
FHLB advances | |
| 17,887 | |
| 109 |
| 2.44 | % |
| 23,632 | |
| 140 |
| 2.36 | % | | |||||||||||||||||
Long-term borrowings | |
| 50,633 | |
| 453 |
| 3.50 | % |
| 40,590 | |
| 229 |
| 2.23 | % | ||||||||||||||||||
Total interest-bearing liabilities | |
| 232,032 | |
| 576 |
| 0.99 | % |
| 184,608 | |
| 599 |
| 1.30 | % | | |
| 311,962 | |
| 2,098 |
| 2.66 | % |
| 312,391 | |
| 695 |
| 0.89 | % |
Noninterest-bearing demand deposits | |
| 20,602 | |
| |
|
| |
| 13,138 | |
|
|
| | | | |
| 50,978 | |
| |
|
| |
| 25,386 | |
|
|
| | |
Other noninterest-bearing liabilities | |
| 1,223 | |
| |
|
| |
| 620 | |
|
|
|
| | | |
| 3,970 | |
| |
|
| |
| 1,765 | |
|
|
|
| |
Total liabilities | |
| 253,857 | |
| |
|
| |
| 198,366 | |
|
|
|
| | | |
| 366,910 | |
| |
| | |
| 339,542 | |
|
|
|
| |
Equity | |
| 22,058 | |
| |
|
| |
| 22,448 | |
|
|
|
| | | |||||||||||||||||
Total liabilities and equity | | $ | 275,915 | |
| |
|
| |
| 220,814 | |
|
|
|
| | | |||||||||||||||||
Stockholders' equity | |
| 50,949 | |
| |
|
| |
| 48,327 | |
|
|
|
| | ||||||||||||||||||
Total liabilities and stockholders' equity | | $ | 417,859 | |
| |
|
| | $ | 387,869 | |
|
|
|
| | ||||||||||||||||||
Net interest income | | | | | $ | 1,667 |
|
| |
|
| | $ | 1,693 |
|
| | | | | | | $ | 3,041 |
|
| |
|
| | $ | 2,988 |
|
| |
Net interest rate spread (1) | |
| | |
| | | 2.37 | % |
|
| |
|
|
| 2.98 | % | | |
| | |
| | | 2.41 | % |
|
| |
|
|
| 3.04 | % |
Net interest-earning assets (2) | | $ | 35,226 | | | |
|
| | $ | 29,745 | |
|
|
|
| | | | $ | 91,140 | | | |
|
| | $ | 63,278 | |
|
|
|
| |
Net interest margin (3) | |
| | |
| | | 2.49 | % |
|
| |
|
|
| 3.16 | % | | |
| | |
| | | 3.00 | % |
|
| |
|
|
| 3.19 | % |
Average interest-earning assets to interest-bearing liabilities | |
| 115.18 | % |
| | |
| |
| 116.11 | % |
|
|
|
| | | |
| 129.22 | % |
| | |
| |
| 120.26 | % |
|
|
|
| |
(1) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. |
(2) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
(3) | Net interest margin represents net interest income divided by average total interest-earning assets. |
(4) | Annualized. |
3740
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
| | | | | | | | | |
| | Three Months Ended | |||||||
| | September 30, 2023 vs. 2022 | |||||||
| | Increase (Decrease) Due to | | Total | |||||
| | | | | | | | Increase | |
|
| Volume |
| Rate |
| (Decrease) | |||
|
| (In thousands) | |||||||
Interest-earning assets: |
| |
|
| |
|
| |
|
Loans | | $ | 301 | | $ | 717 | | $ | 1,018 |
Debt and equity securities | |
| (3) | |
| 171 | |
| 168 |
Restricted stocks | |
| 6 | |
| 13 | |
| 19 |
Cash and cash equivalents | |
| 7 | |
| 244 | |
| 251 |
Total interest-earning assets | |
| 311 | |
| 1,145 | |
| 1,456 |
| | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
| |
|
|
Interest-bearing demand deposits | |
| (5) | |
| 356 | |
| 351 |
Savings deposits | |
| (7) | |
| (1) | |
| (8) |
Money market deposits | |
| (40) | |
| 179 | |
| 139 |
Certificates of deposit | |
| 89 | |
| 608 | |
| 697 |
Total deposits | |
| 37 | |
| 1,142 | |
| 1,179 |
Borrowings | |
| 56 | |
| 168 | |
| 224 |
Total interest-bearing liabilities | |
| 93 | |
| 1,310 | |
| 1,403 |
Change in net interest income | | $ | 218 | | $ | (165) | | $ | 53 |
Comparison of Operating Results for the Nine Months Ended September 30, 2023 and September 30, 2022
General. Net income increased $504,000, or 50.1%, to $1.5 million for the nine months ended September 30, 2023 from $1.0 million for the nine months ended September 30, 2022. The $504,000 period over period increase in earnings was attributable to a $4.9 million increase in interest and dividend income, a $172,000 increase in noninterest income and a $69,000 decrease in the provision for credit losses, partially offset by a $3.3 million increase in interest expense, a $1.2 million increase in noninterest expense and a $186,000 increase in income tax expense.
Interest and dividend income. Total interest and dividend income increased $4.9 million, or 51.3%, to $14.6 million for the nine months ended September 30, 2023 from $9.6 million for the nine months ended September 30, 2022. The increase in interest and dividend income was primarily the result of a 141 basis points increase in the average yield on interest-earning assets. The average yield on average interest-earning assets increased to 4.97% for the nine months ended September 30, 2023 from 3.56% for the nine months ended September 30, 2022. The increase was also due to a $31.6 million increase period over period in the average balance of interest-earning assets, driven by a $33.3 million increase in average loan balances, a $2.5 million increase in the average balance of debt and equity securities available for sale and a $600,000 increase in average balance of restricted stocks, partially offset by a $4.8 million decrease in the average balance of cash and cash equivalents.
Interest income on loans, including fees, increased $3.5 million, or 39.0%, to $12.5 million for the nine months ended September 30, 2023 as compared to $9.0 million for the nine months ended September 30, 2022, reflecting a 104 basis points increase in the average yield on loans to 5.30% for the nine months ended September 30, 2023 from 4.26% for the nine months ended September 30, 2022 and an increase in the average balance of loans to $315.6 million for the nine months ended September 30, 2023 from $282.4 million for the nine months ended September 30, 2022. The average yield on loans increased as a result of the higher interest rate environment when new loans were originated and the increase in the variable rate loan yields. The increase in the average balance of loans was due primarily to an increase in the average balance of
41
commercial real estate loans reflecting our strategy to grow commercial lending.The nine months ended September 30, 2023 and 2022 included $-0- and $28,000, respectively, of PPP loan income in interest and net fees.
Interest income on securities and restricted stocks increased $407,000, or 123.0%, to $738,000 for the nine months ended September 30, 2023 from $331,000 for the nine months ended September 30, 2022. The increase in interest income on debt and equity securities of $332,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 was due to a 113 basis points increase in the average yield on debt and equity securities to 2.22% for the nine months ended September 30, 2023 from 1.09% for the nine months ended September 30, 2022 and an increase in the average balance of debt and equity securities available for sale of $2.5 million, or 7.5%, to $36.6 million for the nine months ended September 30, 2023 from $34.1 million for the nine months ended September 30, 2022. The increase in the average yield and balance of debt and equity securities was primarily due to the purchase of higher yielding short term agency bonds and treasury securities during 2022 and 2023. Restricted stock income is also included in the interest income on securities. Restricted stock income increased $75,000 for the nine months ended September 30, 2023 from the nine months ended September 30, 2022 due to a 327 basis points increase in the average yield on restricted stocks to 7.27% for the nine months ended September 30, 2023 from 4.00% for the nine months ended September 30, 2022 and due to an increase in the average balance of restricted stocks of $600,000, or 34.2%, to $2.4 million for the nine months ended September 30, 2023 from $1.8 million for the nine months ended September 30, 2022. The increase in average yield on restricted stock was due to the Federal Home Loan Bank dividend increasing and the average balance in restricted stocks increased due to increases in Federal Home Loan Bank borrowings that requires an increase in our ownership of Federal Home Loan Bank stock.
Interest income on cash and cash equivalents increased $1.0 million, or 372.1%, to $1.3 million for the nine months ended September 30, 2023, from $272,000 for the nine months ended September 30, 2022. The increase in interest income on cash and cash equivalents was attributable to an increase in the average yield on cash and cash equivalents of 371 basis points to 4.55% for the nine months ended September 30, 2023 from 0.84% for the nine months ended September 30, 2022, partially offset by a decrease in the average balance of cash and cash equivalents. The increase in the average yield of cash and cash equivalents was due to the Federal Reserve Bank increasing the Fed Funds rate by 425 basis points during 2022 and 100 basis points year to date at September 30, 2023. The decrease in the average balance of cash and cash equivalents of $4.8 million, or 11.3%, to $37.6 million for the nine months ended September 30, 2023 from $42.4 million for the nine months ended September 30, 2022 was due to funding loan originations and investing in short term agency bonds and treasury securities.
Interest expense. Interest expense increased $3.3 million, or 171.0%, to $5.2 million for the nine months ended September 30, 2023 20from $1.9 million for the nine months ended September 30, 2022 as a result of increases in interest expense on borrowings and deposits in the rising interest rate environment. The increase was due to a 138 basis points increase in the average cost of interest-bearing liabilities from 0.87% for the nine months ended September 30, 2022 to 2.25% for the nine months ended September 30, 2023 and an increase in the average balance of interest-bearing liabilities of $13.6 million to $311.3 million for the nine months ended September 30, 2023 from $297.7 million for the nine months ended September 30, 2022.
Interest expense on deposits increased $2.6 million, or 188.3%, to $4.0 million for the nine months ended September 30, 2023 from $1.4 million for the nine months ended September 30, 2022 as a result of a 138 basis points increase in the average cost of interest-bearing deposits, partially offset by a decrease of $130,000 in the average balance of our interest-bearing deposits. The increase in the average cost of deposits was primarily due to a 146 basis points increase in the average cost of certificates of deposit, traditionally our higher costing deposits, to 2.75% for the nine months ended September 30, 2023 from 1.29% for the nine months ended September 30, 2022. The average cost of transaction accounts, traditionally our lower costing deposit accounts, consisting of demand, savings, and money market accounts increased 105 basis points to 1.44% for the nine months ended September 30, 2023 from 0.39% for the nine months ended September 30, 2022. The increase in rates was due to the rising interest rate environment and increased competition. A decrease in the average balance of our transaction accounts by $27.3 million to $144.2 million for the nine months ended September 30, 2023 from $171.4 million for the nine months ended September 30, 2022 was primarily due to a large short-term municipal deposit in 2022. An increase of $27.1 million in the average certificates of deposit to $117.4 million for the nine months ended September 30, 2023 from $90.3 million for the nine months ended September 30, 2022 was due to promotional specials to increase deposits in the rising rate environment.
Interest expense on Federal Home Loan Bank borrowings increased $724,000, or 128.8%, to $1.3 million for the nine months ended September 30, 2023 from $562,000 for the nine months ended September 30, 2022. The increase in interest expense
42
on Federal Home Loan Bank borrowings resulted from an increase in the average cost of these funds of 136 basis points to 3.41% for the nine months ended September 30, 2023 from 2.05% for the nine months ended September 30, 2022 as higher cost Federal Home Loan Bank borrowings were incurred during 2023 to increase liquidity. There was an increase of $13.7 million in the average Federal Home Loan Bank borrowings to $49.8 million for the nine months ended September 30, 2023 from $36.1 million for the nine months ended September 30, 2022 as a result of using Federal Home Loan Bank borrowings to partially fund loan growth and purchase short-term securities.
Net interest income. Net interest income increased $1.6 million, or 21.2%, to $9.3 million for the nine months ended September 30, 2023 as compared to $7.7 million for the nine months ended September 30, 2022. The increase in net interest income for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to the increases in interest income on loans, cash and cash equivalents and debt securities available-for-sale, partially offset by increases in interest expense on deposits and borrowings. Average net interest-earning assets increased by $18.0 million to $80.9 million for the nine months ended September 30, 2023 from $62.9 million for the nine months ended September 30, 2022. Our net interest margin increased 33 basis points to 3.18% for the nine months ended September 30, 2023 from 2.85% for the nine months ended September 30, 2022. Our net interest rate spread increased three basis points to 2.72% for the nine months ended September 30, 2023 from 2.69% for the nine months ended September 30, 2022.
Provision for credit losses. We charge provisions for credit losses to operations in order to maintain our allowance for credit losses on loans and reserve for unfunded commitments at a level that is considered reasonable and necessary to absorb expected credit losses inherent in the loan portfolio and expected losses on commitments to grant loans that are expected to be advanced at the consolidated balance sheet date. In determining the level of the allowance for credit losses, we consider our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and the levels of non-performing and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for credit losses on a quarterly basis and make provisions for credit losses in order to maintain the allowance.
Based on our evaluation of the above factors, we recorded a $570,000 provision for credit losses for the nine months ended September 30, 2023 compared to a $639,000 provision for loan losses for the nine months ended September 30, 2022. The decrease in the provision for credit losses was primarily driven by moderated loan growth and a provision for credit losses on loans of $602,000, partially offset by a recovery for unfunded commitments of $32,000 for the nine months ended September 30, 2023. The allowance for credit losses was $4.5 million, or 1.35%, of loans outstanding at September 30, 2023 and $4.0 million, or 1.31%, of loans outstanding at December 31, 2022.
To the best of our knowledge, we have recorded our best estimate of expected losses in the loan portfolio and for unfunded commitments at September 30, 2023. However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for credit losses. In addition, the PADOB and the FDIC, as an integral part of their examination process, will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.
43
Noninterest income. Noninterest income information is as follows.
| | | | | | | | | | | | | |
| | Nine Months Ended | | | | | |
| | ||||
| | September 30, | | Change |
| | |||||||
|
| 2023 |
| 2022 |
| Amount |
| Percent |
| | |||
|
| (Dollars in thousands) | | | |||||||||
Service charges on deposit accounts | | $ | 130 | | $ | 136 | | $ | (6) |
| (4.4) | % | |
Loss on equity securities | |
| (24) | |
| (100) | |
| 76 |
| (76.0) | | |
Bank owned life insurance income | |
| 141 | |
| 131 | |
| 10 |
| 7.6 | | |
Debit card income | |
| 165 | |
| 149 | |
| 16 |
| 10.7 | | |
Other service charges | |
| 87 | |
| 55 | |
| 32 |
| 58.2 | | |
Loss on disposal of equipment | | | (40) | | | — | | | (40) | | (100.0) | | |
Other income | |
| 123 | |
| 39 | |
| 84 |
| 215.4 | | |
Total noninterest income | | $ | 582 | | $ | 410 | | $ | 172 |
| 42.0 | % | |
Noninterest income increased by $172,000, or 42.0%, to $582,000 for the nine months ended September 30, 2023 from $410,000 for the nine months ended September 30, 2022. The increase in noninterest income resulted primarily from an increase in other income of $84,000, a decrease in the loss on equity investments of $76,000 and an increase in other service charges of $32,000, partially offset by the increase in the loss on sale of premises and equipment of $40,000. Other income increased $84,000 due to $80,000 of loan related fee income earned for brokering interest rate swap agreements between the Bank’s customers and counterparties unrelated to the Bank. The loss on equity investments decreased $76,000 as a result of less of a decrease in fair value of the equity investments. Other service charges increased $32,000 due to $31,000 of late fee recoveries on two non-accrual loans that paid off in the second quarter of 2023.The $40,000 loss on disposal of equipment was a result of replacing the non-depository ATMs with full functioning ATMs as part of our continued investment in our infrastructure and technology. The new ATMs improve the client experience by providing twenty-four hours seven days a week access to banking services.
Noninterest Expenses. Noninterest expenses information is as follows.
| | | | | �� | | | | | | | | |
| | Nine Months Ended | | | | | |
| | ||||
| | September 30, | | Change |
| | |||||||
|
| 2023 |
| 2022 |
| Amount |
| Percent |
| | |||
|
| (Dollars in thousands) | | | |||||||||
Salaries and employee benefits | | $ | 3,970 | | $ | 3,256 | | $ | 714 |
| 21.9 | % | |
Occupancy and equipment | |
| 521 | |
| 491 | |
| 30 |
| 6.1 | | |
Data and item processing | |
| 798 | |
| 747 | |
| 51 |
| 6.8 | | |
Advertising and marketing | |
| 158 | |
| 84 | |
| 74 |
| 88.1 | | |
Professional fees | |
| 515 | |
| 503 | |
| 12 |
| 2.4 | | |
Directors’ fees | |
| 322 | |
| 182 | |
| 140 |
| 76.9 | | |
FDIC insurance premiums | | | 138 | |
| 76 | | | 62 |
| 81.6 | | |
Pennsylvania shares tax | | | 221 | |
| 247 | | | (26) | | (10.5) | | |
Debit card expenses | |
| 118 | |
| 105 | |
| 13 |
| 12.4 | | |
Other | |
| 629 | |
| 522 | |
| 107 |
| 20.5 | | |
Total noninterest expenses | | $ | 7,390 | | $ | 6,213 | | $ | 1,177 |
| 18.9 | % | |
Noninterest expenses increased $1.2 million, or 18.9%, to $7.4 million for the nine months ended September 30, 2023 from $6.2 million for the nine months ended September 30, 2022. The increase in noninterest expenses was primarily the result of increases in salaries and employee benefits expense of $714,000, Directors’ fees of $140,000 and other expenses of $107,000. Salaries and employee benefits expense increased $714,000 primarily due to stock-based compensation expense of $308,000 for the first nine months of 2023, the hiring of additional staff and annual salary increases. Directors’ fees increased $140,000 primarily due to stock-based compensation expense of $98,000 for the first nine months of 2023, adding an additional Director in November 2022 and fee increases to all non-employee Directors. Other expense increased $107,000 due to the increases in Bank ordered loan appraisal fees, education and training expenses, and stationery & supplies.
44
Income tax expense. Income tax expense increased $186,000, to $420,000 for the nine months ended September 30, 2023 from $234,000 for the nine months ended September 30, 2022. The effective tax rates were 21.8% and 18.9% for the nine month periods ended September 30, 2023 and 2022, respectively. The increase in income tax expense for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily due to an increase in income before income taxes and relatively consistent levels of income not subject to taxes.
Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.
| | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | ||||||||||||||
| | 2023 | | 2022 |
| | ||||||||||||
|
| Average |
| | |
| |
| Average |
| | |
| |
| | ||
| | Outstanding | | | | | Average | | Outstanding | | | | | Average |
| | ||
| | Balance | | Interest | | Yield/Rate (4) | | Balance | | Interest | | Yield/Rate (4) |
| | ||||
| | (Dollars in thousands) |
| | ||||||||||||||
Interest-earning assets: |
| |
|
| |
|
|
|
| |
|
| |
|
|
| | |
Loans | | $ | 315,647 | | $ | 12,533 |
| 5.30 | % | $ | 282,373 | | $ | 9,015 |
| 4.26 | % | |
Debt and equity securities | |
| 36,637 | |
| 610 |
| 2.22 | % |
| 34,093 | |
| 278 |
| 1.09 | % | |
Restricted stocks | |
| 2,353 | |
| 128 |
| 7.27 | % |
| 1,753 | |
| 53 |
| 4.00 | % | |
Cash and cash equivalents | |
| 37,617 | |
| 1,284 |
| 4.55 | % |
| 42,415 | |
| 272 |
| 0.84 | % | |
Total interest-earning assets | |
| 392,254 | |
| 14,555 |
| 4.97 | % |
| 360,634 | |
| 9,618 |
| 3.56 | % | |
Noninterest-earning assets | |
| 9,893 | |
| |
|
| |
| 9,281 | |
|
|
|
| | |
Total assets | | $ | 402,147 | | | |
|
| | $ | 369,915 | |
|
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| | |
Interest-bearing demand deposits | | $ | 77,795 | |
| 836 |
| 1.44 | % | $ | 79,069 | |
| 168 |
| 0.28 | % | |
Savings deposits | |
| 18,278 | |
| 64 |
| 0.47 | % |
| 22,506 | |
| 59 |
| 0.35 | % | |
Money market deposits | |
| 48,083 | |
| 649 |
| 1.80 | % |
| 69,840 | |
| 277 |
| 0.53 | % | |
Certificates of deposit | |
| 117,377 | |
| 2,412 |
| 2.75 | % |
| 90,248 | |
| 870 |
| 1.29 | % | |
Total interest-bearing deposits | |
| 261,533 | |
| 3,961 |
| 2.02 | % |
| 261,663 | |
| 1,374 |
| 0.64 | % | |
Borrowings | |
| 49,806 | |
| 1,286 |
| 3.41 | % |
| 36,082 | |
| 562 |
| 2.05 | % | |
Total interest-bearing liabilities | |
| 311,339 | |
| 5,247 |
| 2.25 | % |
| 297,745 | |
| 1,936 |
| 0.87 | % | |
Noninterest-bearing demand deposits | |
| 40,702 | |
| |
|
| |
| 25,140 | |
|
|
| | | |
Other noninterest-bearing liabilities | |
| 3,475 | |
| |
|
| |
| 1,445 | |
|
|
|
| | |
Total liabilities | |
| 355,516 | |
| |
|
| |
| 324,330 | |
|
|
|
| | |
Stockholders' equity | |
| 46,631 | |
| |
|
| |
| 45,585 | |
|
|
|
| | |
Total liabilities and stockholders' equity | | $ | 402,147 | |
| |
|
| | $ | 369,915 | |
|
|
|
| | |
Net interest income | | | | | $ | 9,308 |
|
| |
|
| | $ | 7,682 |
|
| | |
Net interest rate spread (1) | |
| | |
| | | 2.72 | % |
|
| |
|
|
| 2.69 | % | |
Net interest-earning assets (2) | | $ | 80,915 | | | |
|
| | $ | 62,889 | |
|
|
|
| | |
Net interest margin (3) | |
| | |
| | | 3.18 | % |
|
| |
|
|
| 2.85 | % | |
Average interest-earning assets to interest-bearing liabilities | |
| 125.99 | % |
| | |
| |
| 121.12 | % |
|
|
|
| | |
(1) | Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. |
(2) | Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. |
(3) | Net interest margin represents net interest income divided by average total interest-earning assets. |
(4) | Annualized. |
45
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total increase (decrease) column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | | ||||||||||||||
| | March 31, 2021 vs. 2020 | | | September 30, 2023 vs. 2022 | | ||||||||||||||
| | Increase (Decrease) Due to | | Total | | | Increase (Decrease) Due to | | Total | | ||||||||||
| | | | | | | | Increase | | | | | | | | | Increase | | ||
|
| Volume |
| Rate |
| (Decrease) | |
| Volume |
| Rate |
| (Decrease) | | ||||||
|
| (In thousands) | |
| (In thousands) | | ||||||||||||||
Interest-earning assets: |
| |
|
| |
|
| |
| |
| |
|
| |
|
| |
| |
Loans | | $ | 974 | | $ | (934) | | $ | 40 | | | $ | 1,060 | | $ | 2,458 | | $ | 3,518 | |
Debt securities available-for-sale | |
| 35 | |
| (89) | |
| (54) | | ||||||||||
Debt and equity securities | |
| 21 | |
| 311 | |
| 332 | | ||||||||||
Restricted stocks | |
| (18) | |
| 9 | |
| (9) | | |
| 18 | |
| 57 | |
| 75 | |
Cash and cash equivalents | |
| 362 | |
| (388) | |
| (26) | | |
| (30) | |
| 1,042 | |
| 1,012 | |
Total interest-earning assets | |
| 1,353 | |
| (1,402) | |
| (49) | | |
| 1,069 | |
| 3,868 | |
| 4,937 | |
| | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | |
|
| |
|
| |
|
| | |
|
| |
|
| |
|
| |
Interest-bearing demand deposits | |
| 44 | |
| (46) | |
| (2) | | |
| (3) | |
| 671 | |
| 668 | |
Savings deposits | |
| 6 | |
| (15) | |
| (9) | | |
| (11) | |
| 16 | |
| 5 | |
Money market deposits | |
| 156 | |
| (150) | |
| 6 | | |
| (86) | |
| 458 | |
| 372 | |
Certificates of deposit | |
| 454 | |
| (441) | |
| 13 | | |
| 262 | |
| 1,280 | |
| 1,542 | |
Total deposits | |
| 660 | |
| (652) | |
| 8 | | |
| 162 | |
| 2,425 | |
| 2,587 | |
Borrowings | |
| (136) | |
| 105 | |
| (31) | | |
| 210 | |
| 514 | |
| 724 | |
Total interest-bearing liabilities | |
| 524 | |
| (547) | |
| (23) | | |
| 372 | |
| 2,939 | |
| 3,311 | |
Change in net interest income | | $ | 829 | | $ | (855) | | $ | (26) | | | $ | 697 | | $ | 929 | | $ | 1,626 | |
Non-Performing Assets and Allowance for LoanCredit Losses
Non-performing loans. Loans are reviewed on a weekly basis by management and again by our credit committee on a monthly basis. Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.
A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.
The CARES Act, in addition to providing financial assistance to both businesses and consumers, creates a forbearance program for federally-backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provides financial institutions the option to temporarily suspend
38
certain requirements under U.S. GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The Federal banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allow modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. Modifications may include payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. We have worked with our customers affected by COVID-19 and accommodated a significant amount of loan modifications across its loan portfolios. To the extent that additional modifications meet the criteria previously described, such modifications are not expected to be classified as troubled debt restructurings.
Real estate owned. When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for loan losses, or, if the existing allowance is inadequate, charged to expense of the current period.credit losses. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. We had no real estate owned at March 31, 2021September 30, 2023 or as of December 31, 2020.2022.
3946
Non-Performing Assets. The following table sets forth information regarding our non-performing assets. Non-accrual loans include non-accruing troubled debt restructurings of $422,000 and $478,000 as of March 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | |
| | | March 31, | | | December 31, |
| | | September 30, | | | December 31, |
|
|
| 2021 |
| 2020 |
|
| 2023 |
| 2022 |
| ||||
|
| (Dollars in thousands) | |
| (Dollars in thousands) | | ||||||||
Non-accrual loans: |
| |
|
| |
| |
| |
|
| |
| |
Real estate: |
| |
|
| |
| |
| |
|
| |
| |
One- to four-family residential | | $ | 1,197 | | $ | 1,600 | | | $ | 175 | | $ | 330 | |
Commercial | |
| 564 | |
| 575 | | |
| 419 | |
| 416 | |
Construction | |
| 584 | |
| 640 | | |
| — | |
| 147 | |
Commercial and industrial | |
| �� | |
| — | | |
| 220 | |
| 156 | |
Consumer | |
| — | |
| — | | |||||||
Consumer and other | |
| — | |
| — | | |||||||
Total non-accrual loans | |
| 2,345 | |
| 2,815 | | |
| 814 | |
| 1,049 | |
| | | | | | | | | | | | | | |
Accruing loans past due 90 days or more | |
|
| |
|
| | |
|
| |
|
| |
Real estate: | |
|
| |
|
| | |
|
| |
|
| |
One- to four-family residential | |
| — | |
| — | | |
| — | |
| — | |
Commercial | |
| — | |
| — | | |
| — | |
| — | |
Construction | |
| — | |
| — | | |
| — | |
| — | |
Commercial and industrial | |
| — | |
| — | | |
| — | |
| — | |
Consumer | |
| — | |
| — | | |||||||
Consumer and other | |
| — | |
| — | | |||||||
Total accruing loans past due 90 days or more | |
| — | |
| — | | |
| — | |
| — | |
Total non-performing loans | | $ | 2,345 | | $ | 2,815 | | | $ | 814 | | $ | 1,049 | |
Foreclosed assets | |
| — | |
| — | | |
| — | |
| — | |
Total non-performing assets | | $ | 2,345 | | $ | 2,815 | | | $ | 814 | | $ | 1,049 | |
| | | | | | | | | | | | | | |
Non-accruing troubled debt restructurings: | |
|
| |
|
| | |||||||
Real estate: | |
|
| |
|
| | |||||||
One- to four-family residential | |
| — | |
| — | | |||||||
Commercial | |
| 208 | |
| 214 | | |||||||
Construction | |
| 214 | |
| 264 | | |||||||
Commercial and industrial | |
| — | |
| — | | |||||||
Consumer | |
| — | |
| — | | |||||||
Total | | $ | 422 | | $ | 478 | | |||||||
| | | | | | | | | | | | | | |
Total accruing troubled debt restructured loans | | $ | 589 | | $ | 594 | | |||||||
Total non-performing loans to total loans | |
| 1.16 | % |
| 1.49 | % | |
| 0.25 | % |
| 0.34 | % |
Total non-accrual loans to total loans | |
| 1.16 | % |
| 1.49 | % | |
| 0.25 | % |
| 0.34 | % |
Total non-performing assets to total assets | |
| 0.83 | % |
| 1.02 | % | |
| 0.20 | % |
| 0.27 | % |
Non-performing loans decreased to $2.3 million,were $814,000, or 1.16%0.25% of total loans, at March 31, 2021 from $2.8September 30, 2023 and $1.0 million, or 1.49%0.34% of total loans, at December 31, 2020. This decrease was due primarily2022. During the nine months ended September 30, 2023, payoff of two non-accrual loan relationships, payments on non-accrual loans, the return of a loan from non-accrual to accruing status and partial charge-off of a $403,000 reduction in non-performing one- to four-family residential loans primarily due to the $362,000 pay-off ofloan, partially offset by one relationship and a $56,000 reductionbeing added to non-accrual status resulted in non-performing construction loans primarily due to a pay-down of $50,000 on one relationship.the decrease in non-accrual loans.
4047
Allowance for loancredit losses. The following table sets forth activity in our allowance for loancredit losses for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | |
| | At or For the Three Months Ended March 31, |
| | At or For the Three Months Ended September 30, |
| | At or For the Nine Months Ended September 30, |
| |||||||||||||
|
| 2021 |
| 2020 |
|
| 2023 |
| 2022 |
| | 2023 |
| 2022 |
| |||||||
|
| (Dollars in thousands) | |
| (Dollars in thousands) | | | (Dollars in thousands) | | |||||||||||||
Allowance for loan losses at beginning of period | | $ | 2,854 | | $ | 1,839 | | |||||||||||||||
Provision for loan losses | |
| 69 | |
| 359 | | |||||||||||||||
Allowance for credit losses at beginning of year | | $ | 4,314 | | $ | 3,439 | | | $ | 3,992 | | $ | 3,145 | | ||||||||
Provision for credit losses | |
| 153 | |
| 346 | | |
| 602 | |
| 639 | | ||||||||
Charge-offs: | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| | |
Real estate: | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| | |
One- to four-family residential | |
| — | |
| — | | |
| — | |
| — | | |
| — | |
| — | | |
Commercial | |
| — | |
| — | | |
| — | |
| — | | |
| — | |
| — | | |
Construction | |
| — | |
| — | | |
| — | |
| — | | |
| — | |
| — | | |
Commercial and industrial | |
| — | |
| — | | |
| — | |
| — | | |
| (144) | |
| — | | |
Consumer | |
| — | |
| — | | |||||||||||||||
Consumer and other | |
| — | |
| — | | |
| — | |
| — | | ||||||||
Total charge-offs | |
| — | |
| — | | |
| — | |
| — | | |
| (144) | |
| — | | |
| | | | | | | | | | | | | | | | | | | | | | |
Recoveries: | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| | |
Real estate: | |
|
| |
|
| | |
|
| |
|
| | |
|
| |
|
| | |
One- to four-family residential | |
| — | |
| — | | |
| — | |
| — | | |
| 15 | |
| — | | |
Commercial | |
| — | |
| — | | |
| — | |
| — | | |
| — | |
| — | | |
Construction | |
| — | |
| — | | |
| — | |
| — | | |
| — | |
| — | | |
Commercial and industrial | |
| 1 | |
| 3 | | |
| 1 | |
| 2 | | |
| 3 | |
| 3 | | |
Consumer | |
| — | |
| — | | |||||||||||||||
Consumer and other | |
| — | |
| — | | |
| — | |
| — | | ||||||||
Total recoveries | |
| 1 | |
| 3 | | |
| 1 | |
| 2 | | |
| 18 | |
| 3 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net (charge-offs) recoveries | |
| 1 | |
| 3 | | |
| 1 | |
| 2 | | |
| (126) | |
| 3 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Allowance at end of period | | $ | 2,924 | | $ | 2,201 | | |||||||||||||||
Allowance for credit losses at end of period | | $ | 4,468 | | $ | 3,787 | | | $ | 4,468 | | $ | 3,787 | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Allowance to non-performing loans | |
| 124.69 | % |
| 78.19 | % | |||||||||||||||
Allowance to non-accrual loans | |
| 548.89 | % |
| 281.98 | % | |
| 548.89 | % |
| 281.98 | % | ||||||||
Allowance to total loans outstanding at the end of the period | |
| 1.45 | % |
| 1.20 | % | |
| 1.35 | % |
| 1.24 | % | |
| 1.35 | % |
| 1.24 | % | |
Net (charge-offs) recoveries to average loans outstanding during the period | |
| — | % |
| — | % | |||||||||||||||
Net charge-offs to average loans outstanding during the period (annualized) | |
| — | % |
| — | % | |
| 0.05 | % |
| — | % |
The provision for loancredit losses on loans decreased $290,000,$193,000, or 80.8%55.8%, to $69,000$153,000 for the three months ended March 31, 2021September 30, 2023 from $359,000$346,000 for the three months ended March 31, 2020 primarilySeptember 30, 2022. The provision for credit losses on loans decreased $37,000, or 5.8%, to $602,000 for the nine months ended September 30, 2023 from $639,000 for the nine months ended September 30, 2022. The decreases for both periods ended September 30, 2023 were due to adjustmentmoderated loan growth during the current periods. An additional partial charge-off of certain qualitative factorsa previously written down commercial and industrial loan for $144,000 was taken in the nine months ended September 30, 2023. This was partially offset by recoveries of $18,000 for the nine months ended September 30, 2023. Delinquencies remain benign, reserve levels are deemed to take into accountbe adequate and the uncertain impactsallowance coverage ratio has increased at September 30, 2023. The allowance to total loans outstanding at the end of the COVID-19 pandemic on economic conditionsperiod was 1.35% at September 30, 2023, improving from 1.24% at September 30, 2022 and borrowers’ ability to repay loans appliedremaining consistent with December 31, 2022 at March 31, 2020.1.31%.
48
Liquidity and Capital Resources
Liquidity management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from sales, maturities and calls of securities. We also have the ability to borrow from the Federal Home Loan Bank of Pittsburgh. At March 31, 2021,September 30, 2023, we had the ability to borrow approximately $92.5$168.8 million from the Federal Home Loan Bank of Pittsburgh, of which $16.8$51.9 million had been advanced in addition to $4.3$14.2 million held in reserve to secure twothree letters of credit to collateralize municipal deposits. Additionally, at March 31, 2021,September 30, 2023, we had the ability to borrow $3.0$7.5 million from the Atlantic Community Bankers Bank, $5.0 million from SouthState Bank, N.A. and we also maintained a line of credit of $2.0 million with the Federal Reserve Bank of Philadelphia at March 31, 2021.September 30, 2023. We did not borrow against the credit linesline with the Atlantic Community Bankers Bank, SouthState Bank, N.A., or the Federal Reserve Bank of Philadelphia during the threenine months ended March 31, 2021.September 30, 2023.
The board of trusteesdirectors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as
41
unanticipated contingencies. We seek to maintain a liquidity ratio of 20.0%5.0% or greater. For the threenine months ended March 31, 2021,September 30, 2023 and 2022, our liquidity ratio averaged 49.5% due to the COVID-19 pandemic.13.1% and 10.8%, respectively. We believe that we had enough sources of liquidity to satisfy our short and long-term liquidity needs as of March 31, 2021.September 30, 2023.
We monitor and adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on cash and cash equivalents and securities; and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in cash and cash equivalents and short-and intermediate-term securities.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2021,September 30, 2023, cash and cash equivalents totaled $40.1$25.2 million. Debt securities classified as available-for-sale, which provide additional sources of liquidity, totaled $28.8$40.7 million at March 31, 2021.September 30, 2023.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of March 31, 2021,September 30, 2023, totaled $32.4$71.5 million, or 38.2%61.4% of our certificates of deposit, and 13.4%23.3% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Capital management. At March 31, 2021, ProsperSeptember 30, 2023, Presence Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines due to its compliance with the Community Bank Leverage ratio, including applicable grace periods.guidelines. See Note 810 of the Notes to the Financial Statements.Statements for more information regarding our capital resources.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At March 31, 2021,September 30, 2023, we had outstanding commitments to originate loans of $24.4$33.0 million, unused lines of credit totaling $8.2$12.8 million and $2.2$2.8 million in stand-by letters of credit outstanding. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2021September
49
30, 2023 totaled $32.4$71.5 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new deposits, which may result in higher levels of interest expense.
Contractual obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for equipment, agreements with respect to borrowed funds and deposit liabilities.
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Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Higher inflation and its impacts, nationally or in the markets that the Company serves could adversely affect, among other things, real estate valuations, unemployment levels, the ability of businesses to remain viable, and consumer and business confidence, which could lead to decreases in demand for loans and deposits and increases in loan delinquencies and defaults.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information related to this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
As of the end of the period covered by this Form 10-Q, the BankCompany carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Bank’sCompany’s disclosure controls and procedures as of March 31, 2021,September 30, 2023, the Bank’sCompany’s Chief Executive Officer and Chief Financial Officer have concluded that the Bank’sCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are designed to ensure that information required to be disclosed by the BankCompany in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.
Internal control over financial reporting.
There were no changes in the Bank’sCompany’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2021September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Bank’sCompany’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 2021,September 30, 2023, the BankCompany is not currently a named party in a legal proceeding, the outcome of which would have a material effect on the financial condition or results of operations of the Bank.Company.
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Item 1A. Risk Factors
A smaller reporting company is not required to provide the information related to this item.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds and Issuer Purchases of Equity Securities
There were no sales of unregistered securities during the quarter ended September 30, 2023.
None.
The following table reports information regarding repurchases by the Company of its common stock in each month of the quarter ended September 30, 2023:
| | | | | | | | | | | | | |
| | | | | | | | | Total Number | | | ||
| |
| | |
| | |
| of Shares |
| Maximum | ||
| | | | | | | | | Purchased as | | Number of | ||
| | | | | | | | | Part of | | Shares that | ||
| | | | | | | | | Publicly | | May Yet Be | ||
| | | Total Number | | Average Price | | Announced | | Purchased | ||||
| | | of Shares | | Paid Per | | Plans or | | Under Plans or | ||||
Period | | | Purchased | | Share | | Programs | | Programs (1) | ||||
| July 1 through July 31, 2023 | | | 10,919 | | $ | 13.83 | | | 133,162 | | | 144,563 |
| August 1 through August 31, 2023 | | | — | | | — | | | 133,162 | | | 144,563 |
| September 1 through September 30, 2023 | | | 7,236 | | | 12.97 | | | 140,398 | | | 137,327 |
| Total | |
| 18,155 | | $ | 13.49 | |
| 140,398 | | | 137,327 |
(1) | OnAugust 5, 2022, the Company announced it adopted a stock repurchase program. The stock repurchase program authorizes the Company to repurchase up to an aggregate of 277,725 shares, or approximately 10% of its then outstanding shares. The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The repurchase program was extended by the Board of Directors on August 28, 2023. |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
See Exhibit Index.
44
EXHIBIT INDEX
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32.1† | | |
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32.2† | | |
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101.INS† | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH† | | XBRL Taxonomy Extension Schema Document |
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101.CAL† | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF† | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB† | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE† | | XBRL Taxonomy Extension Presentation Linkbase Document |
104† | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
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† Filed herewith.
4552
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, duly authorized.
Date: June 25, 2021November 14, 2023
| | |
| PB BANKSHARES, INC. | |
| | |
| By: | /s/ Janak M. Amin |
| Name: | Janak M. Amin |
| Title: | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| By: | /s/ Lindsay S. Bixler |
| Name: | Lindsay S. Bixler |
| Title: | Executive Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
| | |
4653