Notes to Consolidated Financial Statements
(unaudited)
1.
|
Nature of Operations and Basis of Presentation
|
The consolidated financial statements include the accounts of ESSA Bancorp, Inc. (the “Company”), its wholly owned subsidiary, ESSA Bank & Trust (the “Bank”), and the Bank’s wholly owned subsidiaries, ESSACOR Inc.; Pocono Investments Company; ESSA Advisory Services, LLC; Integrated Financial Corporation; and Integrated Abstract Incorporated, a wholly owned subsidiary of Integrated Financial Corporation. The primary purpose of the Company is to act as a holding company for the Bank. On November 6, 2014, the Company converted its status from a savings and loan holding company to a bank holding company. In addition, the Bank converted from a Pennsylvania-chartered savings association to a Pennsylvania-chartered savings bank. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Delaware, Chester, Montgomery, Lackawanna, and Luzerne Counties, Pennsylvania. The Bank is subject to regulation and supervision by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. The investment in subsidiary on the parent company’s financial statements is carried at the parent company’s equity in the underlying net assets.
ESSACOR, Inc. is a Pennsylvania corporation that has been used to purchase properties at tax sales that represent collateral for delinquent loans of the Bank and is currently inactive. Pocono Investment Company is a Delaware corporation formed as an investment company subsidiary to hold and manage certain investments, including certain intellectual property. ESSA Advisory Services, LLC is a Pennsylvania limited liability company owned 100 percent by ESSA Bank & Trust. ESSA Advisory Services, LLC is a full-service insurance benefits consulting company offering group services such as health insurance, life insurance, short-term and long-term disability, dental, vision, and 401(k) retirement planning as well as individual health products. Integrated Financial Corporation is a Pennsylvania corporation that provided investment advisory services to the general public and is currently inactive. Integrated Abstract Incorporated is a Pennsylvania corporation that provided title insurance services and is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements reflect all adjustments, which in the opinion of management, are necessary for a fair presentation of the results of the interim periods and are of a normal and recurring nature. Operating results for the three month period ended December 31, 2016 are not necessarily indicative of the results that may be expected for the year ending September 30, 2017.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation for the three month period ended December 31, 2016 and 2015.
|
|
Three Months Ended
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
Weighted-average common shares outstanding
|
|
|
18,133,095
|
|
|
|
18,133,095
|
|
|
Average treasury stock shares
|
|
|
(6,720,901
|
)
|
|
|
(6,793,627
|
)
|
|
Average unearned ESOP shares
|
|
|
(899,601
|
)
|
|
|
(944,875
|
)
|
|
Average unearned non-vested shares
|
|
|
(37,561
|
)
|
|
|
(30,168
|
)
|
|
Weighted average common shares and common stock
equivalents used to calculate basic earnings per share
|
|
|
10,475,032
|
|
|
|
10,364,425
|
|
|
Additional common stock equivalents (non-vested stock)
used to calculate diluted earnings per share
|
|
|
1,018
|
|
|
|
618
|
|
|
Additional common stock equivalents (stock options) used
to calculate diluted earnings per share
|
|
|
128,022
|
|
|
|
170,530
|
|
|
Weighted average common shares and common stock
equivalents used to calculate diluted earnings per share
|
|
|
10,604,072
|
|
|
|
10,535,573
|
|
|
At December 31, 2016 there were 20,194 shares of nonvested stock outstanding at a price of $16.57 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. At December 31, 2015 there were 18,021 shares of nonvested stock outstanding at a price of $13.05 per share that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.
8
3.
|
Use of Estimates in the Preparation of Financial Statements
|
The accounting principles followed by the Company and its subsidiaries and the methods of applying these principles conform to U.S. generally accepted accounting principles (“GAAP”) and to general practice within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Consolidated Balance Sheet date and related revenues and expenses for the period. Actual results could differ from those estimates.
4.
|
Recent Accounting Pronouncements
|
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(a new revenue recognition standard)
. The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.
In August 2015, the FASB issued ASU 2015-14,
Revenue from Contract with Customers (Topic 606)
. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach
9
with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating t
he impact the adoption of the standard will have on the Company’s financial position or results of operations.
In March 2016, the FASB issued ASU 2016-05,
Derivatives and Hedging (Topic 815)
. The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-06,
Derivatives and Hedging (Topic 815)
. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-07,
Investments - Equity Method and Joint Ventures (Topic 323)
. The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606)
. The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606)
:
Deferral of the Effective Date
, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (Topic 718)
. The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic
10
718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004),
Share-Based Payment
. This should not result in a change in practice because the guidance that is being
superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are eff
ective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The Company adopted this standard for the
interim period ended December 31, 2016. The adoption of this standard resulted in recognition of all excess tax benefits for share-based payment awards to be recognized in income taxes for the three months ended December 31, 2016. Previously, such tax bene
fits were recognized in additional paid in capital.
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606)
. The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606)
, which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
, which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest
11
date practicable. The Company is currently evaluat
ing the impact the adoption of the standard will have on the Company’s statement of cash flows.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business
“ASU 2017-01”, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is not expected to have a significant impact on the Company’s financial statements.
The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale are summarized as follows (in thousands):
|
|
December 31, 2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
119,196
|
|
|
$
|
206
|
|
|
$
|
(1,747
|
)
|
|
$
|
117,655
|
|
Freddie Mac
|
|
|
92,341
|
|
|
|
42
|
|
|
|
(1,345
|
)
|
|
|
91,038
|
|
Governmental National Mortgage Association
|
|
|
15,267
|
|
|
|
39
|
|
|
|
(236
|
)
|
|
|
15,070
|
|
Total mortgage-backed securities
|
|
|
226,804
|
|
|
|
287
|
|
|
|
(3,328
|
)
|
|
|
223,763
|
|
Obligations of states and political subdivisions
|
|
|
70,720
|
|
|
|
1,135
|
|
|
|
(1,334
|
)
|
|
|
70,521
|
|
U.S. government agency securities
|
|
|
25,689
|
|
|
|
111
|
|
|
|
—
|
|
|
|
25,800
|
|
Corporate obligations
|
|
|
39,492
|
|
|
|
135
|
|
|
|
(839
|
)
|
|
|
38,788
|
|
Other debt securities
|
|
|
33,627
|
|
|
|
165
|
|
|
|
(576
|
)
|
|
|
33,216
|
|
Total debt securities
|
|
|
396,332
|
|
|
|
1,833
|
|
|
|
(6,077
|
)
|
|
|
392,088
|
|
Equity securities - financial services
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
Total
|
|
$
|
396,357
|
|
|
$
|
1,833
|
|
|
$
|
(6,077
|
)
|
|
$
|
392,113
|
|
|
|
September 30, 2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
$
|
115,535
|
|
|
$
|
1,891
|
|
|
$
|
(173
|
)
|
|
$
|
117,253
|
|
Freddie Mac
|
|
|
84,486
|
|
|
|
1,369
|
|
|
|
(85
|
)
|
|
|
85,770
|
|
Governmental National Mortgage Association
|
|
|
16,091
|
|
|
|
76
|
|
|
|
(28
|
)
|
|
|
16,139
|
|
Total mortgage-backed securities
|
|
|
216,112
|
|
|
|
3,336
|
|
|
|
(286
|
)
|
|
|
219,162
|
|
Obligations of states and political subdivisions
|
|
|
71,323
|
|
|
|
2,432
|
|
|
|
(65
|
)
|
|
|
73,690
|
|
U.S. government agency securities
|
|
|
25,669
|
|
|
|
272
|
|
|
|
—
|
|
|
|
25,941
|
|
Corporate obligations
|
|
|
38,331
|
|
|
|
599
|
|
|
|
(512
|
)
|
|
|
38,418
|
|
Other debt securities
|
|
|
32,962
|
|
|
|
428
|
|
|
|
(216
|
)
|
|
|
33,174
|
|
Total debt securities
|
|
|
384,397
|
|
|
|
7,067
|
|
|
|
(1,079
|
)
|
|
|
390,385
|
|
Equity securities - financial services
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
Total
|
|
$
|
384,422
|
|
|
$
|
7,067
|
|
|
$
|
(1,079
|
)
|
|
$
|
390,410
|
|
12
The amortized cost and fair value of de
bt securities at December 31, 2016, 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 th
ousands):
|
|
Available For Sale
|
|
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
11,401
|
|
|
$
|
11,454
|
|
Due after one year through five years
|
|
|
41,094
|
|
|
|
41,037
|
|
Due after five years through ten years
|
|
|
84,276
|
|
|
|
83,653
|
|
Due after ten years
|
|
|
259,561
|
|
|
|
255,944
|
|
Total
|
|
$
|
396,332
|
|
|
$
|
392,088
|
|
For the three months ended December 31, 2016, the Company realized no gross gains or gross losses on proceeds from the sale of investment securities. For the three months ended December 31, 2015, the Company realized gross gains of $3,000 and no gross losses on proceeds from the sale of investment securities of $17.4 million. During the first quarter of fiscal 2016, the Company sold $16.2 million of investment securities which were acquired in the merger with Eagle National Bancorp, Inc (“ENB”). The Company realized no gain or loss from the sale of these securities.
The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position (dollars in thousands):
|
|
December 31, 2016
|
|
|
|
Number of
Securities
|
|
|
Less than Twelve
Months
|
|
|
Twelve Months or
Greater
|
|
|
Total
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
Fannie Mae
|
|
|
63
|
|
|
$
|
81,136
|
|
|
$
|
(1,348
|
)
|
|
$
|
11,667
|
|
|
$
|
(399
|
)
|
|
$
|
92,803
|
|
|
$
|
(1,747
|
)
|
Freddie Mac
|
|
|
54
|
|
|
|
72,423
|
|
|
|
(1,076
|
)
|
|
|
7,015
|
|
|
|
(269
|
)
|
|
|
79,438
|
|
|
|
(1,345
|
)
|
Governmental National Mortgage Association
|
|
|
9
|
|
|
|
7,556
|
|
|
|
(199
|
)
|
|
|
2,598
|
|
|
|
(37
|
)
|
|
|
10,154
|
|
|
|
(236
|
)
|
Obligations of states and political subdivisions
|
|
|
37
|
|
|
|
42,064
|
|
|
|
(1,334
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
42,064
|
|
|
|
(1,334
|
)
|
Corporate obligations
|
|
|
21
|
|
|
|
17,497
|
|
|
|
(493
|
)
|
|
|
6,171
|
|
|
|
(346
|
)
|
|
|
23,668
|
|
|
|
(839
|
)
|
Other debt securities
|
|
|
19
|
|
|
|
13,883
|
|
|
|
(399
|
)
|
|
|
9,020
|
|
|
|
(177
|
)
|
|
|
22,903
|
|
|
|
(576
|
)
|
Total
|
|
|
203
|
|
|
$
|
234,559
|
|
|
$
|
(4,849
|
)
|
|
$
|
36,471
|
|
|
$
|
(1,228
|
)
|
|
$
|
271,030
|
|
|
$
|
(6,077
|
)
|
|
|
September 30, 2016
|
|
|
|
Number of
Securities
|
|
|
Less than Twelve
Months
|
|
|
Twelve Months or
Greater
|
|
|
Total
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
Fannie Mae
|
|
|
17
|
|
|
$
|
6,841
|
|
|
$
|
(21
|
)
|
|
$
|
12,261
|
|
|
$
|
(152
|
)
|
|
$
|
19,102
|
|
|
$
|
(173
|
)
|
Freddie Mac
|
|
|
11
|
|
|
|
7,457
|
|
|
|
(11
|
)
|
|
|
6,375
|
|
|
|
(74
|
)
|
|
|
13,832
|
|
|
|
(85
|
)
|
Governmental National Mortgage Association
|
|
|
5
|
|
|
|
4,704
|
|
|
|
(16
|
)
|
|
|
1,267
|
|
|
|
(12
|
)
|
|
|
5,971
|
|
|
|
(28
|
)
|
Obligations of states and political subdivisions
|
|
|
12
|
|
|
|
14,420
|
|
|
|
(65
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
14,420
|
|
|
|
(65
|
)
|
Corporate obligations
|
|
|
12
|
|
|
|
8,778
|
|
|
|
(172
|
)
|
|
|
5,303
|
|
|
|
(340
|
)
|
|
|
14,081
|
|
|
|
(512
|
)
|
Other debt securities
|
|
|
13
|
|
|
|
6,582
|
|
|
|
(126
|
)
|
|
|
6,914
|
|
|
|
(90
|
)
|
|
|
13,496
|
|
|
|
(216
|
)
|
Total
|
|
|
70
|
|
|
$
|
48,782
|
|
|
$
|
(411
|
)
|
|
$
|
32,120
|
|
|
$
|
(668
|
)
|
|
$
|
80,902
|
|
|
$
|
(1,079
|
)
|
The Company’s investment securities portfolio contains unrealized losses on securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government, or generally viewed as having the implied guarantee of the U.S. government, other mortgage backed securities, debt obligations of a U.S. state or political subdivision and corporate debt obligations.
The Company reviews its position quarterly and has asserted that at December 31, 2016, the declines outlined in the above table represent temporary declines and the Company would not be required to sell the above securities before their anticipated recovery in market value.
13
The Company has concluded that any impairment of its investment securities portfolio is not other than temporary but is the
result of interest rate changes that are not expected to result in the non-collection of principal and interest during the period.
6.
|
Loans Receivable, Net and Allowance for Loan Losses
|
Loans receivable consist of the following (in thousands):
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
597,888
|
|
|
$
|
596,645
|
|
Construction
|
|
|
3,057
|
|
|
|
1,733
|
|
Commercial
|
|
|
293,570
|
|
|
|
288,447
|
|
Commercial
|
|
|
33,867
|
|
|
|
39,978
|
|
Obligations of states and political subdivisions
|
|
|
61,374
|
|
|
|
56,923
|
|
Home equity loans and lines of credit
|
|
|
46,785
|
|
|
|
48,163
|
|
Auto Loans
|
|
|
193,523
|
|
|
|
193,078
|
|
Other
|
|
|
3,299
|
|
|
|
3,302
|
|
|
|
|
1,233,363
|
|
|
|
1,228,269
|
|
Less allowance for loan losses
|
|
|
9,342
|
|
|
|
9,056
|
|
Net loans
|
|
$
|
1,224,021
|
|
|
$
|
1,219,213
|
|
Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.
Upon acquisition, the Company evaluated whether each acquired loan (regardless of size) was within the scope of ASC 310-30,
Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality
. Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. The fair value of purchased credit-impaired loans, on the acquisition date of December 4, 2015, was determined, primarily based on the fair value of loan collateral. The carrying value of all purchased loans acquired with deteriorated credit quality was $5.5 million at December 31, 2016.
On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the ENB acquisition was $3.5 million and the estimated fair value of the loans was $2.0 million. Total contractually required payments on these loans, including interest, at the acquisition date was $4.2 million. However, the Company’s preliminary estimate of expected cash flows was $2.2 million. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from the customer nor liquidation of collateral) of $2.0 million relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $240,000 on the acquisition date relating to these impaired loans.
The carrying value of the loans acquired and accounted for in accordance with ASC 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality
, was determined by projecting discounted contractual cash flows. The table below presents the components of the purchase accounting adjustments related to the purchased impaired loans acquired in the ENB acquisition as of December 4, 2015 (in thousands):
Unpaid principal balance
|
|
$
|
3,468
|
|
Interest
|
|
|
717
|
|
Contractual cash flows
|
|
|
4,185
|
|
Non-accretable discount
|
|
|
(1,973
|
)
|
Expected cash flows
|
|
|
2,212
|
|
Accretable discount
|
|
|
(240
|
)
|
Estimated fair value
|
|
$
|
1,972
|
|
14
Changes in the accretable yield for purchased credit-impaired loans were as follows, since acquisition, for the periods ended December 31,
2016 and December 31, 2015 (in thousands):
|
|
Three Months Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
478
|
|
|
$
|
258
|
|
Reclassification, new additions and other
|
|
|
—
|
|
|
|
240
|
|
Accretion
|
|
|
(25
|
)
|
|
|
(50
|
)
|
Balance at end of period
|
|
$
|
453
|
|
|
$
|
448
|
|
The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands):
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
|
Acquired Loans with Specific
Evidence or Deterioration in
Credit Quality (ASC 310-30)
|
|
|
Acquired Loans with Specific
Evidence or Deterioration in
Credit Quality (ASC 310-30)
|
|
Outstanding balance
|
|
$
|
6,728
|
|
|
$
|
6,893
|
|
Carrying amount
|
|
$
|
5,452
|
|
|
$
|
5,563
|
|
The following tables show the amount of loans in each category that was individually and collectively evaluated for impairment at the dates indicated (in thousands):
|
|
Total Loans
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Loans Acquired
with Deteriorated
Credit Quality
|
|
|
Collectively
Evaluated for
Impairment
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
597,888
|
|
|
$
|
7,962
|
|
|
$
|
—
|
|
|
$
|
589,926
|
|
Construction
|
|
|
3,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,057
|
|
Commercial
|
|
|
293,570
|
|
|
|
11,223
|
|
|
|
4,504
|
|
|
|
277,843
|
|
Commercial
|
|
|
33,867
|
|
|
|
1,824
|
|
|
|
411
|
|
|
|
31,632
|
|
Obligations of states and political subdivisions
|
|
|
61,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,374
|
|
Home equity loans and lines of credit
|
|
|
46,785
|
|
|
|
208
|
|
|
|
537
|
|
|
|
46,040
|
|
Auto loans
|
|
|
193,523
|
|
|
|
569
|
|
|
|
—
|
|
|
|
192,954
|
|
Other
|
|
|
3,299
|
|
|
|
24
|
|
|
|
—
|
|
|
|
3,275
|
|
Total
|
|
$
|
1,233,363
|
|
|
$
|
21,810
|
|
|
$
|
5,452
|
|
|
$
|
1,206,101
|
|
|
|
Total Loans
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Loans Acquired
with Deteriorated
Credit Quality
|
|
|
Collectively
Evaluated for
Impairment
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
596,645
|
|
|
$
|
8,721
|
|
|
$
|
—
|
|
|
$
|
587,924
|
|
Construction
|
|
|
1,733
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,733
|
|
Commercial
|
|
|
288,447
|
|
|
|
11,237
|
|
|
|
4,615
|
|
|
|
272,595
|
|
Commercial
|
|
|
39,978
|
|
|
|
1,698
|
|
|
|
411
|
|
|
|
37,869
|
|
Obligations of states and political sub divisions
|
|
|
56,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,923
|
|
Home equity loans and lines of credit
|
|
|
48,163
|
|
|
|
361
|
|
|
|
537
|
|
|
|
47,265
|
|
Auto loans
|
|
|
193,078
|
|
|
|
526
|
|
|
|
—
|
|
|
|
192,552
|
|
Other
|
|
|
3,302
|
|
|
|
22
|
|
|
|
—
|
|
|
|
3,280
|
|
Total
|
|
$
|
1,228,269
|
|
|
$
|
22,565
|
|
|
$
|
5,563
|
|
|
$
|
1,200,141
|
|
The Company maintains a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan
15
agreement. All loan
s identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring.
A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company grants a concession to the borrower that it would not otherwise consider because of the borrower’s financial condition. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate at the time of modification may be removed from TDR status after one year of performance.
The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount at the dates indicated, if applicable (in thousands):
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,758
|
|
|
$
|
7,807
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
10,770
|
|
|
|
12,828
|
|
|
|
—
|
|
Commercial
|
|
|
1,767
|
|
|
|
1,808
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
202
|
|
|
|
274
|
|
|
|
—
|
|
Auto loans
|
|
|
52
|
|
|
|
147
|
|
|
|
—
|
|
Other
|
|
|
24
|
|
|
|
26
|
|
|
|
—
|
|
Total
|
|
|
18,573
|
|
|
|
22,890
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2,204
|
|
|
|
2,485
|
|
|
|
145
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
453
|
|
|
|
666
|
|
|
|
32
|
|
Commercial
|
|
|
57
|
|
|
|
67
|
|
|
|
1
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Auto loans
|
|
|
517
|
|
|
|
517
|
|
|
|
282
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
3,237
|
|
|
|
3,741
|
|
|
|
466
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
7,962
|
|
|
|
10,292
|
|
|
|
145
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
11,223
|
|
|
|
13,494
|
|
|
|
32
|
|
Commercial
|
|
|
1,824
|
|
|
|
1,875
|
|
|
|
1
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
208
|
|
|
|
280
|
|
|
|
6
|
|
Auto loans
|
|
|
569
|
|
|
|
664
|
|
|
|
282
|
|
Other
|
|
|
24
|
|
|
|
26
|
|
|
|
—
|
|
Total Impaired Loans
|
|
$
|
21,810
|
|
|
$
|
26,631
|
|
|
$
|
466
|
|
16
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Associated
Allowance
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,721
|
|
|
$
|
9,016
|
|
|
$
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
10,939
|
|
|
|
12,928
|
|
|
|
—
|
|
Commercial
|
|
|
1,698
|
|
|
|
1,725
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
361
|
|
|
|
432
|
|
|
|
—
|
|
Auto Loans
|
|
|
253
|
|
|
|
365
|
|
|
|
—
|
|
Other
|
|
|
22
|
|
|
|
22
|
|
|
|
—
|
|
Total
|
|
|
19,994
|
|
|
|
24,488
|
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2,000
|
|
|
|
2,151
|
|
|
|
198
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
298
|
|
|
|
303
|
|
|
|
36
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Auto Loans
|
|
|
273
|
|
|
|
273
|
|
|
|
113
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
2,571
|
|
|
|
2,727
|
|
|
|
347
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
8,721
|
|
|
|
11,167
|
|
|
|
198
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
11,237
|
|
|
|
13,231
|
|
|
|
36
|
|
Commercial
|
|
|
1,698
|
|
|
|
1,725
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
361
|
|
|
|
432
|
|
|
|
—
|
|
Auto Loans
|
|
|
526
|
|
|
|
638
|
|
|
|
113
|
|
Other
|
|
|
22
|
|
|
|
22
|
|
|
|
—
|
|
Total Impaired Loans
|
|
$
|
22,565
|
|
|
$
|
27,215
|
|
|
$
|
347
|
|
17
The following table represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
Recorded
Investment
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Interest
Income
Recognized
|
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
6,526
|
|
|
$
|
8,785
|
|
|
$
|
11
|
|
|
$
|
27
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
10,564
|
|
|
|
18,574
|
|
|
|
105
|
|
|
|
176
|
|
Commercial
|
|
|
1,693
|
|
|
|
820
|
|
|
|
33
|
|
|
|
15
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
317
|
|
|
|
962
|
|
|
|
—
|
|
|
|
2
|
|
Auto loans
|
|
|
135
|
|
|
|
282
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
19,243
|
|
|
|
29,423
|
|
|
|
150
|
|
|
|
221
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2,066
|
|
|
|
2,592
|
|
|
|
—
|
|
|
|
5
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
348
|
|
|
|
457
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
19
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
2
|
|
|
|
73
|
|
|
|
—
|
|
|
|
—
|
|
Auto loans
|
|
|
215
|
|
|
|
141
|
|
|
|
4
|
|
|
|
1
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
2,650
|
|
|
|
3,266
|
|
|
|
4
|
|
|
|
6
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
8,592
|
|
|
|
11,377
|
|
|
|
11
|
|
|
|
32
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
10,912
|
|
|
|
19,031
|
|
|
|
105
|
|
|
|
176
|
|
Commercial
|
|
|
1,712
|
|
|
|
823
|
|
|
|
33
|
|
|
|
15
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
319
|
|
|
|
1,035
|
|
|
|
—
|
|
|
|
2
|
|
Auto loans
|
|
|
350
|
|
|
|
423
|
|
|
|
5
|
|
|
|
2
|
|
Other
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total Impaired Loans
|
|
$
|
21,893
|
|
|
$
|
32,689
|
|
|
$
|
154
|
|
|
$
|
227
|
|
The Company uses a ten-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as Pass-rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are fundamentally sound yet exhibit potentially unacceptable credit risk or deteriorating trends or characteristics which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans more than 90 days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses inherent in loans classified as Substandard with the added characteristic that their weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in the Loss category are considered uncollectible and of little value that their continuance as bankable assets is not warranted. Certain residential real estate loans, construction loans, home equity loans and lines of credit, auto loans and other consumer loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing.
18
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has
a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to r
aise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating recommendation for the loans in their portfolios at origination and on an ongoing basis. The Bank’s Commercial Loan Offic
ers perform an annual review of all commercial relationships $750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank engages an external consultant to conduct loan reviews on at least a semi-a
nnual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or all criticized relationships. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly
basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful or Loss within the internal risk rating system at December 31, 2016 and September 30, 2016 (in thousands):
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
or Loss
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
$
|
267,727
|
|
|
$
|
7,525
|
|
|
$
|
18,318
|
|
|
$
|
—
|
|
|
$
|
293,570
|
|
Commercial
|
|
|
30,273
|
|
|
|
171
|
|
|
|
3,423
|
|
|
|
—
|
|
|
|
33,867
|
|
Obligations of states and political subdivisions
|
|
|
61,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,374
|
|
Total
|
|
$
|
359,374
|
|
|
$
|
7,696
|
|
|
$
|
21,741
|
|
|
$
|
—
|
|
|
$
|
388,811
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
or Loss
|
|
|
Total
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate loans
|
|
$
|
260,088
|
|
|
$
|
8,886
|
|
|
$
|
19,473
|
|
|
$
|
—
|
|
|
$
|
288,447
|
|
Commercial
|
|
|
36,684
|
|
|
|
180
|
|
|
|
3,114
|
|
|
|
—
|
|
|
|
39,978
|
|
Obligations of states and political subdivisions
|
|
|
56,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,923
|
|
Total
|
|
$
|
353,695
|
|
|
$
|
9,066
|
|
|
$
|
22,587
|
|
|
$
|
—
|
|
|
$
|
385,348
|
|
All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. The following tables present the risk ratings in the consumer categories of performing and non-performing loans at December 31, 2016 and September 30, 2015 (in thousands):
|
|
Performing
|
|
|
Non-performing
|
|
|
Purchased Credit Impaired
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
588,731
|
|
|
$
|
9,157
|
|
|
$
|
—
|
|
|
$
|
597,888
|
|
Construction
|
|
|
3,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,057
|
|
Home equity loans and lines of credit
|
|
|
45,686
|
|
|
|
562
|
|
|
|
537
|
|
|
|
46,785
|
|
Auto loans
|
|
|
193,147
|
|
|
|
376
|
|
|
|
—
|
|
|
|
193,523
|
|
Other
|
|
|
3,263
|
|
|
|
36
|
|
|
|
—
|
|
|
|
3,299
|
|
Total
|
|
$
|
833,884
|
|
|
$
|
10,131
|
|
|
$
|
537
|
|
|
$
|
844,552
|
|
19
|
|
Performing
|
|
|
Non-performing
|
|
|
Purchased Impaired Credit
|
|
|
Total
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
587,673
|
|
|
$
|
8,972
|
|
|
$
|
—
|
|
|
$
|
596,645
|
|
Construction
|
|
|
1,733
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,733
|
|
Home equity loans and lines of credit
|
|
|
47,213
|
|
|
|
413
|
|
|
|
537
|
|
|
|
48,163
|
|
Auto loans
|
|
|
192,734
|
|
|
|
344
|
|
|
|
—
|
|
|
|
193,078
|
|
Other
|
|
|
3,271
|
|
|
|
31
|
|
|
|
—
|
|
|
|
3,302
|
|
Total
|
|
$
|
832,624
|
|
|
$
|
9,760
|
|
|
$
|
537
|
|
|
$
|
842,921
|
|
The Company further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2016 and September 30, 2016 (in thousands):
|
|
Current
|
|
|
31-60 Days
Past Due
|
|
|
61-90 Days
Past Due
|
|
|
Greater than
90 Days Past
Due and still
accruing
|
|
|
Non-Accrual
|
|
|
Total Past
Due and
Non-
Accrual
|
|
|
Purchased Credit Impaired
|
|
|
Total
Loans
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
586,229
|
|
|
$
|
2,076
|
|
|
$
|
426
|
|
|
$
|
—
|
|
|
$
|
9,157
|
|
|
$
|
11,659
|
|
|
$
|
—
|
|
|
$
|
597,888
|
|
Construction
|
|
|
3,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,057
|
|
Commercial
|
|
|
284,669
|
|
|
|
167
|
|
|
|
135
|
|
|
|
—
|
|
|
|
4,095
|
|
|
|
4,397
|
|
|
|
4,504
|
|
|
|
293,570
|
|
Commercial
|
|
|
32,662
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
719
|
|
|
|
794
|
|
|
|
411
|
|
|
|
33,867
|
|
Obligations of states
and political
subdivisions
|
|
|
61,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,374
|
|
Home equity loans
and lines of credit
|
|
|
45,609
|
|
|
|
47
|
|
|
|
30
|
|
|
|
—
|
|
|
|
562
|
|
|
|
639
|
|
|
|
537
|
|
|
|
46,785
|
|
Auto loans
|
|
|
192,264
|
|
|
|
614
|
|
|
|
269
|
|
|
|
—
|
|
|
|
376
|
|
|
|
1,259
|
|
|
|
—
|
|
|
|
193,523
|
|
Other
|
|
|
3,214
|
|
|
|
49
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36
|
|
|
|
85
|
|
|
|
—
|
|
|
|
3,299
|
|
Total
|
|
$
|
1,209,078
|
|
|
$
|
3,028
|
|
|
$
|
860
|
|
|
$
|
—
|
|
|
$
|
14,945
|
|
|
$
|
18,833
|
|
|
$
|
5,452
|
|
|
$
|
1,233,363
|
|
|
|
Current
|
|
|
31-60 Days
Past Due
|
|
|
61-90 Days
Past Due
|
|
|
Greater than
90 Days Past
Due and still
accruing
|
|
|
Non-Accrual
|
|
|
Total Past
Due and
Non-
Accrual
|
|
|
Purchased Credit Impaired
|
|
|
Total
Loans
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
585,517
|
|
|
$
|
1,496
|
|
|
$
|
660
|
|
|
$
|
—
|
|
|
$
|
8,972
|
|
|
$
|
11,128
|
|
|
$
|
—
|
|
|
$
|
596,645
|
|
Construction
|
|
|
1,733
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,733
|
|
Commercial
|
|
|
279,019
|
|
|
|
1,093
|
|
|
|
191
|
|
|
|
—
|
|
|
|
3,529
|
|
|
|
4,813
|
|
|
|
4,615
|
|
|
|
288,447
|
|
Commercial
|
|
|
38,862
|
|
|
|
185
|
|
|
|
57
|
|
|
|
—
|
|
|
|
463
|
|
|
|
705
|
|
|
|
411
|
|
|
|
39,978
|
|
Obligations of states
and political
subdivisions
|
|
|
56,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,923
|
|
Home equity loans
and lines of credit
|
|
|
47,026
|
|
|
|
40
|
|
|
|
147
|
|
|
|
—
|
|
|
|
413
|
|
|
|
600
|
|
|
|
537
|
|
|
|
48,163
|
|
Auto loans
|
|
|
191,785
|
|
|
|
717
|
|
|
|
232
|
|
|
|
—
|
|
|
|
344
|
|
|
|
1,293
|
|
|
|
—
|
|
|
|
193,078
|
|
Other
|
|
|
3,264
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
38
|
|
|
|
—
|
|
|
|
3,302
|
|
Total
|
|
$
|
1,204,129
|
|
|
$
|
3,538
|
|
|
$
|
1,287
|
|
|
$
|
—
|
|
|
$
|
13,752
|
|
|
$
|
18,577
|
|
|
$
|
5,563
|
|
|
$
|
1,228,269
|
|
The allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. The allowance for loan
20
losses consists of two elements: (1) an allocated allowance, which comprises allowances established on specific loans and c
lass allowances based on historical loss experience and current trends, and (2) an allocated allowance based on general economic conditions and other risk factors in our markets and portfolios. We maintain a loan review system, which allows for a periodic
review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers
. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, management’s judgment and losses which are probable and reaso
nably estimable. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available
information to recognize probable and reasonably estimable loan losses, future loss provisions may be necessary, based on changing economic conditions. Payments received on impaired loans generally are either applied against principal or reported as inter
est income, according to management’s judgment as to the collectability of principal. The allowance for loan losses as of December 31, 2016 is maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio, and su
ch losses were both probable and reasonably estimable.
In addition, the FDIC and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, have periodically reviewed our allowance for loan losses. The banking regulators may require that we recognize additions to the allowance based on its analysis and review of information available to it at the time of its examination.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
The following tables summarize changes in the primary segments of the ALL for the three month period ending December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and
|
|
|
Loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
|
|
|
Political
|
|
|
Lines of
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
Loans
|
|
|
Subdivisions
|
|
|
Credit
|
|
|
Auto Loans
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
ALL balance at
September 30,
2016
|
|
$
|
4,426
|
|
|
$
|
13
|
|
|
$
|
852
|
|
|
$
|
882
|
|
|
$
|
215
|
|
|
$
|
455
|
|
|
$
|
1,880
|
|
|
$
|
25
|
|
|
$
|
308
|
|
|
$
|
9,056
|
|
Charge-offs
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
(91
|
)
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(517
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(707
|
)
|
Recoveries
|
|
|
2
|
|
|
|
—
|
|
|
|
10
|
|
|
|
0
|
|
|
|
—
|
|
|
|
1
|
|
|
|
228
|
|
|
|
2
|
|
|
|
—
|
|
|
|
243
|
|
Provision
|
|
|
98
|
|
|
|
10
|
|
|
|
24
|
|
|
|
102
|
|
|
|
19
|
|
|
|
(15
|
)
|
|
|
471
|
|
|
|
2
|
|
|
|
39
|
|
|
|
750
|
|
ALL balance at
December 31,
2016
|
|
$
|
4,450
|
|
|
$
|
23
|
|
|
$
|
795
|
|
|
$
|
965
|
|
|
$
|
234
|
|
|
$
|
441
|
|
|
$
|
2,062
|
|
|
$
|
25
|
|
|
$
|
347
|
|
|
$
|
9,342
|
|
ALL balance at
September 30,
2015
|
|
$
|
5,140
|
|
|
$
|
7
|
|
|
$
|
671
|
|
|
$
|
693
|
|
|
$
|
189
|
|
|
$
|
461
|
|
|
$
|
1,570
|
|
|
$
|
27
|
|
|
$
|
161
|
|
|
$
|
8,919
|
|
Charge-offs
|
|
|
(91
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
(188
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(307
|
)
|
Recoveries
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
37
|
|
|
|
3
|
|
|
|
—
|
|
|
|
45
|
|
Provision
|
|
|
(305
|
)
|
|
|
7
|
|
|
|
187
|
|
|
|
14
|
|
|
|
(2
|
)
|
|
|
(48
|
)
|
|
|
335
|
|
|
|
(3
|
)
|
|
|
415
|
|
|
|
600
|
|
ALL balance at
December 31,
2015
|
|
$
|
4,747
|
|
|
$
|
14
|
|
|
$
|
858
|
|
|
$
|
705
|
|
|
$
|
187
|
|
|
$
|
389
|
|
|
$
|
1,754
|
|
|
$
|
27
|
|
|
$
|
576
|
|
|
$
|
9,257
|
|
Acquired loans are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.
21
The following table summarizes the primary se
gments of the ALL, segregated into two categories, the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2016 and September 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and
|
|
|
Loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Loans
|
|
|
Commercial
|
|
|
Political
|
|
|
Lines of
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
Loans
|
|
|
Subdivisions
|
|
|
Credit
|
|
|
Auto Loans
|
|
|
Loans
|
|
|
Unallocated
|
|
|
Total
|
|
Individually
evaluated for
impairment
|
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
282
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
466
|
|
Collectively
evaluated for
impairment
|
|
|
4,305
|
|
|
|
23
|
|
|
|
763
|
|
|
|
964
|
|
|
|
234
|
|
|
|
435
|
|
|
|
1,780
|
|
|
|
25
|
|
|
|
347
|
|
|
|
8,876
|
|
ALL Balance at
December 31,
2016
|
|
$
|
4,450
|
|
|
$
|
23
|
|
|
$
|
795
|
|
|
$
|
965
|
|
|
$
|
234
|
|
|
$
|
441
|
|
|
$
|
2,062
|
|
|
$
|
25
|
|
|
$
|
347
|
|
|
$
|
9,342
|
|
Individually
evaluated for
impairment
|
|
$
|
198
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
347
|
|
Collectively
evaluated for
impairment
|
|
|
4,228
|
|
|
|
13
|
|
|
|
816
|
|
|
|
882
|
|
|
|
215
|
|
|
|
455
|
|
|
|
1,767
|
|
|
|
25
|
|
|
|
308
|
|
|
|
8,709
|
|
ALL balance at
September 30,
2016
|
|
$
|
4,426
|
|
|
$
|
13
|
|
|
$
|
852
|
|
|
$
|
882
|
|
|
$
|
215
|
|
|
$
|
455
|
|
|
$
|
1,880
|
|
|
$
|
25
|
|
|
$
|
308
|
|
|
$
|
9,056
|
|
The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. The Company allocated increased provisions to residential real estate, construction loan, commercial loans, and obligations of states and political subdivisions for the three month period ending December 31, 2016 due to increased balances and impairment evaluations in those segments. The Company allocated decreased provisions to commercial real estate loans for the three month period ending December 31, 2016 due to declining loss experience. The Company allocated decreased provisions to home equity loans and lines of credit for the three month period ending December 31, 2016 due primarily to decreased loan balances. The Company allocated increased provisions in auto loans due to increased loan balances, increased classified assets and increased charge off activity. Despite the above allocations, the allowance for loan losses is general in nature and is available to absorb losses from any loan segment.
The following is a summary of troubled debt restructuring granted during the three months ended December 31, 2016 and 2015 (dollars in thousands):
|
|
For the Three Months Ended December 31, 2016
|
|
|
|
Number of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
2
|
|
|
$
|
259
|
|
|
$
|
259
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Auto loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
2
|
|
|
$
|
259
|
|
|
$
|
259
|
|
22
|
|
For the Three Months Ended December 31, 2015
|
|
|
|
Number of
Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
$
|
81
|
|
|
$
|
81
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity loans and lines of credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Auto loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
1
|
|
|
$
|
81
|
|
|
$
|
81
|
|
The two new troubled debt restructurings granted for the three months ended December 31, 2016, totaled $259,000 and were granted term and rate concessions.
The one new troubled debt restructurings granted for the three months ended December 31, 2015, totaled $81,000, and was granted terms and rate concessions.
For the three months ended December 31, 2016, one loan totaling $107,000 defaulted on a restructuring agreement within one year of modification.
For the three months ended December 31, 2015, no loans defaulted on a restructuring agreement within one year of modification.
Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in the Consolidated Balance Sheet. As of December 31, 2016 and September 30, 2016, included with other assets are $2.4 million and $2.7 million, of foreclosed assets, respectively. As of December 31, 2016, included within the foreclosed assets is $1.9 million of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of December 31, 2016, the Company has initiated formal foreclosure proceedings on $2.7 million of consumer residential mortgages which have not yet been transferred into foreclosed assets.
Deposits consist of the following major classifications (in thousands):
|
|
December 31,
2016
|
|
|
September 30,
2016
|
|
Non-interest bearing demand accounts
|
|
$
|
144,660
|
|
|
$
|
142,924
|
|
Interest bearing demand accounts
|
|
|
163,320
|
|
|
|
167,259
|
|
Money market accounts
|
|
|
255,763
|
|
|
|
249,947
|
|
Savings and club accounts
|
|
|
144,459
|
|
|
|
142,021
|
|
Certificates of deposit
|
|
|
484,739
|
|
|
|
512,669
|
|
Total
|
|
$
|
1,192,941
|
|
|
$
|
1,214,820
|
|
8
.
|
Net Periodic Benefit Cost-Defined Benefit Plan
|
For a detailed disclosure on the Bank’s pension and employee benefits plans, please refer to Note 12 of the Company’s Consolidated Financial Statements for the year ended September 30, 2016 included in the Company’s Annual Report on Form 10-K.
23
The following table comprises the components of net periodic benefit cost for the periods ended (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Service Cost
|
|
$
|
309
|
|
|
$
|
249
|
|
Interest Cost
|
|
|
235
|
|
|
|
245
|
|
Expected return on plan assets
|
|
|
(341
|
)
|
|
|
(311
|
)
|
Amortization of unrecognized loss
|
|
|
136
|
|
|
|
120
|
|
Net periodic benefit cost
|
|
$
|
339
|
|
|
$
|
303
|
|
Subsequent to December 31, 2016, the Company’s board of directors adopted resolutions to freeze the status of the Defined Benefit Plan (“the plan”) effective February 28, 2017. (“the freeze date”). Accordingly, no additional participants will enter the plan after February 28, 2017; no additional years of credited service for benefit accrual purposes will be earned after the freeze date under the plan; and compensation earned by participants after the freeze date will not be taken into account under the plan.
For purposes of determining the projected benefit obligation, accumulated other comprehensive income is expected to increase related to the expected reduction of the projected benefit obligation of the plan. The company will recognize the appropriate effect of the reduced benefit obligation in accumulated other comprehensive income net of tax during the second quarter of fiscal 2017.
9
.
|
Equity Incentive Plan
|
The Company maintained the ESSA Bancorp, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan provided for a total of 2,377,326 shares of common stock for issuance upon the grant or exercise of awards. Of the shares available under the Plan, 1,698,090 may be issued in connection with the exercise of stock options and 679,236 may be issued as restricted stock. The Plan allowed for the granting of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), and restricted stock. Options are granted at no less than the fair value of the Company’s common stock on the date of the grant.
The Company replaced the 2007 Equity Incentive Plan with the ESSA Bancorp, Inc. 2016 Equity Incentive Plan (the “2016 Plan”) which was approved by shareholders on March 3, 2016. The 2016 Plan provides for a total of 250,000 shares of common stock for issuance upon the grant or exercise of awards. The 2016 Plan allows for the granting of restricted stock, restricted stock units, incentive stock options and non-qualified stock options.
Certain officers, employees and outside directors were granted in aggregate 1,140,469 NSOs; 317,910 ISOs; and 590,320 shares of restricted stock on May 23, 2008. Certain officers were granted in aggregate 30,000 shares of restricted stock on April 1, 2013, 19,880 shares of restricted stock on July 22, 2014, 21,843 shares of restricted stock on May 20, 2015, 23,491 shares of restricted stock on March 4, 2016 and 20,675 shares of restricted stock on December 13, 2016. In accordance with generally accepted accounting principles, the Company expenses the fair value of all share-based compensation grants over the requisite service periods.
The Company classifies share-based compensation for employees and outside directors within “Compensation and employee benefits” in the Consolidated Statement of Income to correspond with the same line item as compensation paid.
Stock options vest over a five-year service period and expire ten years after the grant date. The Company recognizes compensation expense for the fair values of these awards, which vest on a straight-line basis over the requisite service period of the awards.
The 2013 restricted stock shares vested over an 18 month service period. The 2014 restricted shares vest over a 39 month service period. The 2015 restricted shares vest over a 40 month service period. The March 4, 2016 restricted shares vest over a 43 month service period. The December 13, 2016 restricted shares vest over a 46 month service period. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.
For the three months ended December 31, 2016 and 2015, the Company recorded $66,000 and $39,000 of share-based compensation expense, respectively, comprised of restricted stock expense. Expected future compensation expense relating to the 4,677 (2014 shares) restricted shares, at December 31, 2016 is $48,000 over the remaining vesting period of 0.75 years. Expected future compensation expense relating to the 10,437 restricted shares (2015 shares) at December 31, 2016 is $143,000 over the remaining vesting period of 1.75 years. Expected future compensation expense relating to the 16,782 restricted shares (2016 shares) at
24
December 31, 2016 is $234,000 over the remaining vesting period of 2.75 years. Expected future compensation expense relating to the 20,675 restricted shares (12/13/16 shares) at December 31, 2016 is $335,000 over the remaining vesting perio
d of 3.75 years.
The following is a summary of the Company’s stock option activity and related information for its option grants for the three month period ended December 31, 2016.
|
|
Number of
Stock Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (in
years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding, September 30, 2016
|
|
|
905,987
|
|
|
$
|
12.35
|
|
|
|
1.67
|
|
|
$
|
1,341
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
262,092
|
|
|
|
12.35
|
|
|
|
1.42
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding, December 31, 2016
|
|
|
643,895
|
|
|
$
|
12.35
|
|
|
|
1.42
|
|
|
$
|
2,170
|
|
Exercisable at December 31, 2016
|
|
|
643,895
|
|
|
$
|
12.35
|
|
|
|
1.42
|
|
|
$
|
2,170
|
|
The following is a summary of the status of the Company’s restricted stock as of December 31, 2016, and changes therein during the three month period then ended:
|
|
Number of
Restricted
Stock
|
|
|
Weighted-
average
Grant Date
Fair Value
|
|
Nonvested at September 30, 2016
|
|
|
31,896
|
|
|
$
|
13.01
|
|
Granted
|
|
|
20,675
|
|
|
|
16.57
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Nonvested at December 31, 2016
|
|
|
52,571
|
|
|
$
|
14.41
|
|
10.
|
Fair Value Measurement
|
The following disclosures show the hierarchal disclosure framework associated within the level of pricing observations utilized in measuring assets and liabilities at fair value. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.
25
The following table presents information about the Company’s securities, derivatives, other real estate owned, impaired loans and mortgage servicing rights mea
sured at fair value as of December 31, 2016 and September 30, 2016 and indicates the fair value hierarchy of the valuation techniques utilized by the Bank to determine such fair value:
|
|
Fair Value Measurement at December 31, 2016
|
|
|
|
|
|
Fair Value Measurements Utilized for the Company’s
Financial Assets (in thousands):
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Balances as of
December 31, 2016
|
|
Securities available-for-sale measured on a recurring
basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
—
|
|
|
$
|
223,763
|
|
|
$
|
—
|
|
|
$
|
223,763
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
70,521
|
|
|
|
—
|
|
|
|
70,521
|
|
U.S. government agencies
|
|
|
—
|
|
|
|
25,800
|
|
|
|
—
|
|
|
|
25,800
|
|
Corporate obligations
|
|
|
—
|
|
|
|
30,550
|
|
|
|
8,238
|
|
|
|
38,788
|
|
Other debt securities
|
|
|
—
|
|
|
|
33,216
|
|
|
|
—
|
|
|
|
33,216
|
|
Equity securities-financial services
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
Total debt and equity securities
|
|
$
|
25
|
|
|
$
|
383,850
|
|
|
$
|
8,238
|
|
|
$
|
392,113
|
|
Derivatives
|
|
$
|
—
|
|
|
$
|
1,362
|
|
|
$
|
—
|
|
|
$
|
1,362
|
|
Assets measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,436
|
|
|
$
|
2,436
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,344
|
|
|
$
|
21,344
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
358
|
|
|
$
|
358
|
|
|
|
Fair Value Measurement at September 30, 2016
|
|
|
|
|
|
Fair Value Measurements Utilized for the Company’s
Financial Assets (in thousands):
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Balances as of
September 30, 2016
|
|
Securities available-for-sale measured on a recurring
basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
—
|
|
|
$
|
219,162
|
|
|
$
|
—
|
|
|
$
|
219,162
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
|
73,690
|
|
|
|
—
|
|
|
|
73,690
|
|
U.S. government agencies
|
|
|
—
|
|
|
|
25,941
|
|
|
|
—
|
|
|
|
25,941
|
|
Corporate obligations
|
|
|
—
|
|
|
|
31,433
|
|
|
|
6,985
|
|
|
|
38,418
|
|
Other debt securities
|
|
|
—
|
|
|
|
32,674
|
|
|
|
500
|
|
|
|
33,174
|
|
Equity securities-financial services
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
Total debt and equity securities
|
|
$
|
25
|
|
|
$
|
382,900
|
|
|
$
|
7,485
|
|
|
$
|
390,410
|
|
Derivatives
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
—
|
|
|
$
|
453
|
|
Assets measured at fair value on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,659
|
|
|
$
|
2,659
|
|
Impaired loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,218
|
|
|
$
|
22,218
|
|
Mortgage Servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
398
|
|
|
$
|
398
|
|
26
The following table presents a summary of changes in the fair value of the Company’s Level III investments for the three month periods ended December 31, 2016 and 2015 (in thousands).
|
|
Fair Value Measurement Using
Significant Unobservable Inputs
(Level III)
|
|
|
|
Three Months Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Beginning balance
|
|
$
|
7,485
|
|
|
$
|
4,211
|
|
Purchases, sales, issuances, settlements, net
|
|
|
756
|
|
|
|
3,000
|
|
Total unrealized gain (loss):
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
—
|
|
|
|
—
|
|
Included in other comprehensive income
|
|
|
(3
|
)
|
|
|
(75
|
)
|
Transfers in and/or out of Level III
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
8,238
|
|
|
$
|
7,136
|
|
Each financial asset and liability is identified as having been valued according to a specified level of input, 1, 2 or 3. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.
The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on a security’s relationship to other benchmark quoted securities. Most of the securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quoted market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Securities reported at fair value utilizing Level 1 inputs are limited to actively traded equity securities whose market price is readily available from the New York Stock Exchange or the NASDAQ exchange. A few securities are valued using Level 3 inputs, all of these are classified as available for sale and are reported at fair value using Level 3 inputs. Mortgage servicing rights are also valued by an independent pricing service. Foreclosed real estate is measured at fair value, less cost to sell at the date of foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Income and expenses from operations and changes in valuation allowance are included in the net expenses from foreclosed real estate. Impaired loans are reported at fair value utilizing level three inputs. For these loans, a review of the collateral is conducted and an appropriate allowance for loan losses is allocated to the loan. At December 31, 2016, 208 impaired loans with a carrying value of $21.8 million were reduced by specific valuation allowance totaling $466,000 resulting in a net fair value of $21.3 million based on Level 3 inputs. At September 30, 2016, 205 impaired loans with a carrying value of $22.6 million were reduced by a specific valuation totaling $347,000 resulting in a net fair value of $22.2 million based on Level 3 inputs.
27
The following table presents additional quantitative information about assets measured at
fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
21,344
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
0% to 50%
(24.0%)
|
Foreclosed real estate owned
|
|
|
2,436
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
20% to 46%
(22.7%)
|
Mortgage servicing rights
|
|
|
358
|
|
|
Discounted
cash flow
|
|
Discount
rate
|
|
11% to 16%
(11.6%)
|
|
|
|
|
|
|
|
|
Prepayment
speeds
|
|
7% to 34%
(16.2%)
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
|
Fair Value
Estimate
|
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range
|
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
22,218
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
0% to 60%
(23.0%)
|
Foreclosed real estate owned
|
|
|
2,659
|
|
|
Appraisal of
collateral (1)
|
|
Appraisal
adjustments (2)
|
|
20% to 46%
(22.1%)
|
Mortgage servicing rights
|
|
|
398
|
|
|
Discounted
cash flow
|
|
Discount
rate
|
|
12% to 16%
(12.0%)
|
|
|
|
|
|
|
|
|
Prepayment
speeds
|
|
2% to 33%
(17.2%)
|
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
|
28
The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below.
Disclosures about Fair Value of Financial Instruments
The fair values presented represent the Company’s best estimate of fair value using the methodologies discussed below (in thousands).
|
|
December 31, 2016
|
|
|
|
Carrying
Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,851
|
|
|
$
|
39,851
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,851
|
|
Certificates of deposit
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,012
|
|
|
|
1,012
|
|
Investment and mortgage backed securities
available for sale
|
|
|
392,113
|
|
|
|
25
|
|
|
|
384,350
|
|
|
|
7,738
|
|
|
|
392,113
|
|
Loans receivable, net
|
|
|
1,224,021
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,220,648
|
|
|
|
1,220,648
|
|
Accrued interest receivable
|
|
|
5,950
|
|
|
|
5,950
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,950
|
|
Regulatory stock
|
|
|
16,680
|
|
|
|
16,680
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,680
|
|
Mortgage servicing rights
|
|
|
358
|
|
|
|
—
|
|
|
|
—
|
|
|
|
358
|
|
|
|
358
|
|
Derivatives
|
|
|
1,362
|
|
|
|
—
|
|
|
|
1,362
|
|
|
|
|
|
|
|
1,362
|
|
Bank owned life insurance
|
|
|
36,856
|
|
|
|
36,856
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,856
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,192,941
|
|
|
$
|
708,202
|
|
|
$
|
—
|
|
|
$
|
485,989
|
|
|
$
|
1,194,191
|
|
Short-term borrowings
|
|
|
174,918
|
|
|
|
174,918
|
|
|
|
—
|
|
|
|
—
|
|
|
|
174,918
|
|
Other borrowings
|
|
|
215,571
|
|
|
|
—
|
|
|
|
—
|
|
|
|
215,726
|
|
|
|
215,726
|
|
Advances by borrowers for taxes and insurance
|
|
|
7,719
|
|
|
|
7,719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,719
|
|
Accrued interest payable
|
|
|
1,029
|
|
|
|
1,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,029
|
|
|
|
September 30, 2016
|
|
|
|
Carrying
Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,658
|
|
|
$
|
43,658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,658
|
|
Certificates of deposit
|
|
|
1,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,269
|
|
|
|
1,269
|
|
Investment and mortgage backed securities
available for sale
|
|
|
390,410
|
|
|
|
25
|
|
|
|
382,900
|
|
|
|
7,485
|
|
|
|
390,410
|
|
Loans receivable, net
|
|
|
1,219,213
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,237,759
|
|
|
|
1,237,759
|
|
Accrued interest receivable
|
|
|
5,769
|
|
|
|
5,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,769
|
|
Regulatory stock
|
|
|
15,463
|
|
|
|
15,463
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,463
|
|
Mortgage servicing rights
|
|
|
398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
398
|
|
|
|
398
|
|
Derivatives
|
|
|
453
|
|
|
|
—
|
|
|
|
453
|
|
|
|
—
|
|
|
|
453
|
|
Bank owned life insurance
|
|
|
36,593
|
|
|
|
36,593
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,593
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,214,820
|
|
|
$
|
702,151
|
|
|
$
|
—
|
|
|
$
|
516,743
|
|
|
$
|
1,218,894
|
|
Short-term borrowings
|
|
|
129,460
|
|
|
|
129,460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
129,460
|
|
Other borrowings
|
|
|
230,601
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231,911
|
|
|
|
231,911
|
|
Advances by borrowers for taxes and insurance
|
|
|
4,956
|
|
|
|
4,956
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,956
|
|
Accrued interest payable
|
|
|
1,046
|
|
|
|
1,046
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,046
|
|
Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the fair value would be calculated based upon the market price per trading unit of the instrument.
29
If no readily available market exists, the fair value for fina
ncial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation mode
ling.
As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the values are based may have a significant impact on the resulting estimated values.
As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Bank, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.
The Company employed simulation modeling in determining the fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:
Cash and Cash Equivalents, Accrued Interest Receivable, Short-Term Borrowings, Advances by Borrowers for Taxes and Insurance, and Accrued Interest Payable
The fair value approximates the current book value.
Bank-Owned Life Insurance
The fair value is equal to the cash surrender value of the Bank-owned life insurance.
Investment and Mortgage-Backed Securities Available for Sale and Regulatory Stock
The fair value of investment and mortgage-backed securities available for sale is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. Since the Regulatory stock is not actively traded on a secondary market and held exclusively by member financial institutions, the fair market value approximates the carrying amount. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) are used to support fair values of certain Level 3 investments, if applicable.
Loans Receivable
The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Mortgage Servicing Rights
The Company utilizes a third party provider to estimate the fair value of certain loan servicing rights. Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation.
Derivatives
Fair values of interest rate cap and interest rate swap contracts are based on dealer quotes.
Deposits (including Certificates of Deposit)
The fair values disclosed for demand, savings, and money market deposit accounts are valued at the amount payable on demand as of quarter-end. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits of similar remaining maturities.
30
Other Borrowings
Fair values for other borrowings are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for other borrowings of similar remaining maturities.
Commitments to Extend Credit
These financial instruments are generally not subject to sale, and fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.
11.
|
Accumulated Other Comprehensive Loss
|
The activity in accumulated other comprehensive loss for the three months ended December 31, 2016 and 2015 is as follows (in thousands):
|
|
Accumulated Other
Comprehensive Loss
|
|
|
|
Defined Benefit
Pension Plan
|
|
|
Unrealized
Gains
(Losses) on
Securities
Available for Sale
|
|
|
Derivatives
|
|
|
Total
|
|
Balance at September 30, 2016
|
|
$
|
(6,083
|
)
|
|
$
|
3,952
|
|
|
$
|
299
|
|
|
$
|
(1,832
|
)
|
Other comprehensive income (loss) before
reclassifications
|
|
|
—
|
|
|
|
(6,753
|
)
|
|
|
593
|
|
|
|
(6,160
|
)
|
Amounts reclassified from accumulated
other comprehensive loss, net of tax
|
|
|
90
|
|
|
|
—
|
|
|
|
7
|
|
|
|
97
|
|
Period change
|
|
|
90
|
|
|
|
(6,753
|
)
|
|
|
600
|
|
|
|
(6,063
|
)
|
Balance at December 31, 2016
|
|
$
|
(5,993
|
)
|
|
$
|
(2,801
|
)
|
|
$
|
899
|
|
|
$
|
(7,895
|
)
|
Balance at September 30, 2015
|
|
$
|
(5,325
|
)
|
|
$
|
2,930
|
|
|
$
|
—
|
|
|
$
|
(2,395
|
)
|
Other comprehensive loss before reclassifications
|
|
|
—
|
|
|
|
(2,244
|
)
|
|
|
—
|
|
|
|
(2,244
|
)
|
Amounts reclassified from accumulated
other comprehensive loss, net of tax
|
|
|
79
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
77
|
|
Period change
|
|
|
79
|
|
|
|
(2,246
|
)
|
|
|
—
|
|
|
|
(2,167
|
)
|
Balance at December 31, 2015
|
|
$
|
(5,246
|
)
|
|
$
|
684
|
|
|
$
|
—
|
|
|
$
|
(4,562
|
)
|
31
The following table presents significant amounts reclassified out of each component of accumulated other comprehensive loss for the three ended December 31, 2016
and 2015:
|
|
Amount Reclassified from
Accumulated Other Comprehensive Loss
|
|
|
Accumulated Other
Comprehensive Loss for
the Three Months Ended
December 31,
|
|
|
Affected Line Item in the
Consolidated Statement of Income
|
|
|
2016
|
|
|
2015
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
Securities gains reclassified into earnings
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Gain on sale of investments
|
Related income tax expense
|
|
|
—
|
|
|
|
(1
|
)
|
|
Income taxes
|
Net effect on accumulated other comprehensive loss for the
period
|
|
|
—
|
|
|
|
2
|
|
|
|
Defined benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
|
(136
|
)
|
|
|
(120
|
)
|
|
Compensation and employee
benefits
|
Related income tax expense
|
|
|
46
|
|
|
|
41
|
|
|
Income taxes
|
Net effect on accumulated other comprehensive loss for the
period
|
|
|
(90
|
)
|
|
|
(79
|
)
|
|
|
Derivatives and hedging activities:
|
|
|
|
|
|
|
|
|
|
|
Interest expense, effective portion
|
|
|
(11
|
)
|
|
|
—
|
|
|
Interest expense
|
Related income tax expense
|
|
|
4
|
|
|
|
—
|
|
|
Income taxes
|
Net effect on accumulated other comprehesive loss for the
period
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
Total reclassification for the period
|
|
$
|
(97
|
)
|
|
$
|
(77
|
)
|
|
|
12.
|
Derivatives and Hedging Activities
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings.
Fair Values of Derivative Instruments on the Consolidated Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheet as of December 31, 2016 and September 30, 2016, (in thousands).
|
|
Fair Values of Derivative Instruments
|
|
|
|
Asset Derivatives
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
As of September 30, 2016
|
|
|
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Products
|
|
Other Assets
|
|
$
|
1,362
|
|
|
Other Assets
|
|
$
|
453
|
|
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of
32
variable rate amounts from a counterparty in exchange for the Company making fixed pa
yments. As of December 31, 2016, the Company had three interest rate swaps with a notional of $50 million associated with the Company’s cash outflows associated with various FHLB advances.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the period ended December 31, 2016.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the three months ended December 31, 2016, the Company had $11,000 of reclassifications to interest expense. During the next twelve months, the Company estimates that $0 will be reclassified as a decrease in interest expense.
The table below presents the pre-tax net gains (losses) of the Company’s cash flow hedges for the period ended December 31, 2016 and 2015, respectively, and where they were recorded in the Consolidated Statement of Income, (in thousands).
Derivatives in Cash Flow
Hedging Relationships
|
|
Gain Recognized in
OCI on Derivative
(Effective Portion)
Three Months Ended
December 31,
|
|
|
Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
into Income
(Effective Portion)
|
|
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)
Three Months Ended
December 31,
|
|
|
Location of Gain
or (Loss)
Recognized in
Income on Derivative
(Ineffective Portion)
|
|
Gain or (Loss)
Recognized in
Income on Derivative
(Ineffective Portion)
Three Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
Interest Rate Products
|
|
$
|
1,052
|
|
|
$
|
—
|
|
|
Interest expense
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
Other non-interest income
|
|
$
|
—
|
|
|
$
|
—
|
|
Ending balance of OCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,052
|
|
|
$
|
—
|
|
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Credit-risk-related Contingent Features
The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequate capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
As of December 31, 2016 the Company had no derivatives in a net liability position and was not required to post collateral against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2016, it could have been required to settle its obligations under the agreements at the termination value.
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