NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1:
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated balance sheet of the Company as of June 30, 2017, has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the three- and nine- month period ended March 31, 2018, are not necessarily indicative of the results that may be expected for the entire fiscal year. For additional information, refer to the audited consolidated financial statements included in the Company's June 30, 2017, Form 10-K, which was filed with the SEC.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Southern Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
Note 2:
Organization and Summary of Significant Accounting Policies
Organization.
Southern Missouri Bancorp, Inc., a Missouri corporation (the Company) was organized in 1994 and is the parent company of Southern Bank (the Bank). Substantially all of the Company's consolidated revenues are derived from the operations of the Bank, and the Bank represents substantially all of the Company's consolidated assets and liabilities. SB Real Estate Investments, LLC is a wholly-owned subsidiary of the Bank formed to hold Southern Bank Real Estate Investments, LLC. Southern Bank Real Estate Investments, LLC is a REIT which is controlled by SB Real Estate Investments, LLC, but which has other preferred shareholders in order to meet the requirements to be a REIT. At March 31, 2018, assets of the REIT were approximately $439 million, and consisted primarily of loan participations acquired from the Bank.
The Bank is primarily engaged in providing a full range of banking and financial services to individuals and corporate customers in its market areas. The Bank and Company are subject to competition from other financial institutions. The Bank and Company are subject to regulation by certain federal and state agencies and undergo periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation.
The financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and general practices within the banking industry. In the normal course of business, the Company encounters two significant types of risk: economic and regulatory. Economic risk is comprised of interest rate risk, credit risk, and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities reprice on a different basis than its interest-earning assets. Credit risk is the risk of default on the Company's investment or loan portfolios resulting from the borrowers' inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of the investment portfolio, collateral underlying loans receivable, and the value of the Company's investments in real estate.
Principles of Consolidation.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, estimated fair values of purchased loans, other-than-temporary impairments (OTTI), and fair value of financial instruments.
Cash and Cash Equivalents.
For purposes of reporting cash flows, cash and cash equivalents includes cash, due from depository institutions and interest-bearing deposits in other depository institutions with original maturities of three months or less. Interest-bearing deposits in other depository institutions were $6.0 million and $6.7 million at March 31, 2018 and June 30, 2017, respectively. The deposits are held in various commercial banks in amounts not exceeding the FDIC's deposit insurance limits, as well as at the Federal Reserve and the Federal Home Loan Bank of Des Moines.
Interest-bearing Time Deposits.
Interest bearing deposits in banks mature within eight years and are carried at cost, less fair value discounts on acquired time deposits.
Available for Sale Securities.
Available for sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value. Unrealized gains and losses, net of tax, are reported in accumulated other comprehensive income (loss), a component of stockholders' equity. All securities have been classified as available for sale.
Premiums and discounts on debt securities are amortized or accreted as adjustments to income over the estimated life of the security using the level yield method. Realized gains or losses on the sale of securities is based on the specific identification method. The fair value of securities is based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
The Company does not invest in collateralized mortgage obligations that are considered high risk.
When the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. As a result of this guidance, the Company's consolidated balance sheet as of the dates presented reflects the full impairment (that is, the difference between the security's amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive loss. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.
Federal Home Loan Bank and Federal Reserve Bank Stock.
The Bank is a member of the Federal Home Loan Bank (FHLB) system, and the Federal Reserve Bank of St. Louis. Capital stock of the FHLB and the Federal Reserve is a required investment based upon a predetermined formula and is carried at cost.
Loans.
Loans are generally stated at unpaid principal balances, less the allowance for loan losses, unamortized discounts on acquired loans, and net deferred loan origination fees.
Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management's judgment, the collectability of interest or principal in the normal course of business is doubtful. The Company complies with regulatory guidance which indicates that loans should be placed in nonaccrual status when 90 days past due, unless the loan is both well-secured and in the process of collection. A loan that is "in the process of collection" may be subject to legal action or, in appropriate circumstances, through other collection efforts reasonably expected to result in repayment or restoration to current status in the near future. A loan is considered delinquent when a payment has not been made by the contractual due date. Interest income previously accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Cash receipts on a nonaccrual loan are applied to principal and interest in accordance with its contractual terms unless full payment of principal is not expected, in which case cash receipts, whether designated as principal or interest, are applied as a reduction of the carrying value of the loan. A nonaccrual loan is generally returned to accrual status when principal and interest payments are current, full collectability of principal and interest is reasonably assured, and a consistent record of performance has been demonstrated.
The allowance for losses on loans represents management's best estimate of losses probable in the existing loan portfolio. The allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged off, net of recoveries. Loans are charged off in the period deemed uncollectible, based on
management's analysis of expected cash flows (for non-collateral dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries of loans previously charged off, if any, are credited to the allowance when received. The provision for losses on loans is determined based on management's assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on specific borrowers and industry groups, historical loan loss experience, the level of classified and nonperforming loans and the results of regulatory examinations.
Loans are considered impaired if, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Depending on a particular loan's circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. Valuation allowances are established for collateral-dependent impaired loans for the difference between the loan amount and fair value of collateral less estimated selling costs. For impaired loans that are not collateral dependent, a valuation allowance is established for the difference between the loan amount and the present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan. Impairment losses are recognized through an increase in the required allowance for loan losses. Cash receipts on loans deemed impaired are recorded based on the loan's separate status as a nonaccrual loan or an accrual status loan.
Some loans are accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. For these loans ("purchased credit impaired loans"), the Company recorded a fair value discount and began carrying them at book value less their face amount (see Note 4). For these loans, we determined the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted contractual cash flows"), and estimated the amount and timing of undiscounted expected principal and interest payments, including expected prepayments (the "undiscounted expected cash flows"). Under acquired impaired loan accounting, the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference is an estimate of the loss exposure of principal and interest related to the purchased credit impaired loans, and the amount is subject to change over time based on the performance of the loans. The carrying value of purchased credit impaired loans is initially determined as the discounted expected cash flows. The excess of expected cash flows at acquisition over the initial fair value of the purchased credit impaired loans is referred to as the "accretable yield" and is recorded as interest income over the estimated life of the acquired loans using the level-yield method, if the timing and amount of the future cash flows is reasonably estimable. The carrying value of purchased credit impaired loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income. Subsequent to acquisition, the Company evaluates the purchased credit impaired loans on a quarterly basis. Increases in expected cash flows compared to those previously estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in expected cash flows compared to those previously estimated decrease the accretable yield and may result in the establishment of an allowance for loan losses and a provision for loan losses. Purchased credit impaired loans are generally considered accruing and performing loans, as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, purchased credit impaired loans that are contractually past due are still considered to be accruing and performing as long as there is an expectation that the estimated cash flows will be received. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method over the contractual life of the loans.
Foreclosed Real Estate.
Real estate acquired by foreclosure or by deed in lieu of foreclosure is initially recorded at fair value less estimated selling costs. Costs for development and improvement of the property are capitalized.
Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value, less estimated selling costs.
Loans to facilitate the sale of real estate acquired in foreclosure are discounted if made at less than market rates. Discounts are amortized over the fixed interest period of each loan using the interest method.
Premises and Equipment.
Premises and equipment are stated at cost less accumulated depreciation and include expenditures for major betterments and renewals. Maintenance, repairs, and minor renewals are expensed as incurred. When property is retired or sold, the retired asset and related accumulated depreciation are removed from
the accounts and the resulting gain or loss taken into income. The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment loss recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.
Depreciation is computed by use of straight-line and accelerated methods over the estimated useful lives of the assets. Estimated lives are generally seven to forty years for premises, three to seven years for equipment, and three years for software.
Bank Owned Life Insurance.
Bank owned life insurance policies are reflected in the consolidated balance sheets at the estimated cash surrender value. Changes in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income in the consolidated statements of income.
Goodwill.
The Company's goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.
Intangible Assets.
The Company's intangible assets at March 31, 2018 included gross core deposit intangibles of $10.6 million with $4.8 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and FHLB mortgage servicing rights of $1.4 million. At June 30, 2017, the Company's intangible assets included gross core deposit intangibles of $9.2 million with $3.8 million accumulated amortization, gross other identifiable intangibles of $3.8 million with accumulated amortization of $3.8 million, and FHLB mortgage servicing rights of $1.3 million. The Company's core deposit intangible assets are being amortized using the straight line method, over periods ranging from five to seven years, with amortization expense expected to be approximately $396,000 in the remainder of fiscal 2018, $1.3 million in fiscal 2019, $1.2 million in fiscal 2020, $716,000 in fiscal 2021, $674,000 in fiscal 2022, and $1.5 million thereafter.
Income Taxes.
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management's judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns with its subsidiaries.
Incentive Plan.
The Company accounts for its Equity Incentive Plan (EIP) and Omnibus Incentive Plan (OIP) in accordance with ASC 718, "Share-Based Payment." Compensation expense is based on the market price of the Company's stock on the date the shares are granted and is recorded over the vesting period. The difference between the aggregate purchase price and the fair value on the date the shares are considered earned represents a tax benefit to the Company that is recorded as an adjustment to income tax expense.
Outside Directors' Retirement.
The Bank has entered into a retirement agreement with most outside directors since April 1994. The directors' retirement agreements provide that non-employee directors shall receive, upon termination of service on the Board on or after age 60, other than termination for cause, a benefit in equal annual installments over a five year period. The benefit will be based upon the product of the participant's vesting percentage and the total Board fees paid to the participant during the calendar year preceding termination of service on the Board. The vesting percentage shall be determined based upon the participant's years of service on the Board, whether before or after the reorganization date.
In the event that the participant dies before collecting any or all of the benefits, the Bank shall pay the participant's beneficiary. No benefits shall be payable to anyone other than the beneficiary, and shall terminate on the death of the beneficiary.
Stock Options.
Compensation cost is measured based on the grant-date fair value of the equity instruments issued, and recognized over the vesting period during which an employee provides service in exchange for the award.
Earnings Per Share.
Basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding. Diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares (stock options and warrants) outstanding during each period.
Comprehensive Income.
Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, unrealized appreciation (depreciation) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income, and changes in the funded status of defined benefit pension plans.
Transfers Between Fair Value Hierarchy Levels.
Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date.
The following paragraphs summarize the impact of new accounting pronouncements:
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) are recorded. This standard is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-02 and, as a result, reclassified $65,497 from accumulated other comprehensive income to retained earnings as of December 31, 2017.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Subtopic 718): Scope of Modification Accounting. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, an entity should account for the effects of a modification unless all of the following are the same immediately before and after the change: (1) the fair value of the modified award, (2) the vesting conditions of the modified award, and (3) the classification of the modified award as either an equity or liability instrument. ASU 2017-09 is effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied prospectively to awards modified on or after the adoption date. Management does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash payments. The Update provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, with the objective of reducing the diversity in practice. The Update addresses eight specific cash flow issues. For public companies, the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and should be applied retrospectively. Management is evaluating the impact of the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The Update affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public companies, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is available beginning after December 15, 2018, including interim periods within those fiscal years. Adoption will be applied on a modified retrospective basis, through a cumulative-effect adjustment to retained earnings. Management is evaluating the impact, if any, this new guidance will have on the Company's consolidated financial statements, but cannot yet reasonably estimate the impact of adoption. The Company has formed a working group of key personnel responsible for the allowance for loan losses estimate and has initiated its evaluation of the data and systems requirements of adoption of the Update. The group has determined that purchasing third party software will be the most effective method to comply with the requirements, and has evaluated several outside vendors. The group expects to provide a recommendation of which software would work best for the Company before the end of this fiscal year, June 30, 2018.
In February 2016, the FASB issued ASU 2016-02, "Leases," to revise the accounting related to lease accounting. Under the new guidance, a lessee is required to record a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Adoption of the standard requires the use of a modified retrospective transition approach for all periods presented at the time of adoption. Management is evaluating the impact of the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities," to generally require equity investments be measured at fair value with changes in fair value recognized in net income, simplify the impairment assessment of equity investments without readily-determinable fair value, and change disclosure and presentation requirements regarding financial instruments and other comprehensive income, and clarify 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. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10). The amendments in ASU 2018-03 make technical corrections to certain aspects of ASU 2016-01 on recognition of financial assets and financial liabilities. For public entities, the guidance in ASU 2016-01 and amendments in ASU 2018-03 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is evaluating the new guidance, but does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). The guidance in ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify two aspects of Topic 606- performance obligations and the licensing implementation guidance. Neither of the two updates changed the core principle of the guidance in Topic 606. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), to provide narrow-scope improvements and practical expedients to ASU 2015-14. For public companies, the original Update was to be effective for interim and annual periods beginning after December 15, 2016. The current ASU states that the provisions of ASU 2014-09 should be applied to annual reporting periods, including interim periods, beginning after December 15, 2017. The Company does not expect the new standard to result in a material change to our accounting for revenue because the majority of our financial instruments are not within the scope of Topic 606, however, it may result in new disclosure requirements.
Note 3:
Securities
The amortized cost, gross unrealized gains, gross unrealized losses, and approximate fair value of securities available for sale consisted of the following:
|
|
March 31, 2018
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises (GSEs)
|
|
$
|
11,504
|
|
|
$
|
-
|
|
|
$
|
(120
|
)
|
|
$
|
11,384
|
|
State and political subdivisions
|
|
|
51,457
|
|
|
|
395
|
|
|
|
(555
|
)
|
|
|
51,297
|
|
Other securities
|
|
|
5,291
|
|
|
|
76
|
|
|
|
(235
|
)
|
|
|
5,132
|
|
Mortgage-backed: GSE residential
|
|
|
80,313
|
|
|
|
1
|
|
|
|
(2,000
|
)
|
|
|
78,314
|
|
Total investments and mortgage-backed securities
|
|
$
|
148,565
|
|
|
$
|
472
|
|
|
$
|
(2,910
|
)
|
|
$
|
146,127
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises (GSEs)
|
|
$
|
10,433
|
|
|
$
|
17
|
|
|
$
|
(12
|
)
|
|
$
|
10,438
|
|
State and political subdivisions
|
|
|
49,059
|
|
|
|
1,046
|
|
|
|
(127
|
)
|
|
|
49,978
|
|
Other securities
|
|
|
6,017
|
|
|
|
306
|
|
|
|
(598
|
)
|
|
|
5,725
|
|
Mortgage-backed GSE residential
|
|
|
78,088
|
|
|
|
490
|
|
|
|
(303
|
)
|
|
|
78,275
|
|
Total investments and mortgage-backed securities
|
|
$
|
143,597
|
|
|
$
|
1,859
|
|
|
$
|
(1,040
|
)
|
|
$
|
144,416
|
|
The amortized cost and estimated fair value of investment and mortgage-backed securities, 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 penalties.
|
|
March 31, 2018
|
|
|
|
Amortized
|
|
|
Estimated
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Fair Value
|
|
Within one year
|
|
$
|
4,762
|
|
|
$
|
4,759
|
|
After one year but less than five years
|
|
|
20,065
|
|
|
|
19,944
|
|
After five years but less than ten years
|
|
|
23,277
|
|
|
|
23,243
|
|
After ten years
|
|
|
20,148
|
|
|
|
19,867
|
|
Total investment securities
|
|
|
68,252
|
|
|
|
67,813
|
|
Mortgage-backed securities
|
|
|
80,313
|
|
|
|
78,314
|
|
Total investments and mortgage-backed securities
|
|
$
|
148,565
|
|
|
$
|
146,127
|
|
The carrying value of investment and mortgage-backed securities pledged as collateral to secure public deposits and securities sold under agreements to repurchase amounted to $116.1 million at March 31, 2018 and $114.1 million at June 30, 2017. The securities pledged consist of marketable securities, including $7.4 million and $6.5 million of U.S. Government and Federal Agency Obligations, $40.8 million and $50.5 million of Mortgage-Backed Securities, $28.3 million and $19.9 million of Collateralized Mortgage Obligations, $39.2 million and $36.8 million of State and Political Subdivisions Obligations, and $400,000 and $400,000 of Other Securities at March 31, 2018 and June 30, 2017, respectively.
Gains of $344,391 and $395,843 were recognized from sales of available-for-sale securities in the three- and nine- month periods ended March 31, 2018. Losses of $ 89,996 and $104,341 were recognized from sales of available-for-sale securities in the three- and nine- month periods ended March 31, 2018. There were no sales of available-for-sale securities in the three- and nine- month periods ended March 31, 2017.
The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018 and June 30, 2017:
|
|
March 31, 2018
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises (GSEs)
|
|
$
|
7,943
|
|
|
$
|
65
|
|
|
$
|
2,443
|
|
|
$
|
55
|
|
|
$
|
10,386
|
|
|
$
|
120
|
|
Obligations of state and political subdivisions
|
|
|
19,157
|
|
|
|
292
|
|
|
|
8,215
|
|
|
|
263
|
|
|
|
27,372
|
|
|
|
555
|
|
Other securities
|
|
|
985
|
|
|
|
7
|
|
|
|
1,069
|
|
|
|
228
|
|
|
|
2,054
|
|
|
|
235
|
|
Mortgage-backed securities
|
|
|
57,193
|
|
|
|
1,185
|
|
|
|
21,015
|
|
|
|
815
|
|
|
|
78,208
|
|
|
|
2,000
|
|
Total investments and mortgage-backed securities
|
|
$
|
85,278
|
|
|
$
|
1,549
|
|
|
$
|
32,742
|
|
|
$
|
1,361
|
|
|
$
|
118,020
|
|
|
$
|
2,910
|
|
|
|
June 30, 2017
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprises (GSEs)
|
|
$
|
6,457
|
|
|
$
|
12
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,457
|
|
|
$
|
12
|
|
Obligations of state and political subdivisions
|
|
|
12,341
|
|
|
|
127
|
|
|
|
256
|
|
|
|
-
|
|
|
|
12,597
|
|
|
|
127
|
|
Other securities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,160
|
|
|
|
598
|
|
|
|
1,160
|
|
|
|
598
|
|
Mortgage-backed securities
|
|
|
29,836
|
|
|
|
267
|
|
|
|
2,285
|
|
|
|
36
|
|
|
|
32,121
|
|
|
|
303
|
|
Total investments and mortgage-backed securities
|
|
$
|
48,634
|
|
|
$
|
406
|
|
|
$
|
3,701
|
|
|
$
|
634
|
|
|
$
|
52,335
|
|
|
$
|
1,040
|
|
Other securities.
At March 31, 2018, there were two pooled trust preferred securities with an estimated fair value of $750,000 and unrealized losses of $221,000 in a continuous unrealized loss position for twelve months or more. These unrealized losses were primarily due to the long-term nature of the pooled trust preferred securities and a reduced demand for these securities, and concerns regarding the financial institutions that issued the underlying trust preferred securities. Rules adopted by the federal banking agencies in December 2013 to implement Section 619 of the Dodd-Frank Act (the "Volcker Rule") generally prohibit banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. The pooled trust preferred securities owned by the Company were included in a January 2014 listing of securities which the agencies considered to be grandfathered with regard to these prohibitions; as such, banking entities are permitted to retain their interest in these securities, provided the interest was acquired on or before December 10, 2013, unless acquired pursuant to a merger or acquisition.
The March 31, 2018, cash flow analysis for these two securities indicated it is probable the Company will receive all contracted principal and related interest projected. The cash flow analysis used in making this determination was based on anticipated default, recovery, and prepayment rates, and the resulting cash flows were discounted based on the yield spread anticipated at the time the securities were purchased. Other inputs include the actual collateral attributes, which include credit ratings and other performance indicators of the underlying financial institutions, including profitability, capital ratios, and asset quality. Assumptions for these two securities included annualized prepayments of 1.4 to 1.6 percent; no recoveries on currently deferred issuers; new deferrals of 40 to 50 basis points annually; and eventual recoveries of nine percent of new deferrals.
One of these two securities has continued to receive cash interest payments in full since our purchase; the other security received principal-in-kind (PIK), in lieu of cash interest, for a period of time following the recession and financial crisis which began in 2008, but resumed cash interest payments during fiscal 2014. Our cash flow analysis indicates that cash interest payments are expected to continue for the securities. Because the Company does not intend to sell these securities and it is not more-likely-than-not that the Company will be required to sell these securities prior to recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2018.
The Company does not believe any other individual unrealized loss as of March 31, 2018, represents OTTI. However, the Company could be required to recognize OTTI losses in future periods with respect to its available for sale investment securities portfolio. The amount and timing of any additional OTTI will depend on the decline in the underlying cash flows of the securities. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in the period the other-than-temporary impairment is identified.
Credit losses recognized on investments.
As described above, one of the Company's investments in trust preferred securities experienced fair value deterioration due to credit losses, but is not otherwise other-than-temporarily impaired. During fiscal 2009, the Company adopted ASC 820, formerly FASB Staff Position 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." The following table provides information about the trust preferred security for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income (loss) for the nine-month periods ended March 31, 2018 and 2017.
|
|
Accumulated Credit Losses
|
|
|
|
Nine-Month Period Ended
|
|
(dollars in thousands)
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Credit losses on debt securities held
|
|
|
|
|
|
|
Beginning of period
|
|
$
|
340
|
|
|
$
|
352
|
|
Additions related to OTTI losses not previously recognized
|
|
|
-
|
|
|
|
-
|
|
Reductions due to sales
|
|
|
(333
|
)
|
|
|
-
|
|
Reductions due to change in intent or likelihood of sale
|
|
|
-
|
|
|
|
-
|
|
Additions related to increases in previously-recognized OTTI losses
|
|
|
-
|
|
|
|
-
|
|
Reductions due to increases in expected cash flows
|
|
|
(7
|
)
|
|
|
(9
|
)
|
End of period
|
|
$
|
-
|
|
|
$
|
343
|
|
Note 4:
Loans and Allowance for Loan Losses
Classes of loans are summarized as follows:
|
|
|
|
|
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
Real Estate Loans:
|
|
|
|
|
|
|
Residential
|
|
$
|
457,825
|
|
|
$
|
442,463
|
|
Construction
|
|
|
115,589
|
|
|
|
106,782
|
|
Commercial
|
|
|
693,606
|
|
|
|
603,922
|
|
Consumer loans
|
|
|
71,941
|
|
|
|
63,651
|
|
Commercial loans
|
|
|
255,317
|
|
|
|
247,184
|
|
|
|
|
1,594,278
|
|
|
|
1,464,002
|
|
Loans in process
|
|
|
(54,571
|
)
|
|
|
(50,740
|
)
|
Deferred loan fees, net
|
|
|
1
|
|
|
|
6
|
|
Allowance for loan losses
|
|
|
(17,263
|
)
|
|
|
(15,538
|
)
|
Total loans
|
|
$
|
1,522,445
|
|
|
$
|
1,397,730
|
|
The Company's lending activities consist of origination of loans secured by mortgages on one- to four-family residences and commercial and agricultural real estate, construction loans on residential and commercial properties, commercial and agricultural business loans and consumer loans. The Company has also occasionally purchased loan participation interests originated by other lenders and secured by properties generally located in the states of Missouri and Arkansas.
Residential Mortgage Lending.
The Company actively originates loans for the acquisition or refinance of one- to four-family residences. This category includes both fixed-rate and adjustable-rate mortgage ("ARM") loans amortizing over periods of up to 30 years, and the properties securing such loans may be owner-occupied or non-owner-occupied. Single-family residential loans do not generally exceed 90% of the lower of the appraised value or purchase price of the secured property. Substantially all of the one- to four-family residential mortgage originations in the Company's portfolio are located within the Company's primary lending area.
The Company also originates loans secured by multi-family residential properties that are often located outside the Company's primary lending area but made to borrowers who operate within the primary market area. The majority of the multi-family residential loans that are originated by the Bank are amortized over periods generally up to 25 years, with balloon maturities typically up to ten years. Both fixed and adjustable interest rates are offered and it is typical for the Company to include an interest rate "floor" and "ceiling" in the loan agreement. Generally, multi-family residential loans do not exceed 85% of the lower of the appraised value or purchase price of the secured property.
Commercial Real Estate Lending.
The Company actively originates loans secured by commercial real estate including land (improved, unimproved, and farmland), strip shopping centers, retail establishments and other businesses. These properties are typically owned and operated by borrowers headquartered within the Company's primary lending area, however, the property may be located outside our primary lending area.
Most commercial real estate loans originated by the Company are based on amortization schedules of up to 25 years with monthly principal and interest payments. Generally, the interest rate received on these loans is fixed for a maturity for up to seven years, with a balloon payment due at maturity. Alternatively, for some loans, the interest rate adjusts at least annually after an initial period up to seven years. The Company typically includes an interest rate "floor" in the loan agreement. Generally, improved commercial real estate loan amounts do not exceed 80% of the lower of the appraised value or the purchase price of the secured property. Agricultural real estate terms offered differ slightly, with amortization schedules of up to 25 years with an 80% loan-to-value ratio, or 30 years with a 75% loan-to-value ratio.
Construction Lending.
The Company originates real estate loans secured by property or land that is under construction or development. Construction loans originated by the Company are generally secured by mortgage loans for the construction of owner occupied residential real estate or to finance speculative construction secured by residential real estate, land development, or owner-operated or non-owner occupied commercial real estate. During construction, these loans typically require monthly interest-only payments and have maturities ranging from six to twelve months. Once construction is completed, loans may be converted to permanent status with monthly payments using amortization schedules of up to 30 years on residential and generally up to 25 years on commercial real estate.
While the Company typically utilizes maturity periods ranging from 6 to 12 months to closely monitor the inherent risks associated with construction loans for these loans, weather conditions, change orders, availability of materials and/or labor, and other factors may contribute to the lengthening of a project, thus necessitating the need to renew the construction loan at the balloon maturity. Such extensions are typically executed in incremental three month periods to facilitate project completion. The Company's average term of construction loans is approximately eight months. During construction, loans typically require monthly interest only payments which may allow the Company an opportunity to monitor for early signs of financial difficulty should the borrower fail to make a required monthly payment. Additionally, during the construction phase, the Company typically obtains interim inspections completed by an independent third party. This monitoring further allows the Company opportunity to assess risk. At March 31
,
2018 construction loans outstanding included 62 loans, totaling $12.4 million, for which a modification had been agreed to. At June 30, 2017, construction loans outstanding included 50 loans, totaling $10.3 million, for which a modification had been agreed to. All modifications were solely for the purpose of extending the maturity date due to conditions described above. None of these modifications were executed due to financial difficulty on the part of the borrower and, therefore, were not accounted for as TDRs.
Consumer Lending
. The Company offers a variety of secured consumer loans, including home equity, direct and indirect automobile loans, second mortgages, mobile home loans and loans secured by deposits. The Company originates substantially all of its consumer loans in its primary lending area. Usually, consumer loans are originated with fixed rates for terms of up to five years, with the exception of home equity lines of credit, which are variable, tied to the prime rate of interest and are for a period of ten years.
Home equity lines of credit (HELOCs) are secured with a deed of trust and are issued up to 100% of the appraised or assessed value of the property securing the line of credit, less the outstanding balance on the first mortgage and are typically issued for a term of ten years. Interest rates on the HELOCs are generally adjustable. Interest rates are based upon the loan-to-value ratio of the property with better rates given to borrowers with more equity.
Automobile loans originated by the Company include both direct loans and a smaller amount of loans originated by auto dealers. The Company generally pays a negotiated fee back to the dealer for indirect loans. Typically, automobile loans are made for terms of up to 60 months for new and used vehicles. Loans secured by automobiles have fixed rates and are generally made in amounts up to 100% of the purchase price of the vehicle.
Commercial Business Lending
. The Company's commercial business lending activities encompass loans with a variety of purposes and security, including loans to finance accounts receivable, inventory, equipment and operating lines of credit, including agricultural production and equipment loans. The Company offers both fixed and adjustable rate commercial business loans. Generally, commercial loans secured by fixed assets are amortized over periods up to five years, while commercial operating lines of credit or agricultural production lines are generally for a one year period.
The following tables present the balance in the allowance for loan losses and the recorded investment in loans (excluding loans in process and deferred loan fees) based on portfolio segment and impairment methods as of March 31, 2018 and June 30, 2017, and activity in the allowance for loan losses for the three- and nine-month periods ended March 31, 2018 and 2017:
|
|
At period end and for the nine months ended
March 31, 2018
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
3,230
|
|
|
$
|
964
|
|
|
$
|
7,068
|
|
|
$
|
757
|
|
|
$
|
3,519
|
|
|
$
|
15,538
|
|
Provision charged to expense
|
|
|
(110
|
)
|
|
|
(15
|
)
|
|
|
1,627
|
|
|
|
169
|
|
|
|
389
|
|
|
|
2,060
|
|
Losses charged off
|
|
|
(170
|
)
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
(118
|
)
|
|
|
(22
|
)
|
|
|
(351
|
)
|
Recoveries
|
|
|
2
|
|
|
|
-
|
|
|
|
1
|
|
|
|
6
|
|
|
|
7
|
|
|
|
16
|
|
Balance, end of period
|
|
$
|
2,952
|
|
|
$
|
949
|
|
|
$
|
8,655
|
|
|
$
|
814
|
|
|
$
|
3,893
|
|
|
$
|
17,263
|
|
Ending Balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
410
|
|
|
$
|
-
|
|
|
$
|
340
|
|
|
$
|
750
|
|
Ending Balance: collectively
evaluated for impairment
|
|
$
|
2,952
|
|
|
$
|
949
|
|
|
$
|
8,245
|
|
|
$
|
814
|
|
|
$
|
3,553
|
|
|
$
|
16,513
|
|
Ending Balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
699
|
|
|
$
|
-
|
|
|
$
|
580
|
|
|
$
|
1,279
|
|
Ending Balance: collectively
evaluated for impairment
|
|
$
|
454,614
|
|
|
$
|
59,715
|
|
|
$
|
685,282
|
|
|
$
|
71,941
|
|
|
$
|
252,271
|
|
|
$
|
1,523,823
|
|
Ending Balance: loans acquired
with deteriorated credit quality
|
|
$
|
3,211
|
|
|
$
|
1,303
|
|
|
$
|
7,625
|
|
|
$
|
-
|
|
|
$
|
2,466
|
|
|
$
|
14,605
|
|
|
|
For the three months ended
March 31, 2018
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
3,286
|
|
|
$
|
886
|
|
|
$
|
8,303
|
|
|
$
|
828
|
|
|
$
|
3,564
|
|
|
$
|
16,867
|
|
Provision charged to expense
|
|
|
(243
|
)
|
|
|
63
|
|
|
|
356
|
|
|
|
44
|
|
|
|
330
|
|
|
|
550
|
|
Losses charged off
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
(60
|
)
|
|
|
(1
|
)
|
|
|
(159
|
)
|
Recoveries
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
5
|
|
Balance, end of period
|
|
$
|
2,952
|
|
|
$
|
949
|
|
|
$
|
8,655
|
|
|
$
|
814
|
|
|
$
|
3,893
|
|
|
$
|
17,263
|
|
|
|
At period end and for the nine months ended
March 31, 2017
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
3,247
|
|
|
$
|
1,091
|
|
|
$
|
5,711
|
|
|
$
|
738
|
|
|
$
|
3,004
|
|
|
$
|
13,791
|
|
Provision charged to expense
|
|
|
246
|
|
|
|
(162
|
)
|
|
|
1,405
|
|
|
|
16
|
|
|
|
452
|
|
|
|
1,957
|
|
Losses charged off
|
|
|
(201
|
)
|
|
|
(31
|
)
|
|
|
(4
|
)
|
|
|
(50
|
)
|
|
|
(337
|
)
|
|
|
(623
|
)
|
Recoveries
|
|
|
7
|
|
|
|
1
|
|
|
|
18
|
|
|
|
9
|
|
|
|
30
|
|
|
|
65
|
|
Balance, end of period
|
|
$
|
3,299
|
|
|
$
|
899
|
|
|
$
|
7,130
|
|
|
$
|
713
|
|
|
$
|
3,149
|
|
|
$
|
15,190
|
|
Ending Balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Ending Balance: collectively
evaluated for impairment
|
|
$
|
3,299
|
|
|
$
|
899
|
|
|
$
|
7,130
|
|
|
$
|
713
|
|
|
$
|
3,149
|
|
|
$
|
15,190
|
|
Ending Balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
For the three months ended
March 31, 2017
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
3,472
|
|
|
$
|
891
|
|
|
$
|
6,851
|
|
|
$
|
756
|
|
|
$
|
3,022
|
|
|
$
|
14,992
|
|
Provision charged to expense
|
|
|
(70
|
)
|
|
|
8
|
|
|
|
280
|
|
|
|
(35
|
)
|
|
|
193
|
|
|
|
376
|
|
Losses charged off
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(11
|
)
|
|
|
(67
|
)
|
|
|
(186
|
)
|
Recoveries
|
|
|
1
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
|
|
8
|
|
Balance, end of period
|
|
$
|
3,299
|
|
|
$
|
899
|
|
|
$
|
7,130
|
|
|
$
|
713
|
|
|
$
|
3,149
|
|
|
$
|
15,190
|
|
|
|
At
June 30, 2017
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
3,230
|
|
|
$
|
964
|
|
|
$
|
7,068
|
|
|
$
|
757
|
|
|
$
|
3,519
|
|
|
$
|
15,538
|
|
Ending Balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Ending Balance: collectively
evaluated for impairment
|
|
$
|
3,230
|
|
|
$
|
964
|
|
|
$
|
7,068
|
|
|
$
|
757
|
|
|
$
|
3,519
|
|
|
$
|
15,538
|
|
Ending Balance: loans acquired
with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually
evaluated for impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Ending Balance: collectively
evaluated for impairment
|
|
$
|
438,981
|
|
|
$
|
54,704
|
|
|
$
|
592,427
|
|
|
$
|
63,651
|
|
|
$
|
243,369
|
|
|
$
|
1,393,132
|
|
Ending Balance: loans acquired
with deteriorated credit quality
|
|
$
|
3,482
|
|
|
$
|
1,338
|
|
|
$
|
11,495
|
|
|
$
|
-
|
|
|
$
|
3,815
|
|
|
$
|
20,130
|
|
Management's opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.
The allowance for loan losses is maintained at a level that, in management's judgment, is adequate to cover probable credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when an amount is determined to be uncollectible, based on management's analysis of expected cash flow (for non-collateral-dependent loans) or collateral value (for collateral-dependent loans). Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.
Under the Company's methodology, loans are first segmented into 1) those comprising large groups of smaller-balance homogeneous loans, including single-family mortgages and installment loans, which are collectively evaluated for impairment, and 2) all other loans which are individually evaluated. Those loans in the second category are further segmented utilizing a defined grading system which involves categorizing loans by severity of risk based on conditions that may affect the ability of the borrowers to repay their debt, such as current financial information, collateral valuations, historical payment experience, credit documentation, public information, and current trends.
The loans subject to credit classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provision and charge offs are most likely to have a significant impact on operations.
A periodic review of selected credits (based on loan size and type) is conducted to identify loans with heightened risk or probable losses and to assign risk grades. The primary responsibility for this review rests with loan administration personnel. This review is supplemented with periodic examinations of both selected credits and the credit review process by the Company's internal audit function and applicable regulatory agencies. The information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should be recognized.
The Company considers, as the primary quantitative factor in its allowance methodology, average net charge offs over the most recent twelve-month period. The Company also reviews average net charge offs over the most recent five-year period.
A loan is considered impaired when, based on current information and events, it is probable that the scheduled payments of principal or interest will not be able to be collected when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and agricultural loans by either 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.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group's historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, individual consumer and residential loans are not separately identified for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The general component covers non-impaired loans and is based on quantitative and qualitative factors. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss characteristics and an appropriate loss ratio adjusted for qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio.
Included in the Company's loan portfolio are certain loans accounted for in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans were written down at acquisition to an amount estimated to be collectible. As a result, certain ratios regarding the Company's loan portfolio and credit quality cannot be used to compare the Company to peer companies or to compare the Company's current credit quality to prior periods. The ratios particularly affected by accounting under ASC 310-30 include the allowance for loan losses as a percentage of loans, nonaccrual loans, and nonperforming assets, and nonaccrual loans and nonperforming loans as a percentage of total loans.
The following tables present the credit risk profile of the Company's loan portfolio (excluding loans in process and deferred loan fees) based on rating category and payment activity as of March 31, 2018 and June 30, 2017. These tables include purchased credit impaired loans, which are reported according to risk categorization after acquisition based on the Company's standards for such classification:
|
|
March 31, 2018
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
Pass
|
|
$
|
450,857
|
|
|
$
|
60,984
|
|
|
$
|
679,521
|
|
|
$
|
71,722
|
|
|
$
|
251,426
|
|
Watch
|
|
|
4,305
|
|
|
|
-
|
|
|
|
7,261
|
|
|
|
118
|
|
|
|
436
|
|
Special Mention
|
|
|
146
|
|
|
|
-
|
|
|
|
932
|
|
|
|
29
|
|
|
|
74
|
|
Substandard
|
|
|
2,517
|
|
|
|
34
|
|
|
|
5,193
|
|
|
|
72
|
|
|
|
2,199
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
699
|
|
|
|
-
|
|
|
|
1,182
|
|
Total
|
|
$
|
457,825
|
|
|
$
|
61,018
|
|
|
$
|
693,606
|
|
|
$
|
71,941
|
|
|
$
|
255,317
|
|
|
|
June 30, 2017
|
|
|
|
Residential
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Consumer
|
|
|
Commercial
|
|
Pass
|
|
$
|
438,222
|
|
|
$
|
55,825
|
|
|
$
|
588,385
|
|
|
$
|
63,320
|
|
|
$
|
240,864
|
|
Watch
|
|
|
772
|
|
|
|
-
|
|
|
|
9,253
|
|
|
|
123
|
|
|
|
2,003
|
|
Special Mention
|
|
|
148
|
|
|
|
-
|
|
|
|
926
|
|
|
|
30
|
|
|
|
84
|
|
Substandard
|
|
|
3,321
|
|
|
|
217
|
|
|
|
5,358
|
|
|
|
178
|
|
|
|
3,631
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
Total
|
|
$
|
442,463
|
|
|
$
|
56,042
|
|
|
$
|
603,922
|
|
|
$
|
63,651
|
|
|
$
|
247,184
|
|
The above amounts include purchased credit impaired loans. At March 31, 2018, purchased credit impaired loans comprised $8.1 million of credits rated "Pass"; $3.1 million of credits rated "Watch"; none rated "Special Mention"; $3.4 million of credits rated "Substandard"; and none rated "Doubtful". At June 30, 2017, purchased credit impaired loans accounted for $10.2 million of credits rated "Pass"; $5.0 million of credits rated "Watch"; none rated "Special Mention"; $4.9 million of credits rated "Substandard"; and none rated "Doubtful".
Credit Quality Indicators
. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination, and is updated on a quarterly basis for loans risk rated Special Mention, Substandard, or Doubtful. In addition, lending relationships of $1 million or more, exclusive of any consumer or owner-occupied residential loan, are subject to an annual credit analysis which is prepared by the loan administration department and presented to a loan committee with appropriate lending authority. A sample of lending relationships in excess of $2.5 million are subject to an independent loan review annually, in order to verify risk ratings. The Company uses the following definitions for risk ratings:
Watch
– Loans classified as watch exhibit weaknesses that require more than usual monitoring. Issues may include deteriorating financial condition, payments made after due date but within 30 days, adverse industry conditions or management problems.
Special Mention
– Loans classified as special mention exhibit signs of further deterioration but still generally make payments within 30 days. This is a transitional rating and loans should typically not be rated Special Mention for more than 12 months.
Substandard
– Loans classified as substandard possess weaknesses that jeopardize the ultimate collection of the principal and interest outstanding. These loans exhibit continued financial losses, ongoing delinquency, overall poor financial condition, and insufficient collateral. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful
– Loans classified as doubtful have all the weaknesses of substandard loans, and have deteriorated to the level that there is a high probability of substantial loss.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be
Pass
rated loans.
The following tables present the Company's loan portfolio aging analysis (excluding loans in process and deferred loan fees) as of March 31, 2018 and June 30, 2017. These tables include purchased credit impaired loans, which are reported according to aging analysis after acquisition based on the Company's standards for such classification:
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
Greater Than
|
|
|
|
|
|
|
|
|
|
|
|
Greater Than 90
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days
|
|
|
Total
|
|
|
|
|
|
Total Loans
|
|
|
Days Past Due
|
|
(dollars in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivable
|
|
|
and Accruing
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,372
|
|
|
$
|
2,098
|
|
|
$
|
1,261
|
|
|
$
|
4,731
|
|
|
$
|
453,094
|
|
|
$
|
457,825
|
|
|
$
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,018
|
|
|
|
61,018
|
|
|
|
-
|
|
Commercial
|
|
|
275
|
|
|
|
769
|
|
|
|
446
|
|
|
|
1,490
|
|
|
|
692,116
|
|
|
|
693,606
|
|
|
|
-
|
|
Consumer loans
|
|
|
446
|
|
|
|
62
|
|
|
|
156
|
|
|
|
664
|
|
|
|
71,277
|
|
|
|
71,941
|
|
|
|
-
|
|
Commercial loans
|
|
|
93
|
|
|
|
211
|
|
|
|
34
|
|
|
|
338
|
|
|
|
254,979
|
|
|
|
255,317
|
|
|
|
-
|
|
Total loans
|
|
$
|
2,186
|
|
|
$
|
3,140
|
|
|
$
|
1,897
|
|
|
$
|
7,223
|
|
|
$
|
1,532,484
|
|
|
$
|
1,539,707
|
|
|
$
|
-
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
Greater Than
|
|
|
|
|
|
|
|
|
|
|
|
Greater Than 90
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
90 Days
|
|
|
Total
|
|
|
|
|
|
Total Loans
|
|
|
Days Past Due
|
|
(dollars in thousands)
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Receivable
|
|
|
and Accruing
|
|
Real Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,491
|
|
|
$
|
148
|
|
|
$
|
676
|
|
|
$
|
2,315
|
|
|
$
|
440,148
|
|
|
$
|
442,463
|
|
|
$
|
59
|
|
Construction
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
56,007
|
|
|
|
56,042
|
|
|
|
-
|
|
Commercial
|
|
|
700
|
|
|
|
-
|
|
|
|
711
|
|
|
|
1,411
|
|
|
|
602,511
|
|
|
|
603,922
|
|
|
|
-
|
|
Consumer loans
|
|
|
216
|
|
|
|
16
|
|
|
|
134
|
|
|
|
366
|
|
|
|
63,285
|
|
|
|
63,651
|
|
|
|
13
|
|
Commercial loans
|
|
|
144
|
|
|
|
53
|
|
|
|
426
|
|
|
|
623
|
|
|
|
246,561
|
|
|
|
247,184
|
|
|
|
329
|
|
Total loans
|
|
$
|
2,586
|
|
|
$
|
217
|
|
|
$
|
1,947
|
|
|
$
|
4,750
|
|
|
$
|
1,408,512
|
|
|
$
|
1,413,262
|
|
|
$
|
401
|
|
At March 31, 2018 and June 30, 2017, there were no purchased credit impaired loans that were greater than 90 days past due.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans, as well as performing loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
The tables below present impaired loans (excluding loans in process and deferred loan fees) as of March 31, 2018 and June 30, 2017. These tables include purchased credit impaired loans. Purchased credit impaired loans are those for which it was deemed probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable. In an instance where, subsequent to the acquisition, the Company determines it is probable, for a specific loan, that cash flows received will exceed the amount previously expected, the Company will recalculate the amount of accretable yield in order to recognize the improved cash flow expectation as additional interest income over the remaining life of the loan. These loans, however, will continue to be reported as impaired loans. In an instance where, subsequent to the acquisition, the Company determines it is probable, for a specific loan, that cash flows received will be less than the amount previously expected, the Company will allocate a specific allowance under the terms of ASC 310-10-35.
|
|
March 31, 2018
|
|
|
|
Recorded
|
|
|
Unpaid Principal
|
|
|
Specific
|
|
(dollars in thousands)
|
|
Balance
|
|
|
Balance
|
|
|
Allowance
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
3,827
|
|
|
$
|
4,474
|
|
|
$
|
-
|
|
Construction real estate
|
|
|
1,336
|
|
|
|
1,604
|
|
|
|
-
|
|
Commercial real estate
|
|
|
14,090
|
|
|
|
15,463
|
|
|
|
-
|
|
Consumer loans
|
|
|
27
|
|
|
|
27
|
|
|
|
-
|
|
Commercial loans
|
|
|
2,911
|
|
|
|
3,539
|
|
|
|
-
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Construction real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
699
|
|
|
|
699
|
|
|
|
410
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial loans
|
|
|
580
|
|
|
|
580
|
|
|
|
340
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
3,827
|
|
|
$
|
4,474
|
|
|
$
|
-
|
|
Construction real estate
|
|
$
|
1,336
|
|
|
$
|
1,604
|
|
|
$
|
-
|
|
Commercial real estate
|
|
$
|
14,789
|
|
|
$
|
16,162
|
|
|
$
|
410
|
|
Consumer loans
|
|
$
|
27
|
|
|
$
|
27
|
|
|
$
|
-
|
|
Commercial loans
|
|
$
|
3,491
|
|
|
$
|
4,119
|
|
|
$
|
340
|
|
|
|
June 30, 2017
|
|
|
|
Recorded
|
|
|
Unpaid Principal
|
|
|
Specific
|
|
(dollars in thousands)
|
|
Balance
|
|
|
Balance
|
|
|
Allowance
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
3,811
|
|
|
$
|
4,486
|
|
|
$
|
-
|
|
Construction real estate
|
|
|
1,373
|
|
|
|
1,695
|
|
|
|
-
|
|
Commercial real estate
|
|
|
14,935
|
|
|
|
16,834
|
|
|
|
-
|
|
Consumer loans
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
Commercial loans
|
|
|
4,302
|
|
|
|
4,990
|
|
|
|
-
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Construction real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
3,811
|
|
|
$
|
4,486
|
|
|
$
|
-
|
|
Construction real estate
|
|
$
|
1,373
|
|
|
$
|
1,695
|
|
|
$
|
-
|
|
Commercial real estate
|
|
$
|
14,935
|
|
|
$
|
16,834
|
|
|
$
|
-
|
|
Consumer loans
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
-
|
|
Commercial loans
|
|
$
|
4,302
|
|
|
$
|
4,990
|
|
|
$
|
-
|
|
The above amounts include purchased credit impaired loans. At March 31, 2018, purchased credit impaired loans comprised $14.6 million of impaired loans without a specific valuation allowance. At June 30, 2017, purchased credit impaired loans comprised $20.1 million of impaired loans without a specific valuation allowance.
The following tables present information regarding interest income recognized on impaired loans:
|
For the three-month period ended
|
|
|
March 31, 2018
|
|
|
Average
|
|
|
|
(dollars in thousands)
|
Investment in
|
|
Interest Income
|
|
|
Impaired Loans
|
|
Recognized
|
|
Residential Real Estate
|
|
$
|
3,322
|
|
|
$
|
45
|
|
Construction Real Estate
|
|
|
1,312
|
|
|
|
43
|
|
Commercial Real Estate
|
|
|
8,532
|
|
|
|
436
|
|
Consumer Loans
|
|
|
-
|
|
|
|
-
|
|
Commercial Loans
|
|
|
2,855
|
|
|
|
44
|
|
Total Loans
|
|
$
|
16,021
|
|
|
$
|
568
|
|
|
|
For the three-month period ended
|
|
|
|
March 31, 2017
|
|
|
|
Average
|
|
|
|
|
(dollars in thousands)
|
|
Investment in
|
|
|
Interest Income
|
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
Residential Real Estate
|
|
$
|
2,857
|
|
|
$
|
22
|
|
Construction Real Estate
|
|
|
1,362
|
|
|
|
38
|
|
Commercial Real Estate
|
|
|
9,513
|
|
|
|
146
|
|
Consumer Loans
|
|
|
-
|
|
|
|
-
|
|
Commercial Loans
|
|
|
889
|
|
|
|
19
|
|
Total Loans
|
|
$
|
14,621
|
|
|
$
|
225
|
|
|
|
For the nine-month period ended
|
|
|
|
March 31, 2018
|
|
|
|
Average
|
|
|
|
|
(dollars in thousands)
|
|
Investment in
|
|
|
Interest Income
|
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
Residential Real Estate
|
|
$
|
3,395
|
|
|
$
|
172
|
|
Construction Real Estate
|
|
|
1,323
|
|
|
|
122
|
|
Commercial Real Estate
|
|
|
9,905
|
|
|
|
987
|
|
Consumer Loans
|
|
|
-
|
|
|
|
-
|
|
Commercial Loans
|
|
|
3,328
|
|
|
|
153
|
|
Total Loans
|
|
$
|
17,951
|
|
|
$
|
1,434
|
|
|
|
For the nine-month period ended
|
|
|
|
March 31, 2017
|
|
|
|
Average
|
|
|
|
|
(dollars in thousands)
|
|
Investment in
|
|
|
Interest Income
|
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
Residential Real Estate
|
|
$
|
2,893
|
|
|
$
|
73
|
|
Construction Real Estate
|
|
|
1,378
|
|
|
|
109
|
|
Commercial Real Estate
|
|
|
9,681
|
|
|
|
513
|
|
Consumer Loans
|
|
|
-
|
|
|
|
-
|
|
Commercial Loans
|
|
|
957
|
|
|
|
56
|
|
Total Loans
|
|
$
|
14,909
|
|
|
$
|
751
|
|
Interest income on impaired loans recognized on a cash basis in the three- and nine-month periods ended March 31, 2018 and 2017, was immaterial.
For the three- and nine-month periods ended March 31, 2018, the amount of interest income recorded for impaired loans that represented a change in the present value of cash flows attributable to the passage of time was approximately $334,000 and $594,000, respectively, as compared to $56,000 and $217,000, respectively, for the three- and nine-month periods ended March 31, 2017.
The following table presents the Company's nonaccrual loans at March 31, 2018 and June 30, 2017. The table excludes performing troubled debt restructurings.
(dollars in thousands)
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
Residential real estate
|
|
$
|
3,026
|
|
|
$
|
1,263
|
|
Construction real estate
|
|
|
34
|
|
|
|
35
|
|
Commercial real estate
|
|
|
1,970
|
|
|
|
960
|
|
Consumer loans
|
|
|
231
|
|
|
|
158
|
|
Commercial loans
|
|
|
957
|
|
|
|
409
|
|
Total loans
|
|
$
|
6,218
|
|
|
$
|
2,825
|
|
At March 31, 2018, purchased credit impaired loans comprised $1.0 million of nonaccrual loans. At June 30, 2017, there were no purchased credit impaired loans on nonaccrual.
Included in certain loan categories in the impaired loans are troubled debt restructurings (TDRs), where economic concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities, and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and typically are returned to performing status after considering the borrower's sustained repayment performance for a reasonable period of at least six months.
When loans and leases are modified into a TDR, the Company evaluates any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, and uses the current fair value of the collateral, less selling costs, for collateral dependent loans. If the Company determines that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs, and unamortized premium or discount),
impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, the Company evaluates all TDRs, including those that have payment defaults, for possible impairment and recognizes impairment through the allowance.
During the three- and nine-month periods ended March 31, 2018 and 2017, certain loans modified were classified as TDRs. They are shown, segregated by class, in the table below:
|
|
For the three-month periods ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
(dollars in thousands)
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
modifications
|
|
|
Investment
|
|
|
modifications
|
|
|
Investment
|
|
Residential real estate
|
|
|
4
|
|
|
$
|
305
|
|
|
|
1
|
|
|
$
|
40
|
|
Construction real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
1
|
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
Consumer loans
|
|
|
2
|
|
|
|
27
|
|
|
|
1
|
|
|
|
15
|
|
Commercial loans
|
|
|
2
|
|
|
|
64
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
9
|
|
|
$
|
451
|
|
|
|
2
|
|
|
$
|
55
|
|
|
|
For the nine-month periods ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
(dollars in thousands)
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
modifications
|
|
|
Investment
|
|
|
modifications
|
|
|
Investment
|
|
Residential real estate
|
|
|
4
|
|
|
$
|
305
|
|
|
|
1
|
|
|
$
|
40
|
|
Construction real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
36
|
|
Commercial real estate
|
|
|
1
|
|
|
|
55
|
|
|
|
4
|
|
|
|
2,250
|
|
Consumer loans
|
|
|
2
|
|
|
|
27
|
|
|
|
3
|
|
|
|
16
|
|
Commercial loans
|
|
|
2
|
|
|
|
64
|
|
|
|
1
|
|
|
|
2
|
|
Total
|
|
|
9
|
|
|
$
|
451
|
|
|
|
10
|
|
|
$
|
2,344
|
|
Performing loans classified as TDRs and outstanding at March 31, 2018 and June 30, 2017, segregated by class, are shown in the table below. Nonperforming TDRs are shown as nonaccrual loans.
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
(dollars in thousands)
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
modifications
|
|
|
Investment
|
|
|
modifications
|
|
|
Investment
|
|
Residential real estate
|
|
|
12
|
|
|
$
|
809
|
|
|
|
10
|
|
|
$
|
1,756
|
|
Construction real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial real estate
|
|
|
13
|
|
|
|
8,101
|
|
|
|
13
|
|
|
|
5,206
|
|
Consumer loans
|
|
|
2
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
Commercial loans
|
|
|
8
|
|
|
|
2,911
|
|
|
|
6
|
|
|
|
3,946
|
|
Total
|
|
|
35
|
|
|
$
|
11,847
|
|
|
|
29
|
|
|
$
|
10,908
|
|
Note 5:
Accounting for Certain Loans Acquired in a Transfer
The Company acquired loans in transfers during the fiscal years ended June 30, 2011, June 30, 2015 and June 30, 2017. At acquisition, certain transferred loans evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.
Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality (ASC 310-30) and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. Management estimated the cash flows expected to be collected at acquisition using our internal risk models, which incorporate the estimate of current key assumptions, such as default rates, severity and prepayment speeds.
The carrying amount of those loans is included in the balance sheet amounts of loans receivable at March 31, 2018 and June 30, 2017. The amount of these loans is shown below:
(dollars in thousands)
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
Residential real estate
|
|
$
|
3,859
|
|
|
$
|
4,158
|
|
Construction real estate
|
|
|
1,570
|
|
|
|
1,660
|
|
Commercial real estate
|
|
|
8,999
|
|
|
|
13,394
|
|
Consumer loans
|
|
|
-
|
|
|
|
-
|
|
Commercial loans
|
|
|
3,094
|
|
|
|
4,502
|
|
Outstanding balance
|
|
$
|
17,522
|
|
|
$
|
23,714
|
|
Carrying amount, net of fair value adjustment of
$2,917
and $3,584 at March 31, 2018, and
June 30, 2017, respectively
|
|
$
|
14,605
|
|
|
$
|
20,130
|
|
Accretable yield, or income expected to be collected, is as follows:
|
|
For the three-month period ended
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Balance at beginning of period
|
|
$
|
607
|
|
|
$
|
626
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Accretion
|
|
|
(334
|
)
|
|
|
(56
|
)
|
Reclassification from nonaccretable difference
|
|
|
335
|
|
|
|
61
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
$
|
608
|
|
|
$
|
631
|
|
|
|
For the nine-month period ended
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Balance at beginning of period
|
|
$
|
609
|
|
|
$
|
656
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Accretion
|
|
|
(594
|
)
|
|
|
(217
|
)
|
Reclassification from nonaccretable difference
|
|
|
593
|
|
|
|
192
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
$
|
608
|
|
|
$
|
631
|
|
During the three-and nine-month periods ended March 31, 2018 and 2017, the Company did not increase or reverse the allowance for loan losses related to these purchased credit impaired loans.
Note 6:
Deposits
Deposits are summarized as follows:
(dollars in thousands)
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
Non-interest bearing accounts
|
|
$
|
196,914
|
|
|
$
|
186,203
|
|
NOW accounts
|
|
|
580,790
|
|
|
|
479,488
|
|
Money market deposit accounts
|
|
|
117,597
|
|
|
|
105,599
|
|
Savings accounts
|
|
|
152,023
|
|
|
|
147,247
|
|
Certificates
|
|
|
527,013
|
|
|
|
537,060
|
|
Total Deposit Accounts
|
|
$
|
1,574,337
|
|
|
$
|
1,455,597
|
|
Note 7:
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
(dollars in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
5,258
|
|
|
$
|
3,954
|
|
|
$
|
15,291
|
|
|
$
|
11,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common shares – outstanding basic
|
|
|
8,762,344
|
|
|
|
7,450,041
|
|
|
|
8,647,593
|
|
|
|
7,442,525
|
|
Stock options under treasury stock method
|
|
|
13,062
|
|
|
|
28,626
|
|
|
|
12,790
|
|
|
|
25,976
|
|
Average Common shares – outstanding diluted
|
|
|
8,775,406
|
|
|
|
7,478,667
|
|
|
|
8,660,383
|
|
|
|
7,468,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.60
|
|
|
$
|
0.53
|
|
|
$
|
1.77
|
|
|
$
|
1.59
|
|
Diluted earnings per common share
|
|
$
|
0.60
|
|
|
$
|
0.53
|
|
|
$
|
1.77
|
|
|
$
|
1.59
|
|
At March 31, 2018 and 2017, no options outstanding had an exercise price exceeding the market price.
Note 8:
Income Taxes
The Company and its subsidiary files income tax returns in the U.S. Federal jurisdiction and various states. The Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years before 2011. The Company recognized no interest or penalties related to income taxes.
The Company's income tax provision is comprised of the following components:
|
|
For the three-month period ended
|
|
|
For the nine-month periods ended
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,864
|
|
|
$
|
1,457
|
|
|
$
|
7,525
|
|
|
$
|
4,316
|
|
Deferred
|
|
|
(1,054
|
)
|
|
|
6
|
|
|
|
(1,280
|
)
|
|
|
240
|
|
Total income tax provision
|
|
$
|
1,810
|
|
|
$
|
1,463
|
|
|
$
|
6,245
|
|
|
$
|
4,556
|
|
The components of net deferred tax assets are summarized as follows:
(dollars in thousands)
|
|
March 31, 2018
|
|
|
June 30, 2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Provision for losses on loans
|
|
$
|
4,193
|
|
|
$
|
5,563
|
|
Accrued compensation and benefits
|
|
|
618
|
|
|
|
1,068
|
|
Other-than-temporary impairment on
available for sale securities
|
|
|
-
|
|
|
|
128
|
|
NOL carry forwards acquired
|
|
|
286
|
|
|
|
513
|
|
Minimum Tax Credit
|
|
|
130
|
|
|
|
130
|
|
Unrealized loss on other real estate
|
|
|
124
|
|
|
|
131
|
|
Unrealized loss on available for sale securities
|
|
|
585
|
|
|
|
-
|
|
Other
|
|
|
407
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
6,343
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments
|
|
|
946
|
|
|
|
1,193
|
|
Depreciation
|
|
|
1,100
|
|
|
|
2,734
|
|
FHLB stock dividends
|
|
|
130
|
|
|
|
203
|
|
Prepaid expenses
|
|
|
128
|
|
|
|
213
|
|
Unrealized gain on available for sale securities
|
|
|
-
|
|
|
|
295
|
|
Other
|
|
|
270
|
|
|
|
991
|
|
Total deferred tax liabilities
|
|
|
2,574
|
|
|
|
5,629
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
3,769
|
|
|
$
|
1,904
|
|
As of March 31, 2018 and June 30, 2017, the Company had approximately
$1.3 million and $2.7 million
in federal and state net operating loss carryforwards, respectively, which were acquired in the July 2009 acquisition of Southern Bank of Commerce, the February 2014 acquisition of Citizens State Bankshares of Bald Knob, Inc. and the August 2014 acquisition of Peoples Service Company, and the June 2017 acquisition of Tammcorp, Inc. (Capaha Bank). The amount reported is net of the IRC Sec. 382 limitation, or state equivalent, related to utilization of net operating loss carryforwards of acquired corporations. Unless otherwise utilized, the net operating losses will begin to expire in 2027.
A reconciliation of income tax expense at the statutory rate to the Company's actual income tax is shown below:
|
|
For the three-month period ended
|
|
|
For the nine-month periods ended
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Tax at statutory rate
|
|
$
|
1,986
|
|
|
$
|
1,896
|
|
|
$
|
6,052
|
|
|
$
|
5,738
|
|
Increase (reduction) in taxes
resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nontaxable municipal income
|
|
|
(115
|
)
|
|
|
(124
|
)
|
|
|
(341
|
)
|
|
|
(385
|
)
|
State tax, net of Federal benefit
|
|
|
287
|
|
|
|
52
|
|
|
|
530
|
|
|
|
160
|
|
Cash surrender value of
Bank-owned life insurance
|
|
|
(66
|
)
|
|
|
(176
|
)
|
|
|
(197
|
)
|
|
|
(323
|
)
|
Tax credit benefits
|
|
|
(224
|
)
|
|
|
(81
|
)
|
|
|
(672
|
)
|
|
|
(267
|
)
|
Tax benefits realized on acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment of deferred tax asset
for enacted changes in tax laws
|
|
|
-
|
|
|
|
-
|
|
|
|
1,124
|
|
|
|
-
|
|
Other, net
|
|
|
(58
|
)
|
|
|
(104
|
)
|
|
|
(251
|
)
|
|
|
(367
|
)
|
Actual provision
|
|
$
|
1,810
|
|
|
$
|
1,463
|
|
|
$
|
6,245
|
|
|
$
|
4,556
|
|
For the three and nine month periods ended March 31, 2018, income tax expense at the statutory rate was calculated using a 28.1% annual effective tax rate (AETR), compared to 35.0% for the three and nine month periods ended March 31, 2017, as a result of the Tax Cuts and Jobs Act ("Tax Act") signed into law December 22, 2017. The Tax Act ultimately reduces the corporate Federal income tax rate for the Company from 35% to 21%, and for the current fiscal year ending June 30, 2018, the Company is administratively subject to a 28.1% AETR. U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment and the income tax effects of the Tax Act were recognized in the Company's financial statements for the quarter ended December 31, 2017, and for the nine-month period ended March 31, 2018. The Tax Act is complex and requires significant detailed analysis. During the preparation of the Company's June 30, 2018 income tax returns, additional adjustments related to enactment of the Tax Act may be identified. We do not currently expect significant adjustments will be necessary, but any further adjustments identified will be recognized in accordance with guidance contained in Staff Accounting Bulletin No. 118 from the U. S. Securities and Exchange Commission.
Note 9:
401(k) Retirement Plan
The Bank has a 401(k) retirement plan that covers substantially all eligible employees. The Bank made a safe harbor matching contribution to the Plan of up to 4% of eligible compensation, depending upon the percentage of eligible pay deferred into the plan by the employee, and also made additional, discretionary profit-sharing contributions for fiscal 2017; for fiscal 2018, the Company has maintained the safe harbor matching contribution of up to 4%, and expects to continue to make additional, discretionary profit-sharing contributions. During the three- and nine-month periods ended March 31, 2018, retirement plan expenses recognized for the Plan totaled approximately $331,000 and $883,000, respectively, as compared to $230,000 and $677,000, respectively, for the same periods of the prior fiscal year. Employee deferrals and safe harbor contributions are fully vested. Profit-sharing or other contributions vest over a period of five years.
Note 10:
Subordinated Debt
Southern Missouri Statutory Trust I issued $7.0 million of Floating Rate Capital Securities (the "Trust Preferred Securities") with a liquidation value of $1,000 per share in March 2004. The securities are due in 30 years, are now redeemable at par, and bear interest at a floating rate based on LIBOR. At March 31, 2018, the current rate was 4.93%. The securities represent undivided beneficial interests in the trust, which was established by the Company for the purpose of issuing the securities. The Trust Preferred Securities were sold in a private transaction exempt from registration under the Securities Act of 1933, as amended (the "Act") and have not been registered under the Act. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
Southern Missouri Statutory Trust I used the proceeds from the sale of the Trust Preferred Securities to purchase Junior Subordinated Debentures of the Company. The Company used its net proceeds for working capital and investment in its subsidiaries.
In connection with its October 2013 acquisition of Ozarks Legacy Community Financial, Inc. (OLCF), the Company assumed $3.1 million in floating rate junior subordinated debt securities. The debt securities had been issued in June 2005 by OLCF in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. The carrying value of the debt securities was approximately $2.6 million at March 31, 2018, and $2.6 million at June 30, 2017.
In connection with its August 2014 acquisition of Peoples Service Company, Inc. (PSC), the Company assumed $6.5 million in floating rate junior subordinated debt securities. The debt securities had been issued in 2005 by PSC's subsidiary bank holding company, Peoples Banking Company, in connection with the sale of trust preferred securities, bear interest at a floating rate based on LIBOR, are now redeemable at par, and mature in 2035. The carrying value of the debt securities was approximately $5.1 million at March 31, 2018, and $5.0 million at June 30, 2017.
Note 11:
Fair Value Measurements
ASC Topic 820,
Fair Value Measurements
, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities
Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3
Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities
Recurring Measurements.
The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2018 and June 30, 2017:
|
|
Fair Value Measurements at
March 31, 2018
, Using:
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
U.S. government sponsored enterprises (GSEs)
|
|
$
|
11,384
|
|
|
$
|
-
|
|
|
$
|
11,384
|
|
|
$
|
-
|
|
State and political subdivisions
|
|
|
51,297
|
|
|
|
-
|
|
|
|
51,297
|
|
|
|
-
|
|
Other securities
|
|
|
5,132
|
|
|
|
-
|
|
|
|
5,132
|
|
|
|
-
|
|
Mortgage-backed GSE residential
|
|
|
78,314
|
|
|
|
-
|
|
|
|
78,314
|
|
|
|
-
|
|
|
|
Fair Value Measurements at June 30, 2017, Using:
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
U.S. government sponsored enterprises (GSEs)
|
|
$
|
10,438
|
|
|
$
|
-
|
|
|
$
|
10,438
|
|
|
$
|
-
|
|
State and political subdivisions
|
|
|
49,978
|
|
|
|
-
|
|
|
|
49,978
|
|
|
|
-
|
|
Other securities
|
|
|
5,725
|
|
|
|
-
|
|
|
|
5,725
|
|
|
|
-
|
|
Mortgage-backed GSE residential
|
|
|
78,275
|
|
|
|
-
|
|
|
|
78,275
|
|
|
|
-
|
|
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the period ended March 31, 2018.
Available-for-sale Securities.
When quoted market prices are available in an active market, securities are classified within Level 1. The Company does not have Level 1 securities. If quoted market prices are not available, then fair values are estimated using pricing models, or quoted prices of securities with similar characteristics. For these securities, our Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, 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. Level 2 securities include U.S. Government-sponsored enterprises, state and political subdivisions, other securities, mortgage-backed GSE residential securities and mortgage-backed other U.S. Government agencies. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements.
The following tables present the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fell at March 31, 2018 and June 30, 2017:
|
|
Fair Value Measurements at
March 31, 2018
, Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral dependent)
|
|
$
|
529
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
529
|
|
Foreclosed and repossessed assets held for sale
|
|
$
|
4,142
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,142
|
|
|
|
Fair Value Measurements at
June 30, 2017
, Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets held for sale
|
|
$
|
3,100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,100
|
|
The following table presents gains and (losses) recognized on assets measured on a non-recurring basis for the nine-month periods ended March 31, 2018 and 2017:
|
|
For the nine months ended
|
|
(dollars in thousands)
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Impaired loans (collateral dependent)
|
|
$
|
(750
|
)
|
|
$
|
-
|
|
Foreclosed and repossessed assets held for sale
|
|
|
(164
|
)
|
|
|
(254
|
)
|
Total (losses) gains on assets measured on a non-recurring basis
|
|
$
|
(914
|
)
|
|
$
|
(254
|
)
|
The following is a description of valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. For assets classified within Level 3 of fair value hierarchy, the process used to develop the reported fair value process is described below.
Impaired Loans (Collateral Dependent).
A collateral dependent loan is considered to be impaired when it is probable that all of the principal and interest due may not be collected according to its contractual terms. Generally, when a collateral dependent loan is considered impaired, the amount of reserve required is measured based on the fair value of the underlying collateral. The Company makes such measurements on all material collateral dependent loans deemed impaired using the fair value of the collateral for collateral dependent loans. The fair value of collateral used by the Company is determined by obtaining an observable market price or by obtaining an appraised value from an independent, licensed or certified appraiser, using observable market data. This data includes information such as selling price of similar properties and capitalization rates of similar properties sold within the market, expected future cash flows or earnings of the subject property based on current market expectations, and other relevant factors. In addition, management applies selling and other discounts to the underlying collateral value to determine the fair value. If an appraised value is not available, the fair value of the collateral dependent impaired loan is determined by an adjusted appraised value including unobservable cash flows.
On a quarterly basis, loans classified as special mention, substandard, doubtful, or loss are evaluated including the loan officer's review of the collateral and its current condition, the Company's knowledge of the current economic environment in the market where the collateral is located, and the Company's recent experience with real estate in the area. The date of the appraisal is also considered in conjunction with the economic environment and any decline in the real estate market since the appraisal was obtained. For all loan types, updated appraisals are obtained if considered necessary. In instances where the economic environment has worsened and/or the real estate market declined since the last appraisal, a higher distressed sale discount would be applied to the appraised value.
The Company records collateral dependent impaired loans based on nonrecurring Level 3 inputs. If a collateral dependent loan's fair value, as estimated by the Company, is less than its carrying value, the Company either records a charge-off of the portion of the loan that exceeds the fair value or establishes a specific reserve as part of the allowance for loan losses. There were no loans measured at fair value on a nonrecurring basis at June 30, 2017.
Foreclosed and Repossessed Assets Held for Sale.
Foreclosed and repossessed assets held for sale are valued at the time the loan is foreclosed upon or collateral is repossessed and the asset is transferred to foreclosed or repossessed assets held for sale. The value of the asset is based on third party or internal appraisals, less estimated costs to sell and appropriate discounts, if any. The appraisals are generally discounted based on current and expected market conditions that may impact the sale or value of the asset and management's knowledge and experience with similar assets. Such discounts typically may be significant and result in a Level 3 classification of the inputs for determining fair value of these assets. Foreclosed and repossessed assets held for sale are continually evaluated for additional impairment and are adjusted accordingly if impairment is identified.
Unobservable (Level 3) Inputs.
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
(dollars in thousands)
|
|
Fair value at
March 31, 2018
|
|
Valuation
technique
|
|
Unobservable
inputs
|
|
Range of
inputs applied
|
|
|
Weighted-average
inputs applied
|
|
Nonrecurring Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans (collateral dependent)
|
|
$
|
529
|
|
Internal Valuation
|
|
Discount to reflect
realizable value
|
|
|
n/a
|
|
|
|
|
Foreclosed and repossessed assets
|
|
$
|
4,142
|
|
Third party appraisal
|
|
Marketability discount
|
|
|
0.0% - 78.4
|
%
|
|
|
33.8
|
%
|
(dollars in thousands)
|
|
Fair value at
June 30, 2017
|
|
Valuation
technique
|
|
Unobservable
inputs
|
|
Range of
inputs applied
|
|
|
Weighted-average
inputs applied
|
|
Nonrecurring Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed and repossessed assets
|
|
$
|
3,100
|
|
Third party appraisal
|
|
Marketability discount
|
|
|
0.0% - 66.4
|
%
|
|
|
40.6
|
%
|