The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note A – Basis of Presentation
The accompanying unaudited consolidated financial
statements of Herita
g
e NOLA Bancorp, Inc. and Subsidiary (the “Company”) were prepared in accordance with instructions
for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial
condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles
generally accepted in the United States of America.
In the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included.
The results of operations for the three and six month periods ended June 30, 2019 are not necessarily indicative of the results
which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes
thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2018 as filed with the Securities and Exchange Commission (“SEC”). Reference is made to the accounting policies
of the Company described in the Notes to the Financial Statements contained in the Annual Report.
In preparing the financial statements, the
Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in
the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive
income, changes in shareholders’ equity and cash flows for the interim periods presented. These adjustments are of a
normal recurring nature and include appropriate estimated provisions.
The consolidated financial statements include
Heritage NOLA Bancorp, Inc. and its wholly-owned subsidiary, Heritage Bank of St. Tammany (the “Bank”), together referred
to as the Company. Intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to
the 2018 financial information in order to conform to the 2019 financial statement presentation. Such reclassifications had no
effect on previously reported net income.
Subsequent Events
On July 1, 2019, the Bank received $10.5 million in deposits
from a municipal recreation district. This will significantly impact asset size, deposits, interest expense and interest income.
These are primarily bond funds to be used for various projects and we expect a large portion of the deposits to be used within
a year.
Note B – Recent Accounting Pronouncements
Emerging Growth Company Status
The Company qualifies as an “emerging
growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company
is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to
other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or
revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies,
but must make such election when the company is first required to file a registration statement. The Company has elected to use
the extended transition period described above and intends to maintain its emerging growth company status as allowed under the
JOBS Act.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers. The provisions of the update requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. In March, 2016 the FASB issued ASU 2016-08, Principal versus Agent
Considerations (Reporting Revenue Gross versus Net), which clarifies the guidance in determining revenue recognition as principal
versus agent. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, which provides guidance
in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, Narrow-Scope
Improvements and Practical Expedients which provides clarification on assessing the collectability criterion, presentation of sales
taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also provides a practical expedient
for contract modifications. For an emerging growth company, the amendments in this update are effective
for
fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial
Statements.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825- 10), Recognition and Measurement of Financial Assets and Financial Liabilities.
The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net
income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus
impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values
by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of
financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement
for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial
instruments measured at amortized cost on the balance sheet. ASU No. 2016-01 requires public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities
by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies
that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities
in combination with the entity’s other deferred tax assets. For an emerging growth company, the amendments in this update
are effective for fiscal years beginning after December 15, 2018,
and interim periods within fiscal
years beginning after December 15, 2019.
The adoption of this ASU is not expected to have a material impact on the Company’s
Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842), Conforming Amendments Related to Leases
. This ASU amends the codification regarding leases in order
to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the statement
of condition and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments
and a right-of-use asset representing its right to use the leased asset for the lease term. For an emerging growth company, the
amendments in this update are effective
for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020.
The adoption of this ASU is not expected to have a material
effect on the Company’s Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments
. The amendments
introduce an impairment model that is based on expected credit losses (“ECL”), rather than incurred losses, to estimate
credit losses on certain types of financial instruments (ex. loans and held to maturity securities), including certain off-balance
sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable).
The ECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates
of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods
that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when
estimating the ECL. The ASU also amends the current available for sale security impairment model for debt securities whereby credit
losses relating to available for sale debt securities should be recorded through an allowance for credit losses. For an emerging
growth company, the amendments in this update are effective
for fiscal years beginning after December
15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
The amendments will be applied through
a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the
first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting
standard. It is too early to assess the impact this guidance will have on our Consolidated Financial Statements.
In August 2016, FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. The amendments in
this ASU clarify the proper classification for certain cash receipts and cash payments, including clarification on debt prepayment
or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance
policies, including bank-owned life insurance policies, among others. For an emerging growth company, the amendments in this update
are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years
beginning
after December 15, 2019.
The Company is currently assessing the amendment but does not anticipate it will have a material
impact on our Consolidated Financial Statements.
In June 2018, FASB issued ASU No. 2018-07,
“Compensation – Stock Compensation (Topic 718):
Improvements to Nonemployee Share-based Payment
”. The
amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services
from nonemployees. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years
beginning after December 15, 2020.
The Company is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated
Financial Statements.
In August 2018, FASB issued ASU 2018-13, “Fair
Value Measurement (Topic 820):
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
”.
The amendments in this ASU modify the disclosure requirements related to fair value. Certain provisions under ASU 2018-13 require
prospective application, while other provisions require retrospective application to all period presented in the consolidated financial
statements upon adoption. For an emerging growth company, the amendments in this update are effective for fiscal years beginning
after December 15, 2019, including interim periods within those fiscal years
.
The Company
is currently assessing the amendment but does not anticipate it will have a material impact on our Consolidated Financial Statements.
Note C – Investment Securities
The amortized costs and estimated fair values
of investment securities classified as available for sale and held to maturity as of June 30, 2019 and December 31, 2018 is as
follows:
|
|
June 30, 2019
|
|
(in thousands)
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
3,741
|
|
|
$
|
46
|
|
|
$
|
(18
|
)
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
458
|
|
|
$
|
1
|
|
|
$
|
(4
|
)
|
|
$
|
455
|
|
|
|
December 31, 2018
|
|
(in thousands)
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
4,260
|
|
|
$
|
38
|
|
|
$
|
(77
|
)
|
|
$
|
4,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
518
|
|
|
$
|
1
|
|
|
$
|
(12
|
)
|
|
$
|
507
|
|
There were no securities sold in 2019 or 2018.
All mortgage-backed securities held on June
30, 2019 and December 31, 2018 were government-sponsored mortgage-backed securities.
The amortized cost and fair value of investment
securities at June 30, 2019 by contractual maturity are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
Amortized
|
|
|
Fair
|
|
(in thousands)
|
|
Cost
|
|
|
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
Within One Year
|
|
$
|
-
|
|
|
$
|
-
|
|
After One Year Through Five Years
|
|
|
145
|
|
|
|
145
|
|
After Five Years Through Ten Years
|
|
|
1,570
|
|
|
|
1,573
|
|
After Ten Years
|
|
|
2,026
|
|
|
|
2,051
|
|
|
|
$
|
3,741
|
|
|
$
|
3,769
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
After Five Years Through Ten Years
|
|
$
|
256
|
|
|
$
|
255
|
|
After Ten Years
|
|
|
202
|
|
|
|
200
|
|
|
|
$
|
458
|
|
|
$
|
455
|
|
The following tables reflect gross unrealized losses, fair values,
and length of time in a continued unrealized loss position for all securities with fair values below amortized cost at June 30,
2019 and December 31, 2018:
|
|
June 30, 2019
|
|
(in thousands)
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
45
|
|
|
$
|
1
|
|
|
$
|
1,345
|
|
|
$
|
17
|
|
|
$
|
1,390
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
376
|
|
|
$
|
4
|
|
|
$
|
376
|
|
|
$
|
4
|
|
|
|
December 31, 2018
|
|
(in thousands)
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
549
|
|
|
$
|
3
|
|
|
$
|
2,526
|
|
|
$
|
74
|
|
|
$
|
3,075
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
418
|
|
|
$
|
12
|
|
|
$
|
418
|
|
|
$
|
12
|
|
On a quarterly basis (and more frequently when
economic or market conditions warrant), management evaluates the investment securities portfolio on an individual security basis
for other-than- temporary impairment (“OTTI”). If a security is in a loss position, management will determine if OTTI
exists and will consider the following. First, if it is probable that the issuer of the security will be unable to pay all amounts
due according to the contractual terms of the debt security, OTTI will be recognized. Second, if management intends to sell the
security and does not expect to recover the loss before the anticipated sale date, OTTI will be recognized. In both instances,
OTTI will be recognized for the affected security equal to the difference between the fair value and amortized cost through a charge
to earnings. Third, if a security does not meet either of the criteria above and is both in a loss position for greater than one
year and at a current loss of 10% or more, management will evaluate its ability and intent to retain its investment for a period
of time sufficient to allow for any anticipated recovery in fair value.
Declines in the fair value of individual held
to maturity and available for sale securities below their cost that are other-than-temporary result in write-downs of the individual
securities to their fair value. The related write-downs are included in earnings as realized losses. No declines at June 30, 2019
and December 31, 2018, were deemed to be other-than-temporary. The unrealized losses on the securities available for sale generally
result from changes in market interest rates and not credit quality. The Company does not intend to sell any such investments before
recovery of their amortized cost bases, which may be at maturity.
Note D – Loans Receivable and Allowance for
Loan Losses
A selection of the loan and allowance for loan
losses policies are as follows:
Loans Receivable
Loans that management has the intent and ability
to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances
adjusted for charge-offs, the allowance for loan losses, and any deferred loan fees or costs on originated loans.
For loans amortized at cost, interest income
is accrued based on the unpaid principal balance. Loan origination fees, net of direct loan origination costs, are deferred and
amortized as a level yield adjustment over the respective term of the loan.
The accrual of interest on the loans is discontinued
at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Loans are typically charged
off not later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed
on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for
loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted
for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when
all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The performing one-to-four family residential,
commercial real estate, and commercial loans are pledged, under a blanket lien, as collateral securing advances from the Federal
Home Loan Bank of Dallas, (“FHLB”) at June 30, 2019 and December 31, 2018.
Loans receivable at June 30, 2019 and December
31, 2018 are summarized as follows:
(in thousands)
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Secured by one-to four family residential properties
|
|
|
|
|
|
|
|
|
Owner-occupied
|
|
$
|
52,553
|
|
|
$
|
52,956
|
|
Non-owner-occupied
|
|
|
14,575
|
|
|
|
13,485
|
|
Home Equity Lines of Credit
|
|
|
3,031
|
|
|
|
2,973
|
|
Commercial (Nonresidential) Properties
|
|
|
22,975
|
|
|
|
21,868
|
|
Land
|
|
|
2,092
|
|
|
|
2,211
|
|
Construction
|
|
|
3,137
|
|
|
|
2,947
|
|
Multi-family
|
|
|
1,482
|
|
|
|
1,524
|
|
Commercial
|
|
|
2,266
|
|
|
|
1,964
|
|
Consumer Loans
|
|
|
274
|
|
|
|
354
|
|
Total Loans
|
|
|
102,385
|
|
|
|
100,282
|
|
|
|
|
|
|
|
|
|
|
Less: Net Deferred Loan Fees
|
|
|
(366
|
)
|
|
|
(380
|
)
|
Loans in Process
|
|
|
(1,250
|
)
|
|
|
(1,601
|
)
|
Allowance for Loan Losses
|
|
|
(772
|
)
|
|
|
(768
|
)
|
Net Loans
|
|
$
|
99,997
|
|
|
$
|
97,533
|
|
Allowance for Loan Losses
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 management believes the uncollectability of a loan balance is confirmed. 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. The general component covers non-classified loans and is based on historical charge-off
experience. Other adjustments may be made to the allowance for pools of loans after an assessment of internal and external influence
on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based upon
current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and
interest 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 are considered 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 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.
The tables below provide a summary of activity
in the allowance for loan losses by loan type as of and for the six months ended June 30, 2019 and the year ended December 31,
2018. The allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other
categories.
Allowance for Credit Losses and Recorded Investment in Loans
Receivable
For the Period Ended June 30, 2019
(in thousands)
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Land
|
|
|
One-to-Four
Family
|
|
|
Construction
|
|
|
Multi-Family
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
519
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
83
|
|
|
$
|
768
|
|
Charge-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
Recoveries
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
6
|
|
Provision
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
6
|
|
|
|
-
|
|
Ending Balance
|
|
$
|
108
|
|
|
$
|
19
|
|
|
$
|
526
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
89
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for Impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
71
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
Evaluated for Impairment
|
|
$
|
108
|
|
|
$
|
19
|
|
|
$
|
455
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
89
|
|
|
$
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
22,975
|
|
|
$
|
2,092
|
|
|
$
|
70,159
|
|
|
$
|
3,137
|
|
|
$
|
1,482
|
|
|
$
|
274
|
|
|
$
|
2,266
|
|
|
$
|
102,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for Impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
697
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
Evaluated for Impairment
|
|
$
|
22,975
|
|
|
$
|
2,092
|
|
|
$
|
69,462
|
|
|
$
|
3,137
|
|
|
$
|
1,482
|
|
|
$
|
274
|
|
|
$
|
2,266
|
|
|
$
|
101,688
|
|
Allowance for Credit Losses and Recorded Investment
in Loans Receivable
For the Year Ended December 31, 2018
(in thousands)
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Land
|
|
|
One-to-Four
Family
|
|
|
Construction
|
|
|
Multi-Family
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
94
|
|
|
$
|
56
|
|
|
$
|
545
|
|
|
$
|
8
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
48
|
|
|
$
|
756
|
|
Charge-offs
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(9
|
)
|
Recoveries
|
|
|
3
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Provision
|
|
|
17
|
|
|
|
(33
|
)
|
|
|
(39
|
)
|
|
|
8
|
|
|
|
1
|
|
|
|
16
|
|
|
|
35
|
|
|
|
5
|
|
Ending Balance
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
519
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
83
|
|
|
$
|
768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for Impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
Evaluated for Impairment
|
|
$
|
113
|
|
|
$
|
23
|
|
|
$
|
509
|
|
|
$
|
16
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
83
|
|
|
$
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
21,868
|
|
|
$
|
2,211
|
|
|
$
|
69,414
|
|
|
$
|
2,947
|
|
|
$
|
1,524
|
|
|
$
|
354
|
|
|
$
|
1,964
|
|
|
$
|
100,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated for Impairment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
Evaluated for Impairment
|
|
$
|
21,868
|
|
|
$
|
2,211
|
|
|
$
|
69,314
|
|
|
$
|
2,947
|
|
|
$
|
1,524
|
|
|
$
|
354
|
|
|
$
|
1,964
|
|
|
$
|
100,182
|
|
Credit quality indicators as of June 30,
2019 and December 31, 2018
:
Pass
- A pass asset is properly approved,
documented, collateralized, and performing. It does not reflect an abnormal amount of risk.
Special mention
- A special mention
asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result
in the deterioration of the repayment prospects for the asset or in the Company's credit position at some future date. Special
mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard
- An asset classified as
substandard has a well-defined weakness or weaknesses. A substandard asset is inadequately protected by the current net worth or
paying capacity of the obligor or pledged collateral, if any. It is characterized by the distinct possibility that the Company
will sustain some loss if the deficiencies are not corrected.
Doubtful
- Assets classified as doubtful
have all the weaknesses inherent in those classified as substandard. In addition, these weaknesses make collection or liquidation
in full highly questionable and improbable on the basis of currently existing facts, conditions, and values.
Loss
- Assets classified as loss are
considered uncollectible or of such little value that the continuance of the loan or other asset on the books of the Company is
not warranted. Some recovery of funds could be possible in the future, but the amount and probability of this recovery are not
determinable thus providing little justification for the assets to remain on the books.
The following tables represent the Company's
credit exposure by credit quality indicator as of June 30, 2019 and December 31, 2018:
Credit Risk Profile by Internally Assigned Grade
(in thousands)
June 30, 2019
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate
|
|
|
Land
|
|
|
One-to-Four
Family
|
|
|
Construction
|
|
|
Multi-Family
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Pass
|
|
$
|
22,975
|
|
|
$
|
2,074
|
|
|
$
|
68,815
|
|
|
$
|
3,137
|
|
|
$
|
1,482
|
|
|
$
|
274
|
|
|
$
|
2,266
|
|
|
$
|
101,023
|
|
Special Mention
|
|
|
-
|
|
|
|
-
|
|
|
|
404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
404
|
|
Substandard
|
|
|
-
|
|
|
|
18
|
|
|
|
940
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
958
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
22,975
|
|
|
$
|
2,092
|
|
|
$
|
70,159
|
|
|
$
|
3,137
|
|
|
$
|
1,482
|
|
|
$
|
274
|
|
|
$
|
2,266
|
|
|
$
|
102,385
|
|
December 31, 2018
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate
|
|
|
Land
|
|
|
One-to-Four
Family
|
|
|
Construction
|
|
|
Multi-Family
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Total
|
|
Pass
|
|
$
|
21,868
|
|
|
$
|
2,189
|
|
|
$
|
68,774
|
|
|
$
|
2,947
|
|
|
$
|
1,524
|
|
|
$
|
354
|
|
|
$
|
1,964
|
|
|
$
|
99,620
|
|
Special Mention
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Substandard
|
|
|
-
|
|
|
|
22
|
|
|
|
640
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
662
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
21,868
|
|
|
$
|
2,211
|
|
|
$
|
69,414
|
|
|
$
|
2,947
|
|
|
$
|
1,524
|
|
|
$
|
354
|
|
|
$
|
1,964
|
|
|
$
|
100,282
|
|
The following tables are an aging analysis
of loans as of June 30, 2019 and December 31, 2018:
Aged Analysis of Past Due Loans Receivable
(in thousands)
June 30, 2019
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
30-89
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Days
|
|
|
and Over
|
|
|
Total
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Status
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
219
|
|
|
$
|
-
|
|
|
$
|
219
|
|
|
$
|
22,756
|
|
|
$
|
-
|
|
|
$
|
22,975
|
|
Land
|
|
|
55
|
|
|
|
-
|
|
|
|
55
|
|
|
|
2,037
|
|
|
|
-
|
|
|
|
2,092
|
|
Residential
|
|
|
1,697
|
|
|
|
121
|
|
|
|
1,818
|
|
|
|
67,644
|
|
|
|
697
|
|
|
|
70,159
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,137
|
|
|
|
-
|
|
|
|
3,137
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,482
|
|
|
|
-
|
|
|
|
1,482
|
|
Consumer
|
|
|
47
|
|
|
|
-
|
|
|
|
47
|
|
|
|
227
|
|
|
|
-
|
|
|
|
274
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,266
|
|
|
|
-
|
|
|
|
2,266
|
|
|
|
$
|
2,018
|
|
|
$
|
121
|
|
|
$
|
2,139
|
|
|
$
|
99,549
|
|
|
$
|
697
|
|
|
$
|
102,385
|
|
Aged Analysis of Past Due Loans Receivable
(in thousands)
December 31, 2018
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
30-89
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Days
|
|
|
and Over
|
|
|
Total
|
|
|
|
|
|
Nonaccrual
|
|
|
Loans
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Status
|
|
|
Receivable
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
222
|
|
|
$
|
-
|
|
|
$
|
222
|
|
|
$
|
21,646
|
|
|
$
|
-
|
|
|
$
|
21,868
|
|
Land
|
|
|
15
|
|
|
|
-
|
|
|
|
15
|
|
|
|
2,196
|
|
|
|
-
|
|
|
|
2,211
|
|
Residential
|
|
|
2,116
|
|
|
|
-
|
|
|
|
2,116
|
|
|
|
67,198
|
|
|
|
100
|
|
|
|
69,414
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,947
|
|
|
|
-
|
|
|
|
2,947
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,524
|
|
|
|
-
|
|
|
|
1,524
|
|
Consumer
|
|
|
66
|
|
|
|
-
|
|
|
|
66
|
|
|
|
288
|
|
|
|
-
|
|
|
|
354
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,964
|
|
|
|
-
|
|
|
|
1,964
|
|
|
|
$
|
2,419
|
|
|
$
|
-
|
|
|
$
|
2,419
|
|
|
$
|
97,763
|
|
|
$
|
100
|
|
|
$
|
100,282
|
|
The following tables below present impaired loans disaggregated
by class as of and for the six months ended June 30, 2019 and the year ended December 31, 2018:
Impaired Loans
(in thousands)
|
|
As Of And For The Three Months Ended June 30, 2019
|
|
|
|
|
|
|
Unpaid
|
|
|
Allowance
for Loan
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
Investment
|
|
|
Principal
Balance
|
|
|
Losses
Allocated
|
|
|
Recorded
Investment
|
|
|
Income
Recognized
|
|
Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1-4 family residential
|
|
|
697
|
|
|
|
697
|
|
|
|
71
|
|
|
|
706
|
|
|
|
-
|
|
Multi-Family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer and Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1-4 family residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-Family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer and Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
697
|
|
|
$
|
697
|
|
|
$
|
71
|
|
|
$
|
706
|
|
|
$
|
-
|
|
Impaired Loans
(in thousands)
|
|
As Of And For The Year Ended December 31, 2018
|
|
|
|
|
|
|
Unpaid
|
|
|
Allowance
for Loan
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
Investment
|
|
|
Principal
Balance
|
|
|
Losses
Allocated
|
|
|
Recorded
Investment
|
|
|
Income
Recognized
|
|
Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1-4 family residential
|
|
|
100
|
|
|
|
100
|
|
|
|
10
|
|
|
|
99
|
|
|
|
-
|
|
Multi-Family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer and Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
1-4 family residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Multi-Family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer and Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
10
|
|
|
$
|
99
|
|
|
$
|
-
|
|
Troubled Debt Restructuring
The Company's troubled debt restructurings
are generally due to a modification of terms allowing the customer to make interest-only payments for an amount of time, an extension
of the loan term, and/or a reduction in interest rate to obtain a lower payment for the customer. The Company is not committed
to lend additional funds to debtors whose loans have been modified.
Troubled Debt Restructuring
(in thousands)
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
Number of
Loans
|
|
|
Modification
Outstanding
Recorded
Investment
|
|
|
Modification
Outstanding
Recorded
Investment
|
|
Modifications as of June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential - modified amortization
|
|
|
2
|
|
|
$
|
697
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential - modified amortization
|
|
|
0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Prior loan modifications have been performing
in compliance with their modified terms.
Note E - Fair Value of Financial Statements
Fair Value Disclosures
The Company groups its financial assets and
liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use
when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions
and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable
inputs. The three levels of inputs used to measure fair value are as follows:
|
·
|
Level 1 - Includes the most reliable sources, and includes quoted prices in active markets for
identical assets or liabilities.
|
|
·
|
Level 2 - Includes observable inputs. Observable inputs include inputs other than quoted prices
that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated
by observable market data by correlation or other means (market-corroborated inputs).
|
|
·
|
Level 3 - Includes unobservable inputs and should be used only when observable inputs are unavailable.
|
Recurring Basis
Fair values of investment securities available
for sale were primarily measured using information from a third-party pricing service. This pricing service provides information
by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported
trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.
The following tables present the balance of
assets and liabilities measured on a recurring basis as of June 30, 2019 and December 31, 2018. The Company did not record any
liabilities at fair value for which measurement of the fair value was made on a recurring basis.
(In thousands)
|
|
|
|
|
Fair Value Measurement Using
|
|
Description
|
|
Fair
Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
3,769
|
|
|
$
|
-
|
|
|
$
|
3,769
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed Securities
|
|
$
|
4,221
|
|
|
$
|
-
|
|
|
$
|
4,221
|
|
|
$
|
-
|
|
Nonrecurring Basis
The Company has segregated all financial assets
and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement date in the table below. The Company did not record any
liabilities at fair value for which measurement of the fair value was made on a non-recurring basis.
The fair value of the impaired loans is measured
at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level 2 assets measured using appraisals
from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated
costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available.
As such, the Company records repossessed assets as Level 2.
|
|
|
|
|
Fair Value Measurement Using
|
|
(In thousands)
|
|
Fair
Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
626
|
|
|
$
|
-
|
|
|
$
|
626
|
|
|
$
|
-
|
|
Repossessed Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
626
|
|
|
$
|
-
|
|
|
$
|
626
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
90
|
|
|
$
|
-
|
|
|
$
|
90
|
|
|
$
|
-
|
|
Repossessed Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
90
|
|
|
$
|
-
|
|
|
$
|
90
|
|
|
$
|
-
|
|
Fair values of financial instruments
In cases where quoted market prices of financial
instruments are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. The fair values of certain financial instruments and all non-financial instruments
are not required to be disclosed. Accordingly, the aggregate fair value amounts presented do not represent the underlying value
of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:
Cash, due from banks, federal funds
sold and interest-earning deposits with banks - The carrying amount is a reasonable estimate of fair value.
Securities - Fair value is based
on quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices
for similar securities.
Loans Receivable - Fair value is
estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Cash Value of Life Insurance - The
carrying amount approximates its fair value.
Deposits - The fair value of demand,
savings, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity
time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.
Borrowings - The carrying amounts
of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days
approximate their fair values. Fair values of other borrowings are estimated using discounted cash flow analyses based on current
incremental borrowing rates for similar types of borrowing arrangements.
Commitments to extend credit and
standby letters of credit - The fair values of commitments to extend credit and standby letters of credit do not differ significantly
from the commitment amount and are therefore omitted from this disclosure.
The carrying amounts and estimated fair values
of the Company’s financial instruments at June 30, 2019 and December 31, 2018, are as follows:
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
(In thousands)
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Short-Term Investments and Federal Funds Sold
|
|
$
|
8,811
|
|
|
$
|
8,811
|
|
|
$
|
8,811
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Securities-Available for Sale
|
|
|
3,769
|
|
|
|
3,769
|
|
|
|
-
|
|
|
|
3,769
|
|
|
|
-
|
|
Securities-Held to Maturity
|
|
|
458
|
|
|
|
455
|
|
|
|
-
|
|
|
|
455
|
|
|
|
-
|
|
Other Equity Securities
|
|
|
814
|
|
|
|
814
|
|
|
|
-
|
|
|
|
-
|
|
|
|
814
|
|
Cash Value of Life Insurance
|
|
|
2,128
|
|
|
|
2,128
|
|
|
|
-
|
|
|
|
2,128
|
|
|
|
-
|
|
Loans Held for Sale
|
|
|
681
|
|
|
|
681
|
|
|
|
-
|
|
|
|
681
|
|
|
|
-
|
|
Loans Held -Net
|
|
|
99,316
|
|
|
|
99,785
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,785
|
|
|
|
$
|
115,977
|
|
|
$
|
116,443
|
|
|
$
|
8,811
|
|
|
$
|
7,033
|
|
|
$
|
100,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
77,876
|
|
|
$
|
77,928
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
77,928
|
|
Borrowed Funds
|
|
|
18,961
|
|
|
|
19,008
|
|
|
|
-
|
|
|
|
19,008
|
|
|
|
-
|
|
|
|
$
|
96,837
|
|
|
$
|
96,936
|
|
|
$
|
-
|
|
|
$
|
19,008
|
|
|
$
|
77,928
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
(In thousands)
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Short-Term Investments and Federal Funds Sold
|
|
$
|
8,001
|
|
|
$
|
8,001
|
|
|
$
|
8,001
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Securities-Available for Sale
|
|
|
4,221
|
|
|
|
4,221
|
|
|
|
-
|
|
|
|
4,221
|
|
|
|
-
|
|
Securities-Held to Maturity
|
|
|
518
|
|
|
|
507
|
|
|
|
-
|
|
|
|
507
|
|
|
|
-
|
|
Other Equity Securities
|
|
|
802
|
|
|
|
802
|
|
|
|
-
|
|
|
|
-
|
|
|
|
802
|
|
Cash Value of Life Insurance
|
|
|
2,102
|
|
|
|
2,102
|
|
|
|
-
|
|
|
|
2,102
|
|
|
|
-
|
|
Loans Held for Sale
|
|
|
580
|
|
|
|
580
|
|
|
|
-
|
|
|
|
580
|
|
|
|
-
|
|
Loans-Net
|
|
|
97,533
|
|
|
|
98,841
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,841
|
|
|
|
$
|
113,757
|
|
|
$
|
115,054
|
|
|
$
|
8,001
|
|
|
$
|
7,410
|
|
|
$
|
99,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
77,297
|
|
|
$
|
76,754
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
76,754
|
|
Borrowed Funds
|
|
|
16,822
|
|
|
|
16,677
|
|
|
|
-
|
|
|
|
16,677
|
|
|
|
-
|
|
|
|
$
|
94,119
|
|
|
$
|
93,431
|
|
|
$
|
-
|
|
|
$
|
16,677
|
|
|
$
|
76,754
|
|
NOTE F – Change in Corporate Form
On July 12, 2017, Heritage Bank of St. Tammany
(“the Bank”) converted to the stock form of ownership, and issued all of its stock to Heritage NOLA Bancorp, Inc. The
Bank became the wholly owned subsidiary of the Company, and the Company issued and sold shares of its capital stock pursuant to
an independent valuation appraisal of the Bank and the Company. The stock was priced at $10.00 per share. In addition, the Bank’s
board of directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering.
The Conversion was completed on July 12, 2017 and resulted in the issuance of 1,653,125 common shares by the Company. The cost
of the Conversion and stock offering totaled $1.1 million and was deducted from the proceeds of the offering.
In accordance with OCC regulations, at the
time of the Conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation
account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after
the Conversion. The liquidation account will be reduced annually to the extent that eligible holders have reduced their qualifying
deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the
event of a complete liquidation by the Bank, and only in such event, each eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The
Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.
The Conversion was accounted for as a change
in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.
NOTE G – Earnings Per Share
Basic earnings per share (“EPS”)
represents income available to common shareholders divided by the weighted average number of common shares outstanding; no dilution
for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company.
Earnings per common share were computed as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(in thousands, except per share data)
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
42
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
1,643,650
|
|
|
|
1,652,991
|
|
Less: Average unallocated ESOP shares
|
|
|
121,670
|
|
|
|
121,670
|
|
Weighted average shares
|
|
|
1,521,980
|
|
|
|
1,531,321
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Restrictive Stock
|
|
|
9,958
|
|
|
|
8,624
|
|
Stock Options
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding - assuming dilution
|
|
|
1,531,938
|
|
|
|
1,539,945
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
Diluted earnings per common share
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
NOTE H – Employee Stock Ownership
Plan
As part of the Company’s stock conversion,
shares were purchased by the ESOP with a loan from Heritage NOLA Bancorp, Inc. All employees of the Bank meeting certain requirements
are entitled to participate in the ESOP. Compensation expense related to the ESOP for the three and six month periods ended June
30, 2019 was $22,000 and $43,000, respectively.
NOTE I – Equity Incentive Plan
In August 2018, the Company
's
stockholders authorized the adoption of the 2018 Heritage NOLA Bancorp, Inc. Equity Incentive Plan (the “Plan”). No
more than 231,437 shares of the Company's common stock may be issued under the Plan, of which a maximum of 165,312 may be issued
pursuant to the exercise of stock options and 66,125 may be issued pursuant to restricted stock awards, restricted stock units
and unrestricted share awards. Stock options awarded to employees may be incentive stock options or non-qualified stock options.
The shares that may be issued may be authorized but unissued shares or treasury shares. The Plan permits the grant of incentive
awards in the form of options, stock appreciation rights, restricted share and share unit awards, and performance share awards.
The Plan contains limits on certain types of awards to individual participants.
Awards may vest or become exercisable only
upon the achievement of performance measures or based solely on the passage of time af
ter
award. Stock options and restricted stock awards provide for accelerated vesting upon death, disability or if there is an
involuntary termination of service following a change in control (as defined in the Plan).
On August 16, 2018, the Company made grants
of restricted shares and stock options for 16,530 and 41,325
shares,
respectively, to non-employee members of the Board of Directors. The awards vest over a five-year period and the stock options
have a ten-year period to expiration. Each option has an exercise price of $12.48, as determined on the grant date.
On September 18, 2018, the Company made grants of restricted shares
and stock options for 49,581 and 104,500 shares, respectively, to certain members of management and staff. The awards vest over
either a five- or seven-year period and the stock options have a ten-year period to expiration. Each option has an exercise price
of $12.45, as determined on the grant date.
Stock Options
The table below represents the stock option activity for the period
shown:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2019
|
|
|
145,825
|
|
|
$
|
12.46
|
|
Granted
|
|
|
0
|
|
|
|
-
|
|
Exercised
|
|
|
0
|
|
|
|
-
|
|
Forfeited
|
|
|
0
|
|
|
|
-
|
|
Expired
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2019
|
|
|
145,825
|
|
|
$
|
12.46
|
|
As of June 30, 2019, the Company had $461,000 of unrecognized compensation
expense related to stock options, having recognized $51,000 of compensation expense for the six month period ended June 30, 2019.
The cost of stock options will be amortized in monthly installments over the five-year and seven-year vesting periods. The
aggregate grant date fair value of the stock options granted in 2018 was $544,000. The options outstanding at June 30, 2019,
were granted on August 16, 2018 and September 18, 2018. Accordingly, there are no options currently exercisable.
The fair value of the Company's stock options granted in 2018 were
$3.69 and $3.75 for the options granted on August 16, 2018 and September 18, 2018, respectively, and they were determined using
the Black-Scholes option pricing formula. The following assumptions were used in the formula:
|
|
Stock Options
|
|
|
Stock Options
|
|
|
|
Granted
|
|
|
Granted
|
|
|
|
August 16, 2018
|
|
|
September 18, 2018
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
12.44
|
%
|
|
|
11.94
|
%
|
Risk-free interest rate
|
|
|
2.87
|
%
|
|
|
3.05
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life (in years)
|
|
|
10
|
|
|
|
10
|
|
Exercise price for the stock options
|
|
$
|
12.48
|
|
|
$
|
12.45
|
|
Expected volatility
- Based on the historical
volatility of share price for the Company.
Risk-free interest rate
- Based on the
U.S. Treasury yield curve and expected life of the options at the time of grant.
Dividend yield
– Heritage NOLA Bancorp,
Inc. does not anticipate a quarterly dividend per share.
Expected life
- Based on the average of
the vesting period and the ten year contractual term of the stock option plan.
Exercise price for the stock options
-
Based on the closing price of the Company's stock on the date of grant.
Restricted Shares
Restricted shares are accounted for as fixed grants using the fair
value of the Company's stock at the time of the grant. Unvested restricted shares may not be disposed of or transferred during
the vesting period.
The table below presents the restricted stock award activity for
the period shown:
|
|
|
|
|
Weighted Average
|
|
|
|
Restricted
|
|
|
Fair Value at
|
|
|
|
Stock Awards
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
Non-vested at January 1, 2019
|
|
|
66,111
|
|
|
$
|
12.46
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
|
-
|
|
Vested
|
|
|
0
|
|
|
|
-
|
|
Forfeited
|
|
|
0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2019
|
|
|
66,111
|
|
|
$
|
12.46
|
|
As of June 30, 2019, the Company had $698,000 of unrecognized compensation
expense related to restricted shares, having recognized $77,000 of compensation expense for the six month period ending June 30,
2019. The cost of the restricted shares will be amortized in monthly installments over the five and seven-year vesting periods.