10-Q 1 form10q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 000-55898

 

SSB Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   82-2776224

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

     

8700 Perry Highway

Pittsburgh, Pennsylvania

 

 

15237

(Address of Principal Executive Offices)   (Zip Code)

 

(412) 837-6955

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [X] NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES [X] NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
  Emerging growth company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES [  ] NO [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

As of November 13, 2018, there were 2,248,250 outstanding shares of the registrant’s common stock, of which 1,236,538 shares are owned by SSB Bancorp, MHC.

 

 

 

 
 

 

SSB Bancorp, Inc.

Form 10-Q

 

Table of Contents

 

    Page
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements (unaudited) 3
     
  Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 3
     
  Consolidated Statements of Net Income for the Three Months Ended September 30, 2018 and 2017, and the Nine Months Ended September 30, 2018 and 2017 4
     
  Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2018 and 2017, and the Nine Months Ended September 30, 2018 and 2017 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2018 6
     
  Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2018 and 2017

7

     
  Notes to Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 44
     
Item 4. Controls and Procedures 44
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 45
   
Item 1A. Risk Factors 45
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 45
     
Item 3. Defaults Upon Senior Securities 45
     
Item 4. Mine Safety Disclosures 45
     
Item 5. Other Information 46
     
Item 6. Exhibits 46
     
  SIGNATURES 47

 

 
 

 

Item 1. Financial Statements

 

SSB Bancorp, Inc.

CONSOLIDATED BALANCE SHEETS

 

   September 30, 2018   December 31, 2017 
   (unaudited)     
ASSETS        
Cash and due from banks  $2,312,211   $2,558,134 
Interest-bearing deposits with other financial institutions   3,563,205    13,919,932 
Cash and cash equivalents   5,875,416    16,478,066 
           
Certificates of deposit   846,000    943,000 
Securities available for sale   8,922,885    2,616,350 
Securities held to maturity (fair value  of $7,196, and $9,494, respectively)   7,109    9,797 
Loans   157,715,438    141,615,982 
Allowance for loan losses   (1,101,600)   (1,041,445)
Net loans   156,613,838    140,574,537 
Accrued interest receivable   892,153    476,417 
Federal Home Loan Bank stock, at cost   2,614,900    2,162,600 
Premises and equipment, net   4,371,213    4,358,006 
Bank-owned life insurance   2,411,888    2,358,519 
Deferred tax asset, net   320,101    328,169 
Prepaid reorganization and stock issuance costs   -    837,944 
Other assets   894,118    762,086 
TOTAL ASSETS  $183,769,621   $171,905,491 
           
LIABILITIES          
Deposits:          
Noninterest-bearing demand  $491,252   $440,871 
Interest-bearing demand   14,098,425    23,167,923 
Money market   15,113,363    14,597,811 
Savings   13,752,379    12,524,304 
Time   87,910,953    81,699,115 
Total deposits   131,366,372    132,430,024 
           
Federal Home Loan Bank advances   31,374,500    26,416,200 
Advances by borrowers for taxes and insurance   317,744    688,451 
Accrued interest payable   245,098    206,597 
Other liabilities   114,918    52,621 
TOTAL LIABILITIES   163,418,632    159,793,893 
           
STOCKHOLDERS’ EQUITY          
Preferred Stock: $0.01 par value per share: 5,000,000 shares authorized and no shares issued or outstanding   -    - 
Common Stock: $0.01 par value per share: 20,000,000 shares authorized and 2,248,250 shares issued and outstanding   22,483     
Paid-in capital   8,693,940    - 
Retained earnings   12,585,581    12,135,085 
Unearned Employee Stock Ownership Plan (ESOP)   (848,261)   - 
Accumulated other comprehensive loss   (102,754)   (23,487)
TOTAL NET STOCKHOLDERS’ EQUITY   20,350,989    12,111,598 
           
TOTAL LIABILITIES AND STOCKHOLERS’ EQUITY  $183,769,621   $171,905,491 

 

See accompanying notes to the unaudited financial statements.

 

3
 

 

SSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF NET INCOME

 

   Three months ended September 30,   Nine months ended September 30, 
   2018   2017   2018   2017 
   (unaudited)   (unaudited) 
INTEREST INCOME                    
Loans, including fees  $1,817,716   $1,525,013   $5,106,169   $4,554,854 
Interest-bearing deposits with other financial institutions   25,985    17,738    59,892    35,193 
Certificates of deposit   3,801    4,780    11,295    18,799 
Investment securities:                
Taxable   66,977    27,578    153,804    77,084 
Exempt from federal income tax   8,202    8,652    25,081    28,081 
Total interest income   1,922,681    1,583,761    5,356,241    4,714,011 
                     
INTEREST EXPENSE                    
Deposits   578,042    444,654    1,551,743    1,281,868 
Federal Home Loan Bank advances   177,220    140,062    486,861    400,191  
Total interest expense   755,262    584,716    2,038,604    1,682,059 
                     
NET INTEREST INCOME   1,167,419    999,045    3,317,637    3,031,952 
Provision for loan losses   50,000    61,050    115,000    181,043 
                     
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES   1,117,419    937,995    3,202,637    2,850,909 
                     
NONINTEREST INCOME                    
Securities gains, net   -    -    -    350 
Gain on sale of loans   62,873    82,552    157,552    272,259 
Loan servicing fees   35,047    27,802    103,876    67,057 
Earnings on bank-owned life insurance   18,110    12,338    53,368    36,273 
Other   18,632    7,266    46,327    18,307 
Total noninterest income   134,662    129,958    361,123    394,246 
                     
NONINTEREST EXPENSE                    
Salaries and employee benefits   458,104    433,990    1,285,699    1,144,645 
Occupancy   93,123    67,082    280,232    187,631 
Professional fees   144,514    152,307    557,113    272,901 
Federal deposit insurance   41,000    25,500    129,500    87,500 
Data processing   93,487    71,980    243,573    209,710 
Director fees   41,153    20,938    111,441    58,478 
Contributions and donations   23,027    12,980    55,877    40,381 
Other   110,114    99,542    347,937    267,476 
Total noninterest expense   1,004,522    884,319    3,011,372    2,268,722 
                     
Income before income taxes   247,559    183,634    552,388    976,433 
Provision for income taxes   58,089    60,760    101,892    346,867 
                     
NET INCOME  $189,470   $122,874   $450,496   $629,566 
                     
EARNINGS PER COMMON SHARE                    
Basic  $0.09   $N/A    $N/A    $N/A  
Diluted  $0.09   $N/A   $N/A    $N/A  
                     
AVERAGE COMMON SHARES OUTSTANDING                    
Basic   2,162,873    N/A     N/A     N/A  
Diluted   2,162,873    N/A     N/A     N/A 
DIVIDENDS DECLARED PER COMMON SHARE  $-   $N/A    $N/A    $N/A 
COMPREHENSIVE INCOME  $133,438  $N/A   $N/A    $  N/A  

 

See accompanying notes to the unaudited financial statements.

 

4
 

 

SSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   Three months ended September 30,   Nine months ended September 30, 
   2018   2017   2018   2017 
   (unaudited)   (unaudited) 
Net income  $189,470   $122,874   $450,496   $629,566 
Other comprehensive income (loss):                    
Net change in unrealized gain (loss) on available-for-sale securities   (70,926)   988    (100,739)   53,686 
Income tax effect   14,894    (336)   21,472    (18,022)
                     
Reclassification adjustment for net securities (gains) losses recognized in income   -    -    -    (350)
Income tax effect included in provision for income taxes   -    -    -    119 
                     
Other comprehensive income (loss), net of tax   (56,032)   652    (79,267)   35,433 
                     
Total comprehensive income  $133,438   $123,526   $371,229   $664,999 

 

See accompanying notes to the unaudited financial statements.

 

5
 

 

SSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

   Common Stock   Paid-in capital   Retained earnings   Unearned Employee Stock Ownership Plan   Accumulated other comprehensive loss   Total 
Balance as of January 1, 2017  $-   $-   $11,542,127   $-   $(47,388)  $11,494,739 
                               
Reclassification of certain income tax effects from accumulated other comprehensive loss   -    -    3,860    -    (3,860)   - 
                               
Net income   -    -    589,098    -    -    589,098 
                               
Other comprehensive income   -    -    -    -    27,761    27,761 
                               
Balance as of January 1, 2018   -    -    12,135,085    -    (23,487)   12,111,598 
                               
Net income   -    -    450,496    -    -    450,496 
                               
Other comprehensive loss   -    -    -    -    (79,267)   (79,267)
                               
Net proceeds from stock offering (2,248,250 shares issued)   22,483    8,696,044    -    -    -    8,718,527 
                               
Purchase of ESOP shares (88,131 shares purchased)   -    -    -    (881,310)   -    (881,310)
                               
Amortization of ESOP   -    (2,104)   -    33,049    -    30,945 
                               
Balance as of September 30, 2018  $22,483   $8,693,940   $12,585,581   $(848,261)  $(102,754)  $20,350,989 

 

See accompanying notes to the unaudited financial statements.

 

6
 

 

SSB Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine months ended September 30, 
   2018   2017 
   (unaudited)
OPERATING ACTIVITIES          
Net income  $450,496   $629,566 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   115,000    181,043 
Depreciation   115,201    36,488 
Amortization (accretion) of security premiums and discounts   5,699    (8,584)
Origination of loans held for sale   (8,134,750)   (10,549,730)
Proceeds from sale of loans   8,292,303    10,821,989 
Gain on sale of loans   (157,553)   (272,259)
Deferred income tax provision   (14,646)   39,232 
Investment securities gains, net   -    (350)
(Increase) decrease in accrued interest receivable   (415,736)   45,709 
Increase in accrued interest payable   38,501    15,230 
Amortization of ESOP   30,945    - 
Increase in bank owned life insurance   (53,369)   (36,273)
Other, net   812,395    94,979 
Net cash provided by (used in) operating activities   1,084,486    997,040 
           
INVESTING ACTIVITIES          
Purchase of certificates of deposit   (248,000)   - 
Redemption of certificates of deposit   345,000    250,000 
Investment securities available for sale:          
Purchases   (6,651,661)   - 
Proceeds from sales   -    313,643 
Proceeds from principal repayments, calls, and maturities   238,688    215,862 
Investment securities held to maturity:          
Proceeds from principal repayments, calls, and maturities   2,688    3,398 
Redemption of Federal Home Loan Bank stock   174,400    741,300 
Purchase of Federal Home Loan Bank stock   (626,700)   (1,412,300)
Purchases of loans   -    (9,104,155)
Increase in loans receivable, net   (16,154,301)   (12,214,538)
Proceeds from sale of portfolio loans   -    6,934,868 
Purchases of premises and equipment   (128,408)   (2,670,421)
Net cash (used for) provided by investing activities   (23,048,294)   (16,942,343)
           
FINANCING ACTIVITIES          
(Decrease) increase in deposits, net   (1,063,652)   9,549,204 
Decrease in advances by borrowers for taxes and insurance   (370,707)   (571,503)
Net proceeds from stock offering   8,718,527    - 
Purchase of ESOP shares   (881,310)   - 
Repayment of Federal Home Loan Bank advance   (9,291,700)   (2,000,000)
Proceeds from Federal Home Loan Bank advances   14,250,000    9,291,700 
Increase in prepaid reorgainization and stock issuance costs   -    (837,944)
Net cash provided by (used in) financing activities   11,361,158    15,431,457 
           
Increase (decrease) in cash and cash equivalents   (10,602,650)   (513,846)
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   16,478,066    6,831,479 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $5,875,416   $6,317,633 
           
SUPPLEMENTAL CASH FLOW DISCLOSURES          
Cash paid during the year for:          
Interest  $2,000,103   $1,666,827 
Income taxes   101,562    462,019 

 

See accompanying notes to the unaudited financial statements.

 

7
 

 

SSB Bancorp, Inc.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

SSB Bancorp, Inc.

 

SSB Bancorp, Inc. (the “Company”) was incorporated on August 17, 2017 to serve as the subsidiary stock holding company for SSB Bank upon the reorganization of SSB Bank into a mutual holding company structure (the “Reorganization”). The Reorganization was completed effective January 24, 2018, with SSB Bank becoming the wholly-owned subsidiary of SSB Bancorp, Inc., and SSB Bancorp, Inc. becoming the majority-owned subsidiary of SSB Bancorp, MHC. In connection with the Reorganization, the Company sold 1,011,712 shares of common stock at an offering price of $10 per share. The Company’s stock began being quoted for listing on the OTC Bulletin Board on January 25, 2018, under the symbol “SSBP”. Also, in connection with the Reorganization, the Bank established an employee stock ownership plan (the “ESOP”), which purchased 88,131 shares of the Company’s common stock at a price of $10 per share. In the Reorganization, the Company also issued 1,236,538 shares of its common stock to SSB Bancorp, MHC.

 

SSB Bank

 

SSB Bank (the “Bank”) provides a variety of financial services to individuals and corporate customers through its offices in Pittsburgh, Pennsylvania. The Bank’s primary deposit products are passbook savings accounts, money market accounts, and certificates of deposit. Its primary lending products are commercial mortgage loan and single-family residential loans. The Bank is subject to regulation and supervision by the Federal Deposit Insurance Corporation (FDIC) and the Pennsylvania Department of Banking and Securities.

 

The interim financial statements at September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments reflected in the accompanying interim financial statements. The results of operations for the three or nine months ended September 30, 2018, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2018, or any other period. The financial statements at December 31, 2017, are audited.

 

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 disclosure of contingent assets and liabilities at the date of the Balance Sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

For further information, refer to the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

The consolidated financial statements include the accounts of SSB Bancorp, Inc. and SSB Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Financial information for the periods before the Reorganization on January 24, 2018 is that of SSB Bank only.

 

8
 

 

2. RECENT ACCOUNTING STANDARDS

 

On April 5, 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies and define an "emerging growth company." As an emerging growth company, the Company may delay adoption of new or revised financial accounting standards until such date that the standards are required to be adopted by non-issuer companies. If such standards would not apply to non-issuer companies, no deferral would be applicable. The Company has elected to take advantage of the benefits of extended transition periods. Accordingly, the Company’s consolidated financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. The effective dates of the following recent accounting standards reflect those that relate to non-issuer companies.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this Update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, a company should apply a five-step approach to revenue recognition. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early application is permitted, but only for annual reporting periods beginning after December 15, 2016. The Update is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) 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. 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. Entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Update is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. The amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Update is not expected to have a significant impact on the Company’s consolidated financial statements.

 

9
 

 

2. RECENT ACCOUNTING STANDARDS (Continued)

 

In September 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. For public business entities that do not meet the definition of an SEC filer, ASU 2016-13 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the financial statements, as any adjustment will be dependent on the composition of the loan portfolio at the time of adoption. The Company is currently in the early stages of implementing processes to comply with the requirements of the Update.

 

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323), Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This Update adds an SEC paragraph to the Codification following an SEC Staff Announcement about applying Staff Accounting Bulletin Topic 11.M. Specifically, this announcement applies to ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); and ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. A registrant should evaluate Updates that have not yet been adopted to determine the appropriate financial statement disclosures about the potential material effects of those Updates on the financial statements when adopted. If a registrant does not know or cannot reasonably estimate the impact that adoption of the Updates referenced in this announcement are expected to have on the financial statements, then in addition to making a statement to that effect, that registrant should consider additional qualitative financial statement disclosures to assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted. In this regard, the SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. The amendments in this Update are effective immediately.

 

10
 

 

2. RECENT ACCOUNTING STANDARDS (Continued)

 

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Update is not expected to have a significant impact on the Company’s consolidated financial statements.

 

In February 2018, the FASB issued Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides the option to reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017.  ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate.  The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 34.0 percent and the newly enacted corporate income tax rate of 21.0 percent.  ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued.  The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized.  The Company chose to early adopt the new standard for the year ended December 31, 2017, as allowed. The amount of the reclassification for the Company was $3,860.

 

11
 

 

3. SECURITIES AVAILABLE FOR SALE

 

The amortized cost, gross unrealized gains and losses, and fair values of securities available for sale are as follows:

 

   September 30, 2018 (unaudited) 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Mortgage-backed securities in government-sponsored entities  $4,021,797   $279   $(46,885)  $3,975,191 
Obligations of state and  political subdivisions   1,540,374    171    (52,406)   1,488,139 
Corporate bonds   3,298,437    -    (31,514)   3,266,923 
U.S. treasury securities   192,746    29    (143)   192,632 
Total  $9,053,354   $479   $(130,948)  $8,922,885 

 

   December 31, 2017 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Mortgage-backed securities in  government-sponsored entities  $524,873   $-   $(5,615)  $519,258 
Obligations of state and  political subdivisions   1,626,608    852    (27,582)   1,599,878 
Corporate bonds   300,952    1,399    (453)   301,898 
U.S. treasury securities   193,647    1,669    -    195,316 
Total  $2,646,080   $3,920   $(33,650)  $2,616,350 

 

The amortized cost and fair value of investment securities available for sale 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. Mortgage-backed securities provide for periodic payments of principal and interest and have contractual maturities ranging from less than 1 year to 25 years. Due to expected repayment terms being significantly less than the underlying mortgage pool contractual maturities, estimated lives of these securities could be significantly shorter.

 

   September 30, 2018 (unaudited) 
   Amortized   Fair 
   Cost   Value 
         
Due within one year or less  $392,831   $392,013 
Due after one year through five years   2,687,988    2,657,569 
Due after five years through ten years   2,021,327    1,968,980 
Due after ten years   3,951,208    3,904,323 
Total  $9,053,354   $8,922,885 

 

12
 

 

3. SECURITIES AVAILABLE FOR SALE (Continued)

 

For the three months ended September 30, 2018 and 2017, there were no sales of investment securities available for sale.

 

For the nine months ended September 30, 2018, there were no sales of investment securities available for sale. For the nine months ended September 30, 2017, there were 2 municipal bonds sold with a total amortized cost of $315,811 and an associated gain on sale of $350. The proceeds of the sale were $313,643.

 

4. SECURITIES HELD TO MATURITY

 

The amortized cost, gross unrealized gains and losses, and fair values of securities held to maturity are as follows:

 

   September 30, 2018 (unaudited) 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Mortgage-backed securities in government-sponsored entities  $7,109   $87   $-   $7,196 
Total  $7,109   $87   $-   $7,196 

 

   December 31, 2017 
       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Mortgage-backed securities in government-sponsored entities  $9,797   $-   $(303)  $9,494 
Total  $9,797   $-   $(303)  $9,494 

 

The amortized cost and fair value of mortgage-backed securities by contractual maturity are shown below. Mortgage-backed securities provide for periodic payments of principal and interest and have contractual maturities ranging up to 10 years. Due to expected repayment terms being less than the underlying mortgage pool contractual maturities, estimated lives of these securities could be significantly shorter.



   September 30, 2018 (unaudited) 
   Amortized   Fair 
   Cost   Value 
         
Due within one year or less  $30   $30 
Due after one year through five years   5,545    5,585 
Due after five years through ten years   1,534    1,581 
           
Total  $7,109   $7,196 

 

13
 

 

5.UNREALIZED LOSSES ON SECURITIES

 

The following tables show the Bank’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position:

 

   September 30, 2018 (unaudited) 
   Less than Twelve Months   Twelve Months or Greater   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
                         
U.S. treasury securities  $159,530   $(143)  $-   $-   $159,530   $(143)
Mortgage-backed securities  in government-sponsored entities   3,548,709    (33,886)   355,614    (12,999)   3,904,323    (46,885)
Obligations of state and  political subdivisions   1,046,166    (17,428)   393,718    (34,978)   1,439,884    (52,406)
Corporate bonds   3,266,923    (31,514)   -    -    3,266,923    (31,514)
Total  $8,021,328   $(82,971)  $749,332   $(47,977)  $8,770,660   $(130,948)

 

   December 31, 2017 
   Less than Twelve Months   Twelve Months or Greater   Total 
       Gross       Gross       Gross 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
                         
Mortgage-backed securities in government-sponsored entities  $519,258   $(5,615)  $9,494   $(303)  $528,752   $(5,918)
Obligations of state and  political subdivisions   1,044,275    (7,238)   405,521    (20,344)   1,449,796    (27,582)
Corporate bonds   199,898    (453)   -    -    199,898    (453)
                               
Total  $1,763,431   $(13,306)  $415,015   $(20,647)  $2,178,446   $(33,953)

 

Management reviews the Bank’s investment positions monthly. There were 24 investments that were temporarily impaired as of September 30, 2018, with aggregate depreciation of less than 2 percent of the Bank’s amortized cost basis. There were 20 investments that were temporarily impaired as of December 31, 2017, with aggregate depreciation of less than 2 percent from the Bank’s amortized cost basis. Management has asserted that at September 30, 2018 and December 31, 2017, the declines outlined in the above table represent temporary declines and the Bank does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity.

 

The Bank has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and the declines are the result of interest rate changes, sector credit rating changes, or company-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

 

14
 

 

6. LOANS

 

The Bank’s loan portfolio summarized by category is as follows:

 

   September 30, 2018   December 31, 2017 
   (unaudited)     
Mortgage loans:          
One-to-four family  $75,617,401   $75,858,226 
Commercial   58,702,797    50,122,058 
    134,320,198    125,980,284 
           
Commercial and industrial   18,118,214    11,455,554 
Consumer   5,177,999    4,014,258 
    157,616,411    141,450,096 
           
Third-party loan acquisition and other net origination costs     304,708    385,883  
Discount on loans previously held for sale   (205,681)   (219,997)
Allowance for loan losses   (1,101,600)   (1,041,445)
           
Total  $156,613,838   $140,574,537 

 

The Bank’s primary business activity is with customers located in Pittsburgh and surrounding communities. The Bank’s loan portfolio consists predominantly of one-to-four family mortgage and commercial mortgage loans. These loans are typically secured by first-lien positions on the respective real estate properties and are subject to the Bank’s underwriting policies.

 

During the normal course of business, the Bank may sell a portion of a loan as a participation loan in order to manage portfolio risk. In order to be eligible for sales treatment, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties, and no loan holder can have the right to pledge or exchange the entire loan. The Bank had transferred $7,606,923 and $8,129,670 in participation loans as of September 30, 2018 and December 31, 2017, respectively, to other financial institutions. As of September 30, 2018, and December 31, 2017, all these loans were being serviced by the Bank.

 

15
 

 

7. ALLOWANCE FOR LOAN LOSSES

 

The allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance sheet date. The following tables present, by portfolio segment, the changes in the allowance for loan losses and the recorded investment in loans for the three and nine months ended September 30, 2018 (unaudited) and 2017 (unaudited), respectively:

 

Three months ended
September 30, 2018:
  Mortgage
One-to-Four
   Mortgage   Commercial
and
   Consumer
and
     
Allowance for loan losses:  Family   Commercial   Industrial   HELOC   Total 
Beginning balance  $471,438   $437,619   $134,880   $46,079   $1,090,016 
Charge-offs   -    -    (9,270)   (29,146)   (38,416)
Recoveries   -    -    -    -    - 
Provision (credit)   (33,194)   (46,940)   104,987    25,147    50,000 
Ending balance  $438,244   $390,679   $230,597   $42,080   $1,101,600 

 

Three months ended
September 30, 2017:
  Mortgage
One-to-Four
   Mortgage   Commercial
and
   Consumer
and
     
Allowance for loan losses:   Family   Commercial   Industrial   HELOC   Total 
Beginning balance  $488,009   $324,941   $70,466   $57,316   $940,732 
Charge-offs   -    -    -    -    - 
Recoveries   -    -    -    -    - 
Provision (credit)   2,495    12,352    15,186    31,017    61,050 
Ending balance  $490,504   $337,293   $85,652   $88,333   $1,001,782 

 

Nine months ended
September 30, 2018:
  Mortgage
One-to-Four
   Mortgage   Commercial
and
   Consumer
and
     
Allowance for loan losses:   Family   Commercial   Industrial   HELOC   Total 
Beginning balance  $513,846   $383,535   $80,854   $63,210   $1,041,445 
Charge-offs   (16,429)   -    (9,270)   (29,146)   (54,845)
Recoveries   -    -    -    -    - 
Provision (credit)   (59,173)   7,144    159,013    8,016    115,000 
Ending balance  $438,244   $390,679   $230,597   $42,080   $1,101,600 

 

Nine months ended
September 30, 2017:
  Mortgage
One-to-Four
   Mortgage   Commercial
and
   Consumer
and
     
Allowance for loan losses:  Family   Commercial   Industrial   HELOC   Total 
Beginning balance  $498,410   $228,763   $59,439   $34,127   $820,739 
Charge-offs   -    -    -    -    - 
Recoveries   -    -    -    -    - 
Provision (credit)   (7,906)   108,530    26,213    54,206    181,043 
Ending balance  $490,504   $337,293   $85,652   $88,333   $1,001,782 

 

16
 

 

7. ALLOWANCE FOR LOAN LOSSES (Continued)

 

The following tables summarize the loan portfolio and allowance for loan losses by the primary segments of the loan portfolio as of September 30, 2018 (unaudited), and December 31, 2017.

 

   Mortgage One-to-Four Family   Mortgage Commercial   Commercial and Industrial   Consumer and HELOC   Total 
September 30, 2018                    
Allowance for loan losses:                         
Loans deemed impaired   33,422    -    -    -    33,422 
                          
Loans not deemed impaired   404,822    390,679    230,597    42,080    1,068,178 
                          
Ending Balance   438,244    390,679    230,597    42,080    1,101,600 
                          
September 30, 2018                         
Loans:                         
Loans deemed impaired   2,492,049    1,779,350    155,660    11,747    4,438,806 
                          
Loans not deemed impaired   73,125,352    56,923,447    17,962,554    5,166,252    153,177,605 
                          
Ending Balance   75,617,401    58,702,797    18,118,214    5,177,999    157,616,411 

 

   Mortgage One-to-Four Family   Mortgage Commercial   Commercial and Industrial   Consumer and HELOC   Total 
December 31, 2017                         
Allowance for loan losses:                         
Loans deemed impaired   23,870    -    -    -    23,870 
                          
Loans not deemed impaired   489,976    383,535    80,854    63,210    1,017,575 
                          
Ending Balance   513,846    383,535    80,854    63,210    1,041,445 
                          
December 31, 2017                         
Loans:                         
Loans deemed impaired   2,508,658    1,122,740    8,251    29,245    3,668,894 
                          
Loans not deemed impaired   73,349,568    48,999,318    11,447,303    3,985,013    137,781,202 
                          
Ending Balance   75,858,226    50,122,058    11,455,554    4,014,258    141,450,096 

 

17
 

 

7. ALLOWANCE FOR LOAN LOSSES (Continued)

 

The following tables present impaired loans by class as of September 30, 2018 (unaudited), and December 31, 2017, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary.

 

   September 30, 2018   December 31, 2017 
       Unpaid           Unpaid     
   Recorded   Principal   Related   Recorded   Principal   Related 
   Investment   Balance   Allowance   Investment   Balance   Allowance 
                         
With no allowance recorded:                              
Mortgage loans:                              
One-to-four family  $2,137,668   $2,137,668   $-   $2,356,007   $2,356,007   $- 
Commercial  $1,779,350   $1,779,350    -    1,122,740    1,122,740    - 
Commercial and Industrial  $155,660   $155,660    -    8,251    8,251    - 
Consumer and HELOC  $11,747   $11,747    -    29,245    29,245    - 
                               
With an allowance recorded:                              
Mortgage loans:                              
One-to-four family   354,381    354,381    33,422    152,651    152,651    23,870 
Commercial   -    -    -    -    -    - 
Commercial and Industrial   -    -    -    -    -    - 
Consumer and HELOC   -    -    -    -    -    - 
                               
Total mortgage loans:                              
One-to-four family   2,492,049    2,492,049    33,422    2,508,658    2,508,658    23,870 
Commercial   1,779,350    1,779,350    -    1,122,740    1,122,740    - 
Commercial and Industrial   155,660    155,660    -    8,251    8,251    - 
Consumer and HELOC   11,747    11,747    -    29,245    29,245    -