10-Q 1 fsea-10q_20200630.htm 10-Q fsea-10q_20200630.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

For the quarterly period ended June 30, 2020

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.    001-38985    

 

 

First Seacoast Bancorp

(Exact Name of Registrant as Specified in Its Charter)

 

 

United States of America

 

84-2404519

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

633 Central Avenue, Dover, New Hampshire

 

03820

(Address of Principal Executive Offices)

 

(Zip Code)

 

(603) 742-4680

(Registrant’s Telephone Number, Including Area Code)

 

 

Not Applicable

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

Securities registered pursuant to Section 12(b) of the Act:  

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.01 par value per share

 

FSEA

 

The Nasdaq Stock Market, LLC

 

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     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      NO  

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES     NO  

6,083,500 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of August 14, 2020, of which 3,345,925 shares were owned by First Seacoast Bancorp, MHC.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Consolidated Financial Statements

2

 

Consolidated Balance Sheets at June 30, 2020 (unaudited) and December 31, 2019

2

 

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

3

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

4

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

5

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)

6

 

Notes to Consolidated Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

41

PART II.

OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

Defaults Upon Senior Securities

43

Item 4.

Mine Safety Disclosures

43

Item 5.

Other Information

43

Item 6.

Exhibits

44

 

Signatures

45

 

1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Balance Sheets

 

(Dollars in thousands)

 

(Unaudited)

June 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

30,625

 

 

$

4,009

 

Interest bearing time deposits with other banks

 

 

2,488

 

 

 

2,735

 

Securities available-for-sale, at fair value

 

 

44,223

 

 

 

44,785

 

Federal Home Loan Bank stock

 

 

2,776

 

 

 

2,971

 

Loans

 

 

381,488

 

 

 

344,855

 

Less allowance for loan losses

 

 

(3,153

)

 

 

(2,875

)

Net loans

 

 

378,335

 

 

 

341,980

 

Land, building and equipment, net

 

 

5,311

 

 

 

5,338

 

Bank-owned life insurance

 

 

4,292

 

 

 

4,267

 

Accrued interest receivable

 

 

1,360

 

 

 

1,235

 

Other assets

 

 

1,998

 

 

 

2,173

 

Total assets

 

$

471,408

 

 

$

409,493

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing deposits

 

$

59,942

 

 

$

41,586

 

Interest bearing deposits

 

 

270,683

 

 

 

240,030

 

Total deposits

 

 

330,625

 

 

 

281,616

 

Advances from Federal Home Loan Bank

 

 

51,312

 

 

 

66,219

 

Advances from Federal Reserve Bank

 

 

25,713

 

 

 

 

Mortgagors’ tax escrow

 

 

706

 

 

 

586

 

Deferred compensation liability

 

 

1,590

 

 

 

1,607

 

Other liabilities

 

 

3,090

 

 

 

2,399

 

Total liabilities

 

 

413,036

 

 

 

352,427

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred Stock, $.01 par value, 10,000,000 shares authorized as of

   June 30, 2020 and December 31, 2019; none issued and

   outstanding as of June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common Stock, $.01 par value, 90,000,000 shares authorized as of

   June 30, 2020 and December 31, 2019; 6,083,500 shares issued

   and outstanding as of June 30, 2020 and December 31, 2019

 

 

61

 

 

 

61

 

Additional paid-in capital

 

 

25,622

 

 

 

25,636

 

Equity capital

 

 

33,901

 

 

 

33,113

 

Accumulated other comprehensive income

 

 

994

 

 

 

521

 

Unearned compensation - ESOP 220,587 and 226,549 shares

   unallocated at June 30, 2020 and December 31, 2019, respectively

 

 

(2,206

)

 

 

(2,265

)

Total stockholders' equity

 

 

58,372

 

 

 

57,066

 

Total liabilities and stockholders' equity

 

$

471,408

 

 

$

409,493

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2


FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands, except per share data)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

3,606

 

 

$

3,487

 

 

$

7,215

 

 

$

6,865

 

Interest on debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

64

 

 

 

205

 

 

 

151

 

 

 

417

 

Non-taxable

 

 

224

 

 

 

136

 

 

 

414

 

 

 

251

 

Total interest on debt securities

 

 

288

 

 

 

341

 

 

 

565

 

 

 

668

 

Dividends

 

 

36

 

 

 

58

 

 

 

78

 

 

 

119

 

Total interest and dividend income

 

 

3,930

 

 

 

3,886

 

 

 

7,858

 

 

 

7,652

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

420

 

 

 

562

 

 

 

934

 

 

 

1,076

 

Interest on borrowed funds

 

 

239

 

 

 

505

 

 

 

515

 

 

 

1,020

 

Total interest expense

 

 

659

 

 

 

1,067

 

 

 

1,449

 

 

 

2,096

 

Net interest and dividend income

 

 

3,271

 

 

 

2,819

 

 

 

6,409

 

 

 

5,556

 

Provision for loan losses

 

 

160

 

 

 

25

 

 

 

275

 

 

 

25

 

Net interest income after provision for loan losses

 

 

3,111

 

 

 

2,794

 

 

 

6,134

 

 

 

5,531

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

 

225

 

 

 

254

 

 

 

457

 

 

 

473

 

Gain on sale of loans

 

 

166

 

 

 

24

 

 

 

218

 

 

 

35

 

Securities gains (losses), net

 

 

169

 

 

 

(2

)

 

 

283

 

 

 

(10

)

Income from bank-owned life insurance

 

 

21

 

 

 

29

 

 

 

25

 

 

 

59

 

Loan servicing fee income (loss)

 

 

18

 

 

 

(20

)

 

 

(7

)

 

 

(25

)

Investment services fees

 

 

52

 

 

 

61

 

 

 

99

 

 

 

105

 

Other income

 

 

10

 

 

 

12

 

 

 

25

 

 

 

24

 

Total noninterest income

 

 

661

 

 

 

358

 

 

 

1,100

 

 

 

661

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,962

 

 

 

1,773

 

 

 

3,952

 

 

 

3,525

 

Director compensation

 

 

67

 

 

 

76

 

 

 

125

 

 

 

156

 

Occupancy expense

 

 

171

 

 

 

169

 

 

 

324

 

 

 

340

 

Equipment expense

 

 

146

 

 

 

133

 

 

 

290

 

 

 

265

 

Marketing

 

 

67

 

 

 

165

 

 

 

158

 

 

 

247

 

Data processing

 

 

292

 

 

 

85

 

 

 

559

 

 

 

304

 

Deposit insurance fees

 

 

17

 

 

 

65

 

 

 

47

 

 

 

120

 

Professional fees and assessments

 

 

224

 

 

 

113

 

 

 

420

 

 

 

243

 

Debit card fees

 

 

67

 

 

 

40

 

 

 

116

 

 

 

75

 

Employee travel and education expenses

 

 

22

 

 

 

68

 

 

 

54

 

 

 

119

 

Other expense

 

 

183

 

 

 

246

 

 

 

355

 

 

 

397

 

Total noninterest expense

 

 

3,218

 

 

 

2,933

 

 

 

6,400

 

 

 

5,791

 

Income before income tax expense

 

 

554

 

 

 

219

 

 

 

834

 

 

 

401

 

Income tax expense

 

 

23

 

 

 

6

 

 

 

46

 

 

 

10

 

Net income

 

$

531

 

 

$

213

 

 

$

788

 

 

$

391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

N/A

 

 

$

0.13

 

 

N/A

 

Diluted

 

$

0.09

 

 

N/A

 

 

$

0.13

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,862,913

 

 

N/A

 

 

 

5,861,423

 

 

N/A

 

Diluted

 

 

5,862,913

 

 

N/A

 

 

 

5,861,423

 

 

N/A

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Statements of COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

531

 

 

$

213

 

 

$

788

 

 

$

391

 

Other comprehensive income, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities available-for-sale

   arising during the period net of income taxes of $163,

   $124, $257 and $318, respectively

 

 

436

 

 

 

332

 

 

 

688

 

 

 

850

 

Reclassification adjustment for (gains)/losses and net

   amortization or accretion on securities available-for-sale

   included in net income net of income taxes of $18, $4, $36

   and $13, respectively

 

 

(49

)

 

 

12

 

 

 

(96

)

 

 

37

 

Total unrealized gains on securities

 

 

387

 

 

 

344

 

 

 

592

 

 

 

887

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in interest rate swaps net of income taxes of $(45),

   $-0-, $(45) and $-0-, respectively

 

 

(119

)

 

 

 

 

 

(119

)

 

 

 

Other comprehensive income

 

 

268

 

 

 

344

 

 

 

473

 

 

 

887

 

Comprehensive income

 

$

799

 

 

$

557

 

 

$

1,261

 

 

$

1,278

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

4


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED Statements of Changes in STOCKHOLDERS’ EQUITY (UNAUDITED)

 

(Dollars in thousands)

 

Shares of

Common

Stock

 

 

Common

Stock

 

 

Additional Paid-in

Capital

 

 

Equity

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Unearned

Compensation

- ESOP

 

 

Total

Equity

Capital

 

Balance December 31, 2018

 

 

 

 

$

 

 

$

 

 

$

33,192

 

 

$

(465

)

 

$

 

 

$

32,727

 

Net income

 

 

 

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

 

 

 

178

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

543

 

 

 

 

 

 

543

 

Balance March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

33,370

 

 

 

78

 

 

 

 

 

 

33,448

 

Net income

 

 

 

 

 

 

 

 

 

 

 

213

 

 

 

 

 

 

 

 

 

213

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

344

 

 

 

 

 

 

344

 

Balance June 30, 2019

 

 

 

 

$

 

 

$

 

 

$

33,583

 

 

$

422

 

 

$

 

 

$

34,005

 

Balance December 31, 2019

 

 

6,083,500

 

 

$

61

 

 

$

25,636

 

 

$

33,113

 

 

$

521

 

 

$

(2,265

)

 

$

57,066

 

Net income

 

 

 

 

 

 

 

 

 

 

 

257

 

 

 

 

 

 

 

 

 

257

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

205

 

 

 

 

 

 

205

 

ESOP shares earned - 2,981 shares

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

29

 

 

 

26

 

Balance March 31, 2020

 

 

6,083,500

 

 

 

61

 

 

 

25,633

 

 

 

33,370

 

 

 

726

 

 

 

(2,236

)

 

 

57,554

 

Net income

 

 

 

 

 

 

 

 

 

 

 

531

 

 

 

 

 

 

 

 

 

531

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

268

 

 

 

 

 

 

268

 

ESOP shares earned - 2,981 shares

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

30

 

 

 

19

 

Balance June 30, 2020

 

 

6,083,500

 

 

$

61

 

 

$

25,622

 

 

$

33,901

 

 

$

994

 

 

$

(2,206

)

 

$

58,372

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

5


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Six Months Ended

June 30,

 

(Dollars in thousands)

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

788

 

 

$

391

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

ESOP expense

 

 

45

 

 

 

 

Depreciation

 

 

290

 

 

 

265

 

Net amortization of bond premium

 

 

151

 

 

 

40

 

Provision for loan losses

 

 

275

 

 

 

25

 

Gain on sale of loans

 

 

(218

)

 

 

(35

)

Securities (gains) losses, net

 

 

(283

)

 

 

10

 

Proceeds from loans sold

 

 

9,037

 

 

 

2,206

 

Origination of loans sold

 

 

(8,819

)

 

 

(2,171

)

Increase in bank-owned life insurance

 

 

(25

)

 

 

(59

)

Increase (decrease) in deferred fees on loans

 

 

1,089

 

 

 

(12

)

Deferred tax benefit

 

 

(306

)

 

 

(130

)

Increase in accrued interest receivable

 

 

(125

)

 

 

(84

)

Decrease (increase) in other assets

 

 

261

 

 

 

(913

)

Decrease in deferred compensation liability

 

 

(17

)

 

 

(15

)

Increase in other liabilities

 

 

571

 

 

 

47

 

Net cash provided by (used in) operating activities

 

 

2,714

 

 

 

(435

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of securities available-for-sale

 

 

19,421

 

 

 

7,009

 

Purchase of securities available-for-sale

 

 

(17,914

)

 

 

(9,916

)

Purchase of property and equipment

 

 

(262

)

 

 

(120

)

Loan purchases

 

 

(9,901

)

 

 

 

Loan originations and principal collections, net

 

 

(27,819

)

 

 

(13,168

)

Net redemption of Federal Home Loan Bank stock

 

 

195

 

 

 

1,250

 

Proceeds from sales of interest bearing time deposits with other banks

 

 

247

 

 

 

1,739

 

Net cash used by investing activities

 

 

(36,033

)

 

 

(13,206

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase (decrease) in NOW, demand deposits, money market and savings accounts

 

 

51,979

 

 

 

(2,971

)

Net (decrease) increase in certificates of deposit

 

 

(2,970

)

 

 

12,429

 

Increase in mortgagors’ escrow accounts

 

 

120

 

 

 

58

 

Proceeds from short-term FHLB advances

 

 

5,000

 

 

 

137,654

 

Payments on short-term FHLB advances

 

 

(29,907

)

 

 

(157,379

)

Proceeds from long-term FHLB advances

 

 

20,000

 

 

 

 

Payments on long-term FHLB advances

 

 

(10,000

)

 

 

 

Proceeds from short-term FRB advances

 

 

25,713

 

 

 

 

Proceeds from stock subscriptions

 

 

 

 

 

28,609

 

Net cash provided by financing activities

 

 

59,935

 

 

 

18,400

 

Net change in cash and cash equivalents

 

 

26,616

 

 

 

4,759

 

Cash and cash equivalents at beginning of period

 

 

4,009

 

 

 

5,889

 

Cash and cash equivalents at end of period

 

$

30,625

 

 

$

10,648

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash activities:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,435

 

 

$

2,132

 

Cash paid for income taxes

 

 

59

 

 

 

13

 

Noncash activities:

 

 

 

 

 

 

 

 

Effect of change in fair value of securities available-for-sale:

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

812

 

 

 

1,219

 

Deferred taxes

 

 

(220

)

 

 

(332

)

Other comprehensive income

 

 

592

 

 

 

887

 

Effect of change in fair value of interest rate swaps:

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(164

)

 

 

 

Deferred taxes

 

 

45

 

 

 

 

Other comprehensive income

 

 

(119

)

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.  

6


 

FIRST SEACOAST BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of First Seacoast Bancorp (the “Company”) were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim consolidated financial information, general practices within the banking industry and with instructions for Form 10-Q and Regulation S-X.  Accordingly, these interim financial statements do not include all the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of these consolidated financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto  contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 27, 2020.

The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, First Seacoast Bank (the “Bank”), and the Bank’s wholly owned subsidiary, FSB Service Corporation, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Corporate Structure

The Company is the holding company for the Bank (formerly named Federal Savings Bank). Effective July 16, 2019, pursuant to a Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock Issuance Plan (the “Plan of Reorganization”), the Bank reorganized into the mutual holding company structure and the Company completed a concurrent stock offering (collectively, the “Reorganization”).  In the stock offering, the Company sold a total of 2,676,740 shares of common stock, which included 238,473 shares sold to the First Seacoast Bank Employee Stock Ownership Plan (the “ESOP”), at a price of $10.00 per share. In addition, as part of the Reorganization, the Company issued 3,345,925 shares of common stock to First Seacoast Bancorp, MHC (the “MHC”), the Bank’s parent mutual holding company, and 60,835 shares of common stock and $150,000 in cash to First Seacoast Community Foundation, Inc. (the “Foundation”), a charitable foundation formed in connection with the reorganization and dedicated to supporting charitable organizations operating in the Bank’s local community. The Company’s common stock began trading on the NASDAQ Capital Market under the symbol “FSEA” on July 17, 2019. Pursuant to the Plan of Reorganization, the Bank adopted an employee stock ownership plan (“ESOP”), which purchased 238,473 shares of common stock in the stock offering with the proceeds of a loan from the Company. As a result of the Reorganization, a total of 6,083,500 shares of common stock of the Company are issued and outstanding, of which 55% are issued to the MHC, 44% were sold to the Bank’s eligible members, the ESOP, and certain other persons in the stock offering, and 1% were contributed to the Foundation.  Expenses incurred related to the offering were $1.6 million and were deducted from the stock offering proceeds.

The Bank focuses on four core services that center around customer needs. The core services include residential lending, commercial banking, personal banking, and wealth management. The Bank offers a full range of commercial and consumer banking services through its network of five full-service branch locations. Banking services, the Company’s only reportable operating segment, is managed as a single strategic unit.

The Bank is engaged principally in the business of attracting deposits from the public and investing those deposits. The Bank invests those funds in various types of loans, including residential and commercial real estate and a variety of commercial and consumer loans. The Bank also invests its deposits and borrowed funds in investment securities. Deposits at the Bank are insured by the Federal Deposit and Insurance Corporation (“FDIC”) for the maximum amount permitted by FDIC regulations.

Investment management services are offered at the Company’s full-service wealth management office in Dover, New Hampshire. The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the accompanying balance sheets. Assets under management totaled approximately $49.6 million and $49.3 million at June 30, 2020 and December 31, 2019, respectively. Our wealth management group, FSB Wealth Management, assists individuals and families in building and preserving their wealth by providing investment services. The investment management group manages portfolios utilizing a variety of investment products. This group also provides a full-service brokerage offering equities, mutual funds, life insurance and annuity products.

7


 

Recently Adopted Accounting Standards

As an “emerging growth company,” as defined in Title 1 of Jumpstart Our Business Startups (JOBS) Act, the Company has elected to use the extended transition period to delay adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As a result, the Company’s consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards without an extended transition period. As of June 30, 2020, there is no significant difference in the comparability of the Company’s consolidated financial statements as a result of this extended transition period except for the accounting treatment for measuring and recording the Company’s allowance for loan losses. The Company measures and records an allowance for loan losses based upon the incurred loss model while other public companies may be required to calculate their allowance for loan losses based upon the current expected credit loss (“CECL”) model. The CECL approach requires an estimate of the loan loss expected over the life of the loan while the incurred loss approach delays the recognition of a loan loss until it was probable a loss event was incurred. The Company’s status as an “emerging growth company” will end on the earlier of: (i) the last day of the fiscal year of the Company during which it had total annual gross revenues of $1.07 billion (as adjusted for inflation) or more; (ii) the last day of the fiscal year of the Company following the fifth anniversary of the effective date of the Company’s initial public offering; (iii) the date on which the Company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which the Company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, at least $700 million of voting and non-voting equity held by non-affiliates).

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The purpose of this ASU is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019. The amendments removed the disclosure requirements for transfers between Levels 1 and 2 of the fair value hierarchy, the policy for timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Additionally, the amendments modified the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In June 2020, the FASB issued ASU No. 2020-05, “Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities,” as a limited deferral of the effective dates, for one year, of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” and ASU No. 2016-02, “Leases (Topic 842),” to provide immediate, near-term relief for certain entities for whom these ASU’s are either currently or imminently effective as a result of COVID-19. The Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as of January 1, 2019.  The Company does not expect the adoption of ASU No. 2016-02, “Leases (Topic 842),” to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional guidance to ease the potential burden in accounting due to reference rate reform. The guidance in this update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made, and hedging relationships entered into, on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

In February 2020, the FASB issued ASU 2020-2, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).”  This ASU adds an SEC paragraph pursuant to the issuance of SEC SAB Topic No. 119 to the FASB Codification Topic 326 and updates the SEC section of the Codification for the change in the effective dates of Topic 842.  This ASU primarily details guidance on what SEC staff would expect a registrant to perform and document when measuring and recording its allowance for credit losses for financial assets recorded at amortized cost.

8


 

In January 2020, the FASB issued ASU 2020-1, “Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and T 815 (A Consensus of the Emerging Issues Task Force),” which clarifies the interaction among the accounting standards for equity securities, equity method investments and certain derivatives.  This ASU becomes effective for public entities for fiscal years beginning after December 15, 2020 and all other entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies accounting for income taxes by removing specific technical exceptions. The guidance removes the need for companies to analyze whether (1) the exception to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments and (3) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses apply in a given period. The amendments in this ASU are effective for smaller reporting companies for fiscal years ending after December 15, 2021. Early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” to increase stakeholder awareness of the improvements made to the various amendments to Topic 326 and to clarify certain areas of guidance as companies transition to the new standard. Also during November 2019, the FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):  Effective Dates,” finalizing various effective date deferrals for private companies, not-for-profit organizations and certain smaller reporting companies applying the credit losses (CECL), leases and hedging standards.  The effective date for ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” is deferred to years beginning after December 15, 2022.  The effective dates for ASU 2016-02, “Leases (Topic 842)” and ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” are deferred to years beginning after December 15, 2020.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Initially the FASB approved a proposal to delay the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2020. On June 30, 2020, the FASB further delayed the implementation of this standard by one year for smaller reporting companies to years beginning after December 15, 2021. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which seeks to clarify ASU 2016-02 with respect to certain aspects of the update and ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which provides transition relief on comparative reporting upon adoption of the ASU. The Company currently has no leases with terms longer than 12 months. The Company does not expect these ASUs to have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which creates a new credit impairment standard for financial assets measured at amortized cost and available-for-sale debt securities. The ASU requires financial assets measured at amortized cost (including loans and held-to-maturity debt securities) to be presented at the net amount expected to be collected, through an allowance for credit losses that are expected to occur over the remaining life of the asset, rather than incurred losses. The ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down. The measurement of credit losses for newly recognized financial assets (other than certain purchased assets) and subsequent changes in the allowance for credit losses are recorded in the statement of income as the amounts expected to be collected change. The ASU was originally to be effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” extending the implementation date by one year for smaller reporting companies and clarifying that operating lease receivables are outside the scope of Accounting Standards Codification Topic 326. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification.  In May 2019, the FASB issued ASU 2019-05, “Financial Instruments—Credit Losses, Topic 326.” This ASU addresses certain stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for

9


 

similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13, while still providing financial statement users with decision-useful information. On October 16, 2019, the FASB approved a proposal to delay the implementation of this standard for smaller reporting companies to years beginning after December 15, 2022.  Early adoption is permitted.  Upon adoption, however, the Company will apply the standard’s provisions as a cumulative effect adjustment to equity capital as of the first reporting period in which the guidance is effective. Upon adoption, the Company expects a change in the processes and procedures to calculate the allowance for loan losses, including changes in the assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company is reviewing the requirements of ASU 2016-13 and is developing and implementing processes and procedures to ensure it is fully compliant with the amendments at the adoption date. At this time, the Company anticipates the allowance for loan losses will increase as a result of the implementation of this ASU; however, until its evaluation is complete, the magnitude of the increase will be unknown.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20).” The purpose of this ASU is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. The amendments in this ASU are effective for non-public business entities for fiscal years ending after December 15, 2021. Early adoption is permitted. The amendments modified the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this ASU should be applied retrospectively to all periods presented. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

2.

Cash and Due From Banks

At June 30, 2020 and December 31, 2019, cash and due from banks totaled $30.6 million and $4.0 million, respectively. The Company pledged cash collateral to derivative counterparties totaling $525,000 and $-0- at June 30, 2020 and December 31, 2019, respectively. See Note 11 for a discussion of the Company’s derivative and hedging activities.

3.

Securities Available-for-Sale

The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses, are as follows as of June 30, 2020 and December 31, 2019:

 

 

 

June 30, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(Dollars in thousands)

 

U.S. Government-sponsored enterprises obligations

 

$

1,000

 

 

$

11