CONSOLIDATED
BALANCE SHEETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
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 $8,095, 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
|
|
|
557,291
|
|
|
|
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
|
|
|
976,873
|
|
|
|
762,086
|
|
TOTAL
ASSETS
|
|
$
|
183,517,514
|
|
|
$
|
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: 20,000,000 shares authorized and
|
|
|
|
|
|
|
|
|
2,248,250
shares issued and outstanding at $0.01 par value
|
|
|
22,483
|
|
|
|
-
|
|
Paid-in
capital
|
|
|
8,693,940
|
|
|
|
-
|
|
Retained
earnings
|
|
|
12,333,474
|
|
|
|
12,135,085
|
|
Unearned
Employee Stock Ownership Plan (ESOP)
|
|
|
(848,261
|
)
|
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
(102,754
|
)
|
|
|
(23,487
|
)
|
TOTAL
NET STOCKHOLDERS’ EQUITY
|
|
|
20,098,882
|
|
|
|
12,111,598
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLERS’ EQUITY
|
|
$
|
183,517,514
|
|
|
$
|
171,905,491
|
|
See
accompanying notes to the unaudited financial statements.
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
|
|
$
|
1,683,360
|
|
|
$
|
1,525,013
|
|
|
$
|
4,771,307
|
|
|
$
|
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
|
|
|
1,788,325
|
|
|
|
1,583,761
|
|
|
|
5,021,379
|
|
|
|
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
|
|
|
1,033,063
|
|
|
|
999,045
|
|
|
|
2,982,775
|
|
|
|
3,031,952
|
|
Provision
for loan losses
|
|
|
50,000
|
|
|
|
61,050
|
|
|
|
115,000
|
|
|
|
181,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
983,063
|
|
|
|
937,995
|
|
|
|
2,867,775
|
|
|
|
2,850,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
gains, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350
|
|
Provision
for loss on loans held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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
|
|
|
113,203
|
|
|
|
183,634
|
|
|
|
217,526
|
|
|
|
976,433
|
|
Provision
for income taxes
|
|
|
18,369
|
|
|
|
60,760
|
|
|
|
19,137
|
|
|
|
346,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
94,834
|
|
|
$
|
122,874
|
|
|
$
|
198,389
|
|
|
$
|
629,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER
COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
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
|
|
$
|
38,803
|
|
|
$
|
123,526
|
|
|
$
|
119,122
|
|
|
$
|
664,999
|
|
See
accompanying notes to the unaudited financial statements.
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
|
|
$
|
94,834
|
|
|
$
|
122,874
|
|
|
$
|
198,389
|
|
|
$
|
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
|
|
|
14,895
|
|
|
|
(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
|
|
|
(56,031
|
)
|
|
|
652
|
|
|
|
(79,267
|
)
|
|
|
35,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
38,803
|
|
|
$
|
123,526
|
|
|
$
|
119,122
|
|
|
$
|
664,999
|
|
See
accompanying notes to the unaudited financial statements.
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
|
|
|
-
|
|
|
|
-
|
|
|
|
198,389
|
|
|
|
-
|
|
|
|
-
|
|
|
|
198,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizaton
of ESOP
|
|
|
-
|
|
|
|
(2,104
|
)
|
|
|
-
|
|
|
|
33,049
|
|
|
|
-
|
|
|
|
30,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of September 30, 2018
|
|
$
|
22,483
|
|
|
$
|
8,693,940
|
|
|
$
|
12,333,474
|
|
|
$
|
(848,261
|
)
|
|
$
|
(102,754
|
)
|
|
$
|
20,098,882
|
|
See
accompanying notes to the unaudited financial statements.
SSB
Bancorp, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Nine
months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
198,389
|
|
|
$
|
629,566
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
115,000
|
|
|
|
181,043
|
|
Provision
for loss on loans held for sale
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
115,201
|
|
|
|
36,488
|
|
Net
amortization of investment securities
|
|
|
-
|
|
|
|
-
|
|
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 (benefit)
|
|
|
(14,646
|
)
|
|
|
39,232
|
|
Investment
securities gains, net
|
|
|
-
|
|
|
|
(350
|
)
|
(Increase)
decrease in accrued interest receivable
|
|
|
(80,874
|
)
|
|
|
45,709
|
|
Increase
(decrease) 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
|
|
|
729,640
|
|
|
|
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
|
|
Proceeds
from sale of other real estate owned
|
|
|
-
|
|
|
|
-
|
|
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 reorganization 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.
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.
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.
2.
|
RECENT
ACCOUNTING STANDARDS (Continued)
|
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.
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.
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.
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
|
|
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
|
|
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.
The
Bank’s loan portfolio summarized by category is as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
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.
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:
|
|
Mortgage
|
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
|
Three months
ended
|
|
One-to-Four
|
|
|
Mortgage
|
|
|
and
|
|
|
and
|
|
|
|
|
September
30, 2018:
|
|
Family
|
|
|
Commercial
|
|
|
Industrial
|
|
|
HELOC
|
|
|
Total
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Mortgage
|
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
|
Three months
ended
|
|
One-to-Four
|
|
|
Mortgage
|
|
|
and
|
|
|
and
|
|
|
|
|
September
30, 2017:
|
|
Family
|
|
|
Commercial
|
|
|
Industrial
|
|
|
HELOC
|
|
|
Total
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Mortgage
|
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
|
Nine months
ended
|
|
One-to-Four
|
|
|
Mortgage
|
|
|
and
|
|
|
and
|
|
|
|
|
September
30, 2018:
|
|
Family
|
|
|
Commercial
|
|
|
Industrial
|
|
|
HELOC
|
|
|
Total
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Mortgage
|
|
|
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
|
Nine months
ended
|
|
One-to-Four
|
|
|
Mortgage
|
|
|
and
|
|
|
and
|
|
|
|
|
September
30, 2017:
|
|
Family
|
|
|
Commercial
|
|
|
Industrial
|
|
|
HELOC
|
|
|
Total
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
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
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,438,806
|
|
|
$
|
4,438,806
|
|
|
$
|
33,422
|
|
|
$
|
3,668,894
|
|
|
$
|
3,668,894
|
|
|
$
|
23,870
|
|
7.
|
ALLOWANCE
FOR LOAN LOSSES (Continued)
|
The
following table presents the average recorded investment in impaired loans and related interest income recognized for the periods
indicated.
|
|
Three
Months Ended
September 30, 2018
|
|
|
Three
Months Ended
September 30, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
2,051,434
|
|
|
$
|
8,881
|
|
|
$
|
1,832,617
|
|
|
$
|
52,335
|
|
Commercial
|
|
|
1,555,260
|
|
|
|
5,125
|
|
|
|
200,988
|
|
|
|
803
|
|
Commercial
and industrial
|
|
|
142,033
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
23,461
|
|
|
|
298
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
355,222
|
|
|
|
1,902
|
|
|
|
138,910
|
|
|
|
2,273
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
-
|
|
|
|
-
|
|
|
|
16,699
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
2,406,656
|
|
|
|
10,783
|
|
|
|
1,971,527
|
|
|
|
54,608
|
|
Commercial
|
|
|
1,555,260
|
|
|
|
5,125
|
|
|
|
200,988
|
|
|
|
803
|
|
Commercial
and industrial
|
|
|
142,033
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
23,461
|
|
|
|
298
|
|
|
|
16,699
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,127,410
|
|
|
$
|
16,206
|
|
|
$
|
2,189,214
|
|
|
$
|
55,411
|
|
|
|
Nine
Months Ended
September 30, 2018
|
|
|
Nine
Months Ended
September 30, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
no allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
1,961,587
|
|
|
$
|
9,313
|
|
|
$
|
1,788,550
|
|
|
$
|
76,546
|
|
Commercial
|
|
|
1,262,149
|
|
|
|
6,669
|
|
|
|
202,584
|
|
|
|
96,606
|
|
Commercial
and industrial
|
|
|
105,142
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
38,063
|
|
|
|
505
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
374,613
|
|
|
|
7,622
|
|
|
|
141,029
|
|
|
|
6,254
|
|
Commercial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial
and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
-
|
|
|
|
-
|
|
|
|
5,566
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
|
2,336,200
|
|
|
|
16,935
|
|
|
|
1,929,579
|
|
|
|
82,800
|
|
Commercial
|
|
|
1,262,149
|
|
|
|
6,669
|
|
|
|
202,584
|
|
|
|
96,606
|
|
Commercial
and industrial
|
|
|
105,142
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Consumer
and HELOC
|
|
|
38,063
|
|
|
|
505
|
|
|
|
5,566
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,741,554
|
|
|
$
|
24,109
|
|
|
$
|
2,137,729
|
|
|
$
|
179,406
|
|
7.
|
ALLOWANCE
FOR LOAN LOSSES (Continued)
|
Aging
Analysis of Past-Due Loans by Class
Management
further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined
by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized
by the aging categories at the dates indicated:
|
|
September 30, 2018 (unaudited)
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
90 Days
or Greater
|
|
Total Past
|
|
|
|
Total Loans
|
|
90 Days or
Greater Still
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Due
|
|
Current
|
|
Receivable
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
223,534
|
|
|
|
294,661
|
|
|
|
1,636,601
|
|
|
|
2,154,796
|
|
|
$
|
73,462,605
|
|
|
$
|
75,617,401
|
|
|
$
|
-
|
|
Commercial
|
|
|
794,525
|
|
|
|
-
|
|
|
|
1,054,164
|
|
|
|
1,848,689
|
|
|
|
56,854,108
|
|
|
|
58,702,797
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
155,660
|
|
|
|
155,660
|
|
|
|
17,962,554
|
|
|
|
18,118,214
|
|
|
|
-
|
|
Consumer and HELOC
|
|
|
10,547
|
|
|
|
-
|
|
|
|
1,200
|
|
|
|
11,747
|
|
|
|
5,166,252
|
|
|
|
5,177,999
|
|
|
|
-
|
|
Total
|
|
$
|
1,028,606
|
|
|
$
|
294,661
|
|
|
$
|
2,847,625
|
|
|
$
|
4,170,892
|
|
|
$
|
153,445,519
|
|
|
$
|
157,616,411
|
|
|
$
|
-
|
|
|
|
December 31, 2017
|
|
|
|
|
30-59 Days
|
|
60-89 Days
|
|
90 Days
or Greater
|
|
Total Past
|
|
|
|
Total Loans
|
|
90 Days or
Greater Still
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Due
|
|
Current
|
|
Receivable
|
|
Accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
982,168
|
|
|
$
|
399,992
|
|
|
$
|
1,900,116
|
|
|
$
|
3,282,276
|
|
|
$
|
72,575,950
|
|
|
$
|
75,858,226
|
|
|
$
|
-
|
|
Commercial
|
|
|
656,640
|
|
|
|
-
|
|
|
|
1,122,740
|
|
|
|
1,779,380
|
|
|
|
48,342,678
|
|
|
|
50,122,058
|
|
|
|
-
|
|
Commercial and industrial
|
|
|
301,783
|
|
|
|
-
|
|
|
|
8,251
|
|
|
|
310,034
|
|
|
|
11,145,519
|
|
|
|
11,455,554
|
|
|
|
-
|
|
Consumer and HELOC
|
|
|
662
|
|
|
|
14,386
|
|
|
|
29,245
|
|
|
|
44,293
|
|
|
|
3,969,965
|
|
|
|
4,014,258
|
|
|
|
-
|
|
Total
|
|
$
|
1,941,253
|
|
|
$
|
414,378
|
|
|
$
|
3,060,352
|
|
|
$
|
5,415,983
|
|
|
$
|
136,034,112
|
|
|
$
|
141,450,096
|
|
|
$
|
-
|
|
7.
|
ALLOWANCE
FOR LOAN LOSSES (Continued)
|
The
following table presents the loans on nonaccrual status, by class:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
2,210,273
|
|
|
$
|
2,108,086
|
|
Commercial
|
|
|
1,102,106
|
|
|
|
1,122,740
|
|
Commercial
and industrial
|
|
|
155,660
|
|
|
|
8,251
|
|
Consumer
and HELOC
|
|
|
11,747
|
|
|
|
29,245
|
|
Total
|
|
$
|
3,479,786
|
|
|
$
|
3,268,322
|
|
Credit
Quality Information
The
Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt
such as: current financial information, historical payment experience, credit documentation, public information, and current economic
trends, among other factors. The Bank analyzes commercial loans individually by classifying the loans as to their credit risk.
The Bank uses a nine-grade internal loan rating system for commercial mortgage loans and commercial and industrial loans as follows:
|
●
|
Loans
rated 1, 2, 3, 4, and 5: Loans in these categories are considered “pass”
rated loans with low to average risk.
|
|
●
|
Loans
rated 6: Loans in this category are considered “special mention.” These
loans have a potential weakness that deserves management’s close attention. If
left uncorrected, these weaknesses may result in deterioration of the repayment prospects
for the loan or of the institution’s credit position at some future date.
|
|
●
|
Loans
rated 7: Loans in this category are considered “substandard.” These loans
have a well-defined weakness based on objective evidence that jeopardize the liquidation
of the debt. These loans are characterized by the distinct possibility that the Bank
will sustain some loss if the deficiencies are not corrected.
|
|
●
|
Loans
rated 8: Loans in this category are considered “doubtful” and have all
the weaknesses inherent in a loan rated 7. In addition, these weaknesses make collection
or liquidation in full highly questionable and improbable, based on existing circumstances.
|
|
●
|
Loans
rated 9: Loans in this category are considered “loss” and are considered
to be uncollectible or of such value that continuance as an asset is not warranted.
|
7.
|
ALLOWANCE
FOR LOAN LOSSES (Continued)
|
Credit
Quality Information (Continued)
The
risk category of loans by class is as follows:
|
|
September
30, 2018 (unaudited)
|
|
|
December
31, 2017
|
|
|
|
Mortgage
|
|
|
Commercial
and
|
|
|
Mortgage
|
|
|
Commercial
and
|
|
|
|
Commercial
|
|
|
Industrial
|
|
|
Commercial
|
|
|
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
Loans
rated 1 - 5
|
|
$
|
56,971,390
|
|
|
$
|
13,980,085
|
|
|
$
|
48,764,928
|
|
|
$
|
11,434,756
|
|
Loans
rated 6
|
|
|
-
|
|
|
|
3,982,469
|
|
|
|
234,390
|
|
|
|
20,798
|
|
Loans
rated 7
|
|
|
1,731,407
|
|
|
|
155,660
|
|
|
|
1,122,740
|
|
|
|
-
|
|
Ending
balance
|
|
$
|
58,702,797
|
|
|
$
|
18,118,214
|
|
|
$
|
50,122,058
|
|
|
$
|
11,455,554
|
|
There
were no loans classified as doubtful or loss at September 30, 2018, or December 31, 2017.
For
one-to-four family mortgage and consumer and HELOC loans, the Bank evaluates credit quality based on whether the loan is considered
to be performing or nonperforming. Loans are generally considered to be nonperforming when they are placed on nonaccrual or become
90 days past due. The following table presents the balances of loans by class based on payment performance:
|
|
September
30, 2018 (unaudited)
|
|
|
December
31, 2017
|
|
|
|
Mortgage
|
|
|
Consumer
|
|
|
Mortgage
|
|
|
Consumer
|
|
|
|
One-to-Four
|
|
|
and
|
|
|
One-to-Four
|
|
|
and
|
|
|
|
Family
|
|
|
HELOC
|
|
|
Family
|
|
|
HELOC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
73,541,731
|
|
|
$
|
5,166,252
|
|
|
$
|
73,750,140
|
|
|
$
|
3,985,013
|
|
Nonperforming
|
|
|
2,075,670
|
|
|
|
11,747
|
|
|
|
2,108,086
|
|
|
|
29,245
|
|
Total
|
|
$
|
75,617,401
|
|
|
$
|
5,177,999
|
|
|
$
|
75,858,226
|
|
|
$
|
4,014,258
|
|
Troubled
Debt Restructurings
There
was one loan modified as a troubled debt restructuring during the three months ended September 30, 2018 (unaudited). The loan
was a one-to-four family mortgage and had a pre- and post-modification balance of $146,053. The concession granted by the Bank
was an extension of the maturity date. There were no additional loans modified as troubled debt restructurings in the nine months
ended September 30, 2018.
During
the nine months ended September 30, 2017, the Bank modified three loans as troubled debt restructurings. The loans were all one-to-four
family mortgages and had a pre- and post-modification aggregate balance of $207,967. The concession granted by the Bank was an
extension of the maturity date for all three of the loans noted.
As
of September 30, 2018, and December 31, 2017, the Bank allocated $7,266 and $23,870, respectively, within the allowance for loan
losses related to all loans modified as troubled debt restructurings.
The
Bank did not have any loans modified as a troubled debt restructuring in the preceding 12 months that subsequently defaulted in
the current reporting period.
8.
|
EMPLOYEE
STOCK OWNERSHIP PLAN
|
The
Bank established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees in conjunction
with the Reorganization effective on January 24, 2018. Eligible employees become 20% vested in their accounts after two years
of service, 40% after three years of service, 60% after four years of service, 80% after five years of service and 100% after
six years of service, or earlier, upon death, disability or attainment of normal retirement age.
The
ESOP purchased 88,131 shares of Company common stock, which was funded by a loan from the Company. Unreleased ESOP shares collateralize
the loan payable, and the cost of the shares is recorded as a contra-equity account in the stockholders’ equity of the Company.
Shares are to be released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan
can include dividends, if any, on the unallocated stock held by the ESOP and discretionary contributions from the Company to the
ESOP and earnings thereon.
Compensation
expense is equal to the fair value of the shares committed to be released and unallocated ESOP shares are excluded from outstanding
shares for purposes of computing earnings per share. During the three months ended September 30, 2018, the Company recognized
$10,322 in compensation expense and during the nine months ended September 30, 2018, the Company recognized $30,945 in compensation
expense.
9.
|
REGULATORY
CAPITAL REQUIREMENTS
|
The
Bank is subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that,
if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative
measure of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
The
regulations require a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, a minimum ratio of Tier 1
capital to risk-weighted assets of 6%, a minimum total capital ratio of 8%, and a minimum leverage ratio of 4% for all banking
organizations. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier
1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions
and discretionary bonuses. The capital conservation buffer and certain deductions from and adjustments to regulatory capital and
risk-weighted assets are being phased in over several years. The required minimum conservation buffer was 1.875% as of January
1, 2018 and will increase to 2.5% on January 1, 2019. Management believes that the Bank’s capital levels will remain characterized
as “well-capitalized” throughout the phase-in periods.
9.
|
REGULATORY
CAPITAL REQUIREMENTS (Continued)
|
As
of September 30, 2018, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum capital ratios as set forth in the following table. There are no conditions or events since the notification
that management believes have changed the Bank’s category. Management believes that the Bank meets all capital adequacy
requirements to which it is subject. The Bank’s actual capital amounts and ratios are also presented in the table below.
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Common
Equity Tier 1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
20,201,636
|
|
|
|
14.16
|
%
|
|
$
|
12,135,085
|
|
|
|
9.47
|
%
|
For
capital adequacy purposes
|
|
|
6,419,565
|
|
|
|
4.50
|
%
|
|
|
5,718,465
|
|
|
|
4.50
|
%
|
To
be well capitalized
|
|
|
9,272,705
|
|
|
|
6.50
|
%
|
|
|
8,325,005
|
|
|
|
6.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
20,201,636
|
|
|
|
14.16
|
%
|
|
$
|
12,135,085
|
|
|
|
9.47
|
%
|
For
capital adequacy purposes
|
|
|
8,559,420
|
|
|
|
6.00
|
%
|
|
|
7,684,620
|
|
|
|
6.00
|
%
|
To
be well capitalized
|
|
|
11,412,560
|
|
|
|
8.00
|
%
|
|
|
10,246,160
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
21,303,236
|
|
|
|
14.93
|
%
|
|
$
|
13,176,530
|
|
|
|
10.29
|
%
|
For
capital adequacy purposes
|
|
|
11,412,560
|
|
|
|
8.00
|
%
|
|
|
10,246,160
|
|
|
|
8.00
|
%
|
To
be well capitalized
|
|
|
14,265,700
|
|
|
|
10.00
|
%
|
|
|
12,807,700
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
$
|
20,201,636
|
|
|
|
11.71
|
%
|
|
$
|
12,135,085
|
|
|
|
7.85
|
%
|
For
capital adequacy purposes
|
|
|
6,903,532
|
|
|
|
4.00
|
%
|
|
|
6,186,160
|
|
|
|
4.00
|
%
|
To
be well capitalized
|
|
|
8,629,416
|
|
|
|
5.00
|
%
|
|
|
7,732,700
|
|
|
|
5.00
|
%
|
In
the normal course of business, the Bank makes various commitments that are not reflected in the Bank’s financial statements.
The Bank offers such products to enable its customers to meet their financing objectives. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheets. The Bank’s
exposure to credit loss in the event of nonperformance by the other parties to the financial instruments is represented by the
contractual amounts as disclosed. The Bank minimizes its exposure to credit loss under these commitments by subjecting them to
credit approval and review procedures and collateral requirements as deemed necessary.
Off-balance
sheet commitments consist of the following:
|
|
September
30,
|
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
Commitments
to extend credit
|
|
$
|
1,804,500
|
|
Construction
unadvanced funds
|
|
|
3,835,392
|
|
Unused
lines of credit
|
|
|
7,401,838
|
|
|
|
|
|
|
|
|
$
|
13,041,730
|
|
Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan
agreement. These commitments consisted primarily of mortgage loan commitments. The Bank uses the same credit policies in making
loan commitments and conditional obligations as it does for on-balance sheet instruments. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, as deemed necessary, is based upon management’s
credit evaluation in compliance with the Bank’s lending policy guidelines.
In
August 2017, the Bank entered into employment agreements with three executives that provide for a base salary and certain other
benefits. The initial terms of the agreements are for three years with annual renewals thereafter. In the event of the executive’s
termination without cause, as defined, the executive will receive a lump-sum cash payment equal to the amount remaining under
the contract. Additional benefits are payable upon a change in control, as defined.
11.
|
FAIR
VALUE MEASUREMENTS
|
The
following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring
assets and liabilities at fair value. The three broad pricing levels are as follows:
Level
I:
|
|
Quoted
prices are available in active markets for identical assets or liabilities as of the reported date.
|
|
|
|
Level
II:
|
|
Pricing
inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported
date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently
and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
|
|
|
|
Level
III:
|
|
Valuations
derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
This
hierarchy requires the use of observable market data, when available.
Fair
values for securities are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing,
which is a mathematical technique that is widely used in the industry to value debt securities without relying exclusively on
quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark-quoted
securities. Fair values of securities determined by quoted prices in active markets, when available, are classified as Level I.
At September 30, 2018 and December 31, 2017, fair value measurements were obtained from a third-party pricing service and not
adjusted by management. Transfers are recognized at the end of the reporting period, as applicable.
11.
|
FAIR
VALUE MEASUREMENTS (Continued)
|
The
following tables present the assets reported on the balance sheets at their fair value by level within the fair value hierarchy.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the
fair value measurement.
|
|
September 30, 2018 (unaudited)
|
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
|
|
|
|
|
|
|
|
Fair value measurements on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities in government-sponsored entities
|
|
$
|
-
|
|
|
$
|
3,975,191
|
|
|
$
|
-
|
|
|
$
|
3,975,191
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
1,488,139
|
|
|
|
-
|
|
|
|
1,488,139
|
|
Corporate bonds
|
|
|
-
|
|
|
|
3,266,923
|
|
|
|
-
|
|
|
|
3,266,923
|
|
U.S. treasury securities
|
|
|
192,632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
192,632
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
-
|
|
|
|
240,747
|
|
|
|
240,747
|
|
Impaired loans with reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
320,959
|
|
|
|
320,959
|
|
|
|
December 31, 2017
|
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
|
|
|
|
|
|
|
|
Fair value measurements on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities in government-sponsored entities
|
|
$
|
-
|
|
|
$
|
519,258
|
|
|
$
|
-
|
|
|
$
|
519,258
|
|
Obligations of state and political subdivisions
|
|
|
-
|
|
|
|
1,599,878
|
|
|
|
-
|
|
|
|
1,599,878
|
|
Corporate bonds
|
|
|
-
|
|
|
|
301,898
|
|
|
|
-
|
|
|
|
301,898
|
|
U.S. treasury securities
|
|
|
195,316
|
|
|
|
-
|
|
|
|
-
|
|
|
|
195,316
|
|
Mortgage servicing rights
|
|
|
-
|
|
|
|
-
|
|
|
|
231,977
|
|
|
|
231,977
|
|
Impaired loans with reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
112,139
|
|
|
|
112,139
|
|
|
|
September 30, 2018 (unaudited)
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,932
|
|
|
$
|
59,932
|
|
|
|
|
December 31, 2017
|
|
|
|
Level I
|
|
|
|
Level II
|
|
|
|
Level III
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,932
|
|
|
$
|
59,932
|
|
11.
|
FAIR
VALUE MEASUREMENTS (Continued)
|
Other
Real Estate Owned
Other
real estate owned is measured at fair value, less estimated cost to sell at the date of foreclosure, which establishes a new cost
basis. Subsequent to foreclosure, valuations are periodically performed by management. The assets are carried at fair value, less
estimated cost to sell. Income and expense from operations and changes in valuation allowance are included in other noninterest
expense.
Level
III Inputs
The
following table provides the significant unobservable inputs used in the fair value measurement process for items valued using
Level III techniques:
|
|
Fair
Value at
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
September
30,
2018
|
|
|
Valuation
Techniques
|
|
|
Valuation
Unobservable Inputs
|
|
|
(Weighted
Average)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
$
|
59,932
|
|
|
|
Appraised
collateral values
|
|
|
|
Discount
for time since appraisal
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Selling
costs
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
Impaired
loans with reserve
|
|
|
320,959
|
|
|
|
Discounted
cash flows
|
|
|
|
Discount
for evaluation
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Selling
costs
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
Mortgage
servicing rights
|
|
|
240,747
|
|
|
|
Discounted
cash flows
|
|
|
|
Loan
prepayment speeds
|
|
|
|
10.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.44
|
)%
|
|
|
Fair
Value at
|
|
|
|
|
|
|
|
|
Range
|
|
|
|
December
31,
2017
|
|
|
Valuation
Techniques
|
|
|
Valuation
Unobservable Inputs
|
|
|
(Weighted
Average)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
$
|
59,932
|
|
|
|
Appraised
collateral values
|
|
|
|
Discount
for time since appraisal
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Selling
costs
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
Impaired
loans with reserve
|
|
|
112,139
|
|
|
|
Discounted
cash flows
|
|
|
|
Discount
for evaluation
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Selling
costs
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
Mortgage
servicing rights
|
|
|
231,977
|
|
|
|
Discounted
cash flows
|
|
|
|
Loan
prepayment speeds
|
|
|
|
8.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.67
|
)%
|
11.
|
FAIR
VALUE MEASUREMENTS (Continued)
|
The
estimated fair values of the Company’s financial instruments are as follows:
|
|
September
30, 2018 (unaudited)
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,875,416
|
|
|
$
|
5,875,416
|
|
|
$
|
5,875,416
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificates
of deposit
|
|
|
846,000
|
|
|
|
835,649
|
|
|
|
-
|
|
|
|
835,649
|
|
|
|
-
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
8,922,885
|
|
|
|
8,922,885
|
|
|
|
192,632
|
|
|
|
8,730,253
|
|
|
|
-
|
|
Held
to maturity
|
|
|
7,109
|
|
|
|
7,196
|
|
|
|
-
|
|
|
|
7,196
|
|
|
|
-
|
|
Loans,
net
|
|
|
156,613,838
|
|
|
|
156,639,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,639,838
|
|
Accrued
interest receivable
|
|
|
557,291
|
|
|
|
557,291
|
|
|
|
-
|
|
|
|
557,291
|
|
|
|
-
|
|
FHLB
Stock
|
|
|
2,614,900
|
|
|
|
2,614,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,614,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
131,366,372
|
|
|
|
129,695,372
|
|
|
|
43,455,419
|
|
|
|
-
|
|
|
|
86,239,953
|
|
FHLB
advances
|
|
|
31,374,500
|
|
|
|
30,933,500
|
|
|
|
-
|
|
|
|
30,933,500
|
|
|
|
-
|
|
Accrued
interest payable
|
|
|
245,098
|
|
|
|
245,098
|
|
|
|
-
|
|
|
|
245,098
|
|
|
|
-
|
|
|
|
December
31, 2017
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Value
|
|
|
Level
I
|
|
|
Level
II
|
|
|
Level
III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
16,478,066
|
|
|
$
|
16,478,066
|
|
|
$
|
16,478,066
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Certificates
of deposit
|
|
|
943,000
|
|
|
|
946,497
|
|
|
|
-
|
|
|
|
946,497
|
|
|
|
-
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
2,616,350
|
|
|
|
2,616,350
|
|
|
|
195,316
|
|
|
|
2,421,034
|
|
|
|
-
|
|
Held
to maturity
|
|
|
9,797
|
|
|
|
9,494
|
|
|
|
-
|
|
|
|
9,494
|
|
|
|
-
|
|
Loans,
net
|
|
|
140,574,537
|
|
|
|
139,784,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
139,784,862
|
|
Accrued
interest receivable
|
|
|
476,417
|
|
|
|
476,417
|
|
|
|
-
|
|
|
|
476,417
|
|
|
|
-
|
|
FHLB
Stock
|
|
|
2,162,600
|
|
|
|
2,162,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,162,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
132,430,024
|
|
|
|
132,189,024
|
|
|
|
50,730,909
|
|
|
|
-
|
|
|
|
81,458,115
|
|
FHLB
advances
|
|
|
26,416,200
|
|
|
|
25,602,500
|
|
|
|
-
|
|
|
|
25,602,500
|
|
|
|
-
|
|
Accrued
interest payable
|
|
|
206,597
|
|
|
|
206,597
|
|
|
|
-
|
|
|
|
206,597
|
|
|
|
-
|
|
|
Financial
instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or
right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or
unfavorable terms.
|
|
Fair
value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing
parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the
estimated fair value would be calculated based upon the market price per trading unit of the instrument.
|
12.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
If
no readily available market exists, the fair value estimates for financial instruments should be based upon management’s
judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors
as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments
made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative
of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the
estimated fair values are based may have a significant impact on the resulting estimated fair values.
Since
certain assets, such as deferred tax assets and premises and equipment, are not considered financial instruments, the estimated
fair value of financial instruments would not represent the full value of the Bank.
Cash
and Cash Equivalents, Accrued Interest Receivable, FHLB Stock, and Accrued Interest Payable
The
fair value is equal to the current carrying value.
Certificates
of Deposit
The
fair values of certificates of deposit are based on the discounted value of contractual cash flows. The discount rates are estimated
using rates currently offered for similar instruments with similar remaining maturities.
Securities
Fair
values for securities are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing,
which is a mathematical technique that is widely used in the industry to value debt securities without relying exclusively on
quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark-quoted
securities. Fair values of securities determined by quoted prices in active markets, when available, are classified as Level I.
Loans,
Net
The
fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities
would be made to borrowers of similar credit quality. Certain collateral dependent impaired loans have been adjusted to fair value
based on the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the
properties, along with management’s assumptions in various factors, such as selling costs and discounts for time since last
appraised.
FHLB
Advances
The
fair value of FHLB advances is based on the discounted value of contractual cash flows. The discount rates are estimated using
rates currently offered for similar instruments with similar remaining maturities.
Deposits
The
fair values of certificates of deposit are based on the discounted value of contractual cash flows. The discount rates are estimated
using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposit
accounts are valued at the amount payable on demand as of the period end.
12.
FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Commitments
These
financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the
remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar
credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments are presented in Note
10.
13.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The
following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax:
|
|
Net Unrealized Gain (Loss)
|
|
|
|
on Securities
|
|
|
|
Three months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
(46,722
|
)
|
|
$
|
(12,607
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) on securities before reclassification, net of tax
|
|
|
(56,031
|
)
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(56,031
|
)
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(102,753
|
)
|
|
$
|
(11,955
|
)
|
|
|
Net Unrealized Gain (Loss)
|
|
|
|
on Securities
|
|
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
Accumulated other comprehensive income (loss), beginning of period
|
|
$
|
(23,487
|
)
|
|
$
|
(47,388
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) on securities before reclassification, net of tax
|
|
|
(79,267
|
)
|
|
|
35,664
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
|
-
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
|
|
(79,267
|
)
|
|
|
35,433
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(102,754
|
)
|
|
$
|
(11,955
|
)
|
14.
EARNINGS PER SHARE
Earnings
per common share for the three months ended September 30, 2018 are represented in the following table.
Earnings
per common share for the nine months ended September 30, 2018 is not presented as the Company’s initial public offering
was completed on January 24, 2018; therefore, per share results would not be meaningful.
|
|
Three months ended
|
|
|
|
September
30, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
Net Income
|
|
$
|
94,834
|
|
|
|
|
|
|
Shares outstanding for basic EPS:
|
|
|
|
|
Average shares outstanding
|
|
|
2,248,250
|
|
Less: Average unearned ESOP shares
|
|
|
85,377
|
|
|
|
|
2,162,873
|
|
Additional dilutive shares
|
|
|
-
|
|
|
|
|
|
|
Shares outstanding for basic and diluted EPS
|
|
|
2,162,873
|
|
|
|
|
|
|
Basic and diluted income per share
|
|
$
|
0.04
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s
discussion and analysis of financial condition at September 30, 2018 and December 31, 2017 and results of operations for the three
and nine months ended September 30, 2018 and 2017 is intended to assist in understanding the financial condition and results of
operations of SSB Bank. The information contained in this section should be read in conjunction with the unaudited financial statements
and the notes thereto appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q/A. Financial information for the periods
before the Company’s Reorganization on January 24, 2018 is that of SSB Bank only.
Cautionary
Note Regarding Forward-Looking Statements
This
quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,”
“project,” “believe,” “intend,” “anticipate,” “plan,” “seek,”
“expect,” “will,” “may” and words of similar meaning. These forward-looking statements include,
but are not limited to:
|
●
|
statements
of our goals, intentions and expectations;
|
|
|
|
|
●
|
statements
regarding our business plans, prospects, growth and operating strategies;
|
|
|
|
|
●
|
statements
regarding the quality of our loan and investment portfolios; and
|
|
|
|
|
●
|
estimates
of our risks and future costs and benefits.
|
These
forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking
statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The
following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations
expressed in the forward-looking statements:
|
●
|
general
economic conditions, either nationally or in our market areas, that are worse than expected;
|
|
|
|
|
●
|
changes
in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance
for loan losses;
|
|
|
|
|
●
|
our
ability to access cost-effective funding;
|
|
|
|
|
●
|
fluctuations
in real estate values and both residential and commercial real estate market conditions;
|
|
|
|
|
●
|
demand
for loans and deposits in our market area;
|
|
|
|
|
●
|
our
ability to continue to implement our business strategies;
|
|
|
|
|
●
|
competition
among depository and other financial institutions;
|
|
|
|
|
●
|
inflation
and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments
or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans
we have made and make whether held in portfolio or sold in the secondary markets;
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Cautionary
Note Regarding Forward-Looking Statements (Continued)
|
●
|
adverse
changes in the securities markets;
|
|
|
|
|
●
|
changes
in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital
requirements, including as a result of Basel III;
|
|
|
|
|
●
|
our
ability to manage market risk, credit risk and operational risk in the current economic conditions;
|
|
|
|
|
●
|
our
ability to enter new markets successfully and capitalize on growth opportunities;
|
|
|
|
|
●
|
our
ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into
our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill
charges related thereto;
|
|
|
|
|
●
|
changes
in consumer spending, borrowing and savings habits;
|
|
|
|
|
●
|
changes
in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards
Board or the Securities and Exchange Commission;
|
|
|
|
|
●
|
our
ability to retain key employees;
|
|
|
|
|
●
|
our
compensation expense associated with equity allocated or awarded to our employees;
|
|
|
|
|
●
|
changes
in the financial condition, results of operations or future prospects of issuers of securities that we own;
|
|
|
|
|
●
|
political
instability;
|
|
|
|
|
●
|
changes
in the quality or composition of our loan or investment portfolios;
|
|
|
|
|
●
|
technological
changes that may be more difficult or expensive than expected;
|
|
|
|
|
●
|
failures
or breaches of our IT security systems;
|
|
|
|
|
●
|
the
inability of third-party providers to perform as expected; and
|
|
|
|
|
●
|
our
ability to successfully introduce new products and services, enter new markets, and capitalize on growth opportunities.
|
Because
of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking
statements. The Company is not obligated to update any forward-looking statements, except as may be required by applicable law
or regulation.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical
Accounting Policies
Critical
accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible
to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management
that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions.
Management believes the accounting policies discussed below to be the most critical accounting policies, which involve the most
complex or subjective decisions or assessments.
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 income. Loan losses are charged against the allowance when management believes that specific loans,
or portions of loans, are uncollectible. The allowance for loan losses is evaluated on a regular basis, and at least quarterly,
by management. Management reviews the nature and volume of the loan portfolio, local and national conditions that may adversely
affect the borrower’s ability to repay, loss experience, the estimated value of any underlying collateral, and other relevant
factors. The evaluation of the allowance for loan losses is characteristically subjective as estimates are required that are subject
to continual change as more information becomes available.
The
allowance consists of general and specific reserve components. The specific reserves are related to loans that are considered
impaired. Loans that are classified as impaired are measured in accordance with accounting guidance (ASC 310-10-35). The general
reserve is allocated for non-impaired loans and includes evaluation of changes in the trend and volume of delinquency, our internal
risk rating process and external conditions that may affect credit quality.
A
loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the
scheduled principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status and the financial condition of the borrower. Loans that experience payment shortfalls
and insignificant payment delays are typically not considered impaired. Management looks at each loan individually and considers
all the circumstances around the shortfall or delay including the borrower’s prior payment history, borrower contact regarding
the reason for the delay or shortfall and the amount of the shortfall. Collateral dependent loans are measured against the fair
value of the collateral, while other loans are measured by the present value of expected future cash flows discounted at the loan’s
effective interest rate. All loans are measured individually.
Loan
segments are reviewed and evaluated for impairment based on the segment’s characteristic loss history and local economic
conditions and trends within the segment that may affect the repayment of the loans.
From
time to time, we may choose to restructure the contractual terms of certain loans either at the borrower or Bank’s request.
We review all scenarios to determine the best payment structure with the borrower to improve the likelihood of repayment. Management
reviews modified loans to determine if the loan should be classified as a trouble debt restructuring. A trouble debt restructuring
is when a creditor, for economic or legal reasons related to a debtor’s financial difficulties, grants a concession to the
borrower that it would not otherwise consider. Management considers the borrower’s ability to repay when a request to modify
existing loan terms is presented. A transfer of assets to repay the loan balance, a modification of loan terms or a combination
of these may occur. If an appropriate arrangement cannot be made, the loan is referred to legal counsel, at which time foreclosure
will begin. If a loan is accruing at the time of restructuring, we review the loan to determine if it should be placed on non-accrual.
It is our policy to keep a troubled debt restructured loan on non-accrual status for at least six months to ensure the borrower
can repay, at that time management may consider its return to accrual status.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Critical
Accounting Policies (Continued)
Troubled
debt restructured loans are considered to be impaired.
Income
Taxes. SSB Bank accounts for income taxes in accordance with accounting guidance (ASC 740, Income Taxes). The income tax
accounting guidance results in two components of income tax expense: current and deferred. Current income tax reflects taxes to
be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of
deductions over revenues. U.S. GAAP requires that we use the Balance Sheet Method to determine the deferred income, which affects
the differences between the book and tax bases of assets and liabilities, and any changes in tax rates and laws are recognized
in the period in which they occur. Deferred taxes are based on a valuation model and the determination on a quarterly basis whether
all or a portion of the deferred tax asset will be recognized.
Fair
Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. SSB Bank estimates the
fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments
are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments
are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may
be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates
are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded. A more
detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by SSB
Bank can be found in Note 14 to the 2017 Financial Statements included in the Company’s Annual Report on Form 10-K filed
on April 17, 2018.
Investment
Securities. Available for sale and held to maturity securities are reviewed quarterly for possible other-than-temporary
impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the severity
of loss, the length of time the fair value has been below cost, the expectation for that security’s performance, the creditworthiness
of the issuer and our intent and ability to hold the security to recovery. A decline in value that is considered to be other-than-temporary
is recorded as a loss within non-interest income in the statements of income. At September 30, 2018, we believe the unrealized
losses are primarily a result of increases in market yields from the time of purchase. In general, as market yields rise, the
fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally
views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified
as other-than-temporarily impaired. Management has also concluded that based on current information we expect to continue to receive
scheduled interest payments as well as the entire principal balance. Furthermore, management does not intend to sell these securities
and does not believe it will be required to sell these securities before they recover in value.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison
of Financial Condition at September 30, 2018 and December 31, 2017
Total
Assets. Total assets increased by $11.6 million, or 6.8%, from $171.9 million at December 31, 2017 to $183.5 million at
September 30, 2018. The increase was due primarily to an increase in net loans of $16.0 million, or 11.4%, to $156.6 million at
September 30, 2018 from $140.6 million at December 31, 2017. Securities available for sale also increased by $6.3 million from
$2.6 million at December 31, 2017, to $8.9 million at September 30, 2018. The increases were partially offset by a decrease in
cash and cash equivalents of $10.6 million, or 64.3%, from $16.5 million at December 31, 2017, to $5.9 million at September 30,
2018, as the cash was invested in securities and used to fund loans. Prepaid reorganization and stock issuance costs decreased
from $838,000 at December 31, 2017 to zero dollars at September 30, 2018, as the stock issuance was completed in 2018.
Cash
and Cash Equivalents. Cash and cash equivalents decreased by $10.6 million, or 64.3%, to $5.9 million at September 30,
2018 from $16.5 million at December 31, 2017. The decrease in cash was the result of the increase in investments available for
sale as well as funding loan demand.
Net
Loans. Net loans increased $16.0 million, or 11.4%, to $156.6 million at September 30, 2018, from $140.6 million at December
31, 2017. This was driven by increases in commercial mortgage loans and commercial and industrial loans. Commercial mortgages
increased $8.6 million, or 17.1%, from $50.1 million at December 31, 2017 to $58.7 million at September 30, 2018. Commercial and
industrial loans increased $6.7 million, or 58.2%, from $11.5 million at December 31, 2017 to $18.1 million at September 30, 2018.
There was also an increase in consumer loans of $1.2 million during the period.
Available
for Sale Securities. Securities available for sale increased by $6.3 million, or 241.0%, to $8.9 million at September
30, 2018, from $2.6 million at December 31, 2017. We purchased $3.7 million and $3.0 million of collateralized mortgage obligations
and corporate bonds, respectively. The increase was offset by the maturity of one municipal bond of $85,000 as well as $97,000
in gross unrealized losses during the period.
Deposits.
Total deposits decreased to $131.4 million at September 30, 2018 from $132.4 million at December 31, 2017. The decrease of $1.1
million, or 0.8%, was primarily due to a decrease in interest-bearing demand accounts to $14.1 million at September 30, 2018 from
$23.2 million at December 31, 2017. This decrease was due primarily to stock subscription funds having been deposited in a business
checking account pending the completion of the Reorganization in January 2018. Partially offsetting the decrease, money market
accounts increased by $516,000 to $15.1 million at September, 2018 from $14.6 million at December 31, 2017; savings accounts increased
$1.2 million, or 9.8%, to $13.8 million at September 30, 2018, from $12.5 million at December 31, 2017; and time deposits increased
by $6.2 million, or 7.6% to $87.9 million at September 30, 2018, from $81.7 million at December 31, 2017. The increase in time
deposits was driven by loan demand.
Federal
Home Loan Bank Advances. Federal Home Loan Bank advances increased by $5.0 million or 18.8% to $31.4 million at September
30, 2018, from $26.4 million at December 30, 2017. The increase in borrowings funded new investments and loans during the period.
Stockholders’
Equity. Stockholders’ equity increased by $8.0 million, or 66.0%, to $20.1 million at September 30, 2018 from $12.1
million at December 31, 2017. The increase was due to $8.7 million of paid-in capital from the net proceeds of the stock offering
completed on January 24, 2018. Additionally, retained earnings increased by $198,000, or 1.6%, to $12.3 million at September 30,
2018, from $12.1 million at December 31, 2017. The increase was partially offset by $848,000 in unearned compensation related
to the Employee Stock Ownership Plan and an additional $79,000 in accumulated other comprehensive loss.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison
of Operating Results for the Three Months Ended September 30, 2018 and 2017
Net
Income. Net income totaled $95,000 for the three months ended September 30, 2018, compared to net income of $123,000 for
the three months ended September 30, 2017, a decrease of $28,000 or 22.8%. The decrease was driven by an increase in total interest
expense of $171,000 or 29.2%, to $755,000 for the three months ended September 30, 2018, from $585,000 for the three months ended
September 30, 2017. Noninterest expense increased $120,000, or 13.6%, from $884,000 for the three months ended September 30, 2017
to $1.0 million for the three months ended September 30, 2018. Offsetting these decreases was an increase in interest income of
$205,000, or 12.9%, from $1.6 million for the three months ended September 30, 2017 to $1.8 million for the three months ended
September 30, 2018. There was also in increase in noninterest income of $5,000 from $130,000 for the three months ended September
30, 2017 to $135,000 for the three months ended September 30, 2018.
Interest
and Dividend Income. Interest and dividend income increased $205,000, or 12.9%, to $1.8 million for the three months ended
September 30, 2018, from $1.6 million for the three months ended September 30, 2017. Interest income on loans increased $158,000,
or 10.4%, when comparing the three months ended September 30, 2018, with the three months ended September 30, 2017. This increase
is primarily attributable to an increase in the average balance of net loans of $19.0 million, or 14.2%. The average balance of
net loans increased from $133.9 million to $153.0 million when comparing the three months ended September 30, 2018 with the three
months ended September 30, 2017. There was also an increase in the average balance of investment securities of $2.3 million, or
80.5%, from $2.8 million for the three months ended September 30, 2017, to $5.0 million for the three months ended September 30,
2018.
Interest
Expense. Total interest expense increased $171,000, or 29.2%, to $755,000 for the three months ended September 30, 2018,
compared to $585,000 for the three months ended September 30, 2017. Interest expense on deposit accounts increased $133,000, or
30.0%, to $578,000 for the three months ended September 30, 2018, compared to $445,000 for the three months ended September 30,
2017. The increase was primarily due to an increase in the average balance of interest-bearing deposits of $4.9 million, or 4.2%,
from $115.5 million for the three months ended September 30, 2017, to $120.3 million for the three months ended September 30,
2018. Among interest bearing deposits, the largest impact is from an increase of $10.0 million, or 13.3%, in time deposits. Additionally,
the cost of funds associated with interest-bearing deposits increased 39 basis points from 1.54% for the three months ended September
30, 2017, to 1.93% for the three months ended September 30, 2018, primarily due to increases in deposit rates in response to competition.
Interest
expense on Federal Home Loan Bank advances increased $37,000 or 26.5%, to $177,000 for the three months ended September 30, 2018,
from $140,000 for the three months ended September 30, 2017. The increase was driven by the increase in the average balance of
advances of $2.9 million, or 11.1%, from $26.4 million for the three months ended September 30, 2017 to $29.4 million for the
three months ended September 30, 2018. The average cost of these borrowings increased 29 basis points from 2.13% for the three
months ended September 30, 2017 to 2.42% for the three months ended September 30, 2018.
Net
Interest Income. Net interest income increased $34,000, or 3.4%, when comparing the two periods. This was due to an increase
in interest income of $205,000 when comparing the two periods, while interest expense increased by $171,000 over the two periods.
Average interest-earning assets for the three months ended September 30, 2017 was $146.0 million, and it increased $22.4 million
to $168.4 million for the three months ended September 30, 2018, an increase of 15.4%. Net interest earning assets increased $14.6
million, or 358.9%, to $18.7 million for the three months ended September 30, 2018, from $4.1 million for the three months ended
September 30, 2017.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison
of Operating Results for the Three Months Ended September 30, 2018 and 2017 (Continued)
Provision
for Loan Losses. The provision for loan losses decreased $11,000, or 18.1%, to $50,000 for the three months ended September
30, 2018, from $61,000 for the three months ended September 30, 2017. Net loans increased $6.3 million during the three months
ended September 30, 2018, compared to an increase of $7.1 million during the three months ended September 30, 2017, thus resulting
in a slightly lower provision when comparing the two periods.
The
allowance for loan losses reflects the estimate we believe adequate to cover inherent probable losses. While we believe the estimates
and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could
change based upon the risk characteristics of the various portfolio segments, experience with losses, the impact of economic conditions
on borrowers and other relevant factors.
Non-Interest
Income. Non-interest income increased $5,000, or 3.6% to $135,000 for the three months ended September 30, 2018, from
$130,000 for the comparable three months ended September 30, 2017. The increase was primarily due to small increases in loan servicing
fees, earnings on bank-owned life insurance, and other noninterest income. These gains were partially offset by a decrease in
gain on sale of loans of $20,000 when comparing the two periods. This is due to the decrease in one-to-four family mortgage refinances
due to a rise in interest rates.
Non-Interest
Expense. Non-interest expense increased $120,000, or 13.6%, to $1.0 million for the three months ended September 30, 2018,
compared to $884,000 for the three months ended September 30, 2017. Salaries and employee benefits increased $24,000, or 5.6%,
to $458,000 for the three months ended September 30, 2018 from $434,000 for the three months ended September 30, 2017. The increase
was associated with the addition of staff dedicated to marketing, business development, and credit administration. Additionally,
due to the addition of a second branch office, occupancy expenses increased $26,000, or 38.8%, to $93,000 for the three months
ended September 30, 2018, from $67,000 for the three months ended September 30, 2017. Federal deposit insurance, data processing,
director fees, and contributions and donations increased $16,000, $22,000, $20,000, and $10,000, respectively. A decrease in professional
fees of $8,000 provided a small offset to the increases. The decrease in professional fees is due to a change in service provider.
Income
Taxes. The income tax provision decreased from $61,000 for the three months ended September 30, 2017 to $18,000 for the
three months ended September 30, 2018, a decrease of $42,000 or 69.8%. The effective tax rate was 16.2% for the three months ended
September 30, 2018, and 33.1% for the three months ended September 30, 2017. The lower effective tax rate was a result of the
Job and Tax Cuts Act enacted into law in December 2017.
Comparison
of Operating Results for the Nine Months Ended September 30, 2018 and 2017
Net
Income. Net income totaled $198,000 for the nine months ended September 30, 2018, compared to net income of $630,000 for
the nine months ended September 30, 2017, a decrease of $431,000 or 68.5%. The decrease was driven by an increase in noninterest
expense of $743,000, or 32.7%, to $3.0 million for the nine months ended September 30, 2018, from $2.3 million for the nine months
ended September 30, 2017. There was also a decrease in noninterest income of $33,000, or 8.4%, to $361,000 for the nine months
ended September 30, 2018, from $394,000 for the nine months ended September 30, 2017. There was a decrease in net interest income
of $49,000, or 1.6%, and it remained at $3.0 million for the nine months ended September 30, 2019.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison
of Operating Results for the Nine Months Ended September 30, 2018 and 2017 (Continued)
Also,
the provision for income taxes decreased by $328,000, or 94.5%, to $19,000 for the nine months ended September 30, 2018, from
$347,000 for the nine months ended September 30, 2017.
Interest
and Dividend Income. Interest and dividend income increased $307,000, or 6.5%, to $5.0 million for the nine months ended
September 30, 2018, from $4.7 million for the nine months ended September 30, 2017. Interest income on loans increased $216,000,
or 4.8%. This increase is primarily attributable to an increase in the average balance of net loans of $29.3 million, or 24.8%.
The average balances of net loans increased from $118.4 million to $147.8 million when comparing the nine months ended September
30, 2017 with the nine months ended September 30, 2018.
Interest
Expense. Total interest expense increased $357,000, or 21.2%, to $2.0 million for the nine months ended September 30,
2018, compared to $1.7 million for the nine months ended September 30, 2017. Interest expense on deposit accounts increased $270,000,
or 21.1%, to $1.6 million for the nine months ended September 30, 2018, compared to $1.3 million for the nine months ended September
30, 2017. The increase was primarily due to an increase in the average balance of interest-bearing deposits of $5.0 million, or
4.4%, from $113.2 million for the nine months ended September 30, 2017, to $118.2 million for the nine months ended September
30, 2018. Among interest bearing deposits, the largest impact is from a $9.5 million, or 12.9%, increase in time deposits. Additionally,
the cost of funds associated with interest-bearing deposits increased 24 basis points from 1.51% for the nine months ended September
30, 2017, to 1.75% for the nine months ended September 30, 2018, due to increases in deposit rates in response to competition.
Interest
expense on Federal Home Loan Bank advances increased $87,000 or 21.7%, to $487,000 for the nine months ended September 30, 2018,
from $400,000 for the nine months ended September 30, 2017. The increase was driven by the increase in the average balance of
advances of $2.1 million, or 8.3%, from $25.2 million for the nine months ended September 30, 2017 to $27.3 million for the nine
months ended September 30, 2018. The average cost of these borrowings increased 26 basis points from 2.12% for the nine months
ended September 30, 2017 to 2.38% for the nine months ended September 30, 2018, primarily due to the replacement of a maturing
lower-cost Federal Home Loan Bank advance with a higher-cost advance.
Net
Interest Income. Net interest income decreased $49,000, or 1.6%, when comparing the two periods. This was due to an increase
in interest expense of $357,000 when comparing the two periods, while interest income increased by $307,000 over the two periods.
Average interest-earning assets for the nine months ended September 30, 2017 was $142.9 million, increasing $18.4 million to $161.4
million for the nine months ended September 30, 2018, an increase of 12.9%. Net interest earning assets increased $11.3 million,
or 253.0%, to $15.8 million for the nine months ended September 30, 2018, from $4.5 million for the nine months ended September
30, 2017. Additionally, interest rate spread decreased 50 basis points from 2.79% to 2.29%, and net interest margin decreased
37 basis points from 2.84% to 2.47% when comparing the two periods.
Provision
for Loan Losses. The provision for loan losses decreased $66,000, or 36.5%, to $115,000 for the nine months ended September
30, 2018, from $181,000 for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, the bank
made adjustments to FAS 5 factors resulting in a larger than typical provision which accounts for the significant decrease in
the provision when comparing the two periods.
The
allowance for loan losses reflects the estimate we believe adequate to cover inherent probable losses. While we believe the estimates
and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could
change based upon the risk characteristics of the various portfolio segments, experience with losses, the impact of economic conditions
on borrowers and other relevant factors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison
of Operating Results for the Nine Months Ended September 30, 2018 and 2017 (Continued)
Non-Interest
Income. Non-interest income decreased $33,000, or 8.4% to $361,000 for the nine months ended September 30, 2018, from
$394,000 for the comparable nine months ended September 30, 2017. The decrease was primarily due to a decrease in gains on sale
of loans of $115,000, or 42.1%, to $158,000 for the nine months ended September 30, 2018, from $272,000 for the nine months ended
September 30, 2017. Partially offsetting this decrease was a $37,000 increase in loan servicing fees, a $17,000 increase in earnings
on bank-owned life insurance, and a $28,000 increase in other noninterest income when comparing the two periods.
Non-Interest
Expense. Non-interest expense increased $743,000, or 32.7%, to $3.0 million for the nine months ended September 30, 2018,
compared to $2.3 million for the nine months ended September 30, 2017. Professional fees increased $284,000 to $557,000 for the
nine months ended September 30, 2018, from $273,000 for the comparable nine months ended September 30, 2017. The increase is principally
due to additional accounting and auditing expenses associated with the regulatory filings related to the Reorganization. Salaries
and employee benefits increased $141,000, or 12.3%, to $1.3 million for the nine months ended September 30, 2018 from $1.1 million
for the nine months ended September 30, 2017. The increase was associated with the addition of staff due to the opening of a new
branch office and increased staffing in lending, business development, and marketing. Additionally, due to the addition of a second
branch, occupancy expenses increased $93,000, or 49.4%, to $280,000 for the nine months ended September 30, 2018, from $188,000
for the nine months ended September 30, 2017. Lastly, federal deposit insurance, data processing, director fees, and other noninterest
expense increased $42,000, $34,000, $53,000, and $80,000, respectively.
Income
Taxes. The income tax provision decreased from $347,000 for the nine months ended September 30, 2017 to $19,000 for the
nine months ended September 30, 2018, a decrease of $328,000 or 94.5%. The effective tax rate was 8.8% for the nine months ended
September 30, 2018, and 35.5% for the nine months ended September 30, 2017. The lower effective tax rate was a result of the Job
and Tax Cuts Act enacted into law in December 2017.
Management
of Market Risk
General.
Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets
and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest
rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our
Asset/Liability Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities,
for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity
and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.
We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest
rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this
risk consistent with the guidelines approved by the board of directors.
Our
interest rate risk profile is considered liability-sensitive, which means that if interest rates rise our deposits and other interest-bearing
liabilities would be expected to reprice to higher interest rates faster than would our loans and other interest-earning assets.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest
rates. In recent years, we have implemented the following strategies to manage our interest rate risk:
|
●
|
increasing
lower cost core deposits and limiting our reliance on higher cost funding sources, such as time deposits; and
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Management
of Market Risk (Continued)
|
●
|
diversifying
our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments,
and selling one- to four-family residential mortgage loans, which have fixed interest rates and longer terms.
|
By
following these strategies, we believe that we are better positioned to react to increases in market interest rates.
We
do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage
derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests
or stripped mortgage backed securities.
Economic
Value of Equity. We analyze our sensitivity to changes in interest rates through an economic value of equity
(“EVE”) model. EVE represents the difference between the present value of assets and the present value of
liabilities. The EVE ratio represents the dollar amount of our EVE divided by the present value of our total assets for a
given interest rate scenario. EVE attempts to quantify our economic value using a discounted cash flow methodology while the
EVE ratio reflects that value as a form of capital ratio. We estimate what our EVE would be at a specific date. We then
calculate what the EVE would be at the same date throughout a series of interest rate scenarios representing immediate
and permanent, parallel shifts in the yield curve. We currently calculate EVE under the assumptions that interest rates
increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100 basis points from
current market rates.
The
following table presents the estimated changes in our EVE that would result from changes in market interest rates at September
30, 2018. All estimated changes presented in the table are within the policy limits approved by our board of directors.
|
|
|
|
|
|
|
|
EVE as Percent of Economic
|
|
|
Estimated Increase (Decrease) in EVE
|
|
Value of Assets
|
Basis Point (“bp”)
|
|
|
|
|
|
|
|
|
|
|
Change in Interest
Rates (1)
|
|
Estimated EVE
|
|
Dollar Change
|
|
Percent Change
|
|
EVE Ratio (2)
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+400bp
|
|
$
|
14,387
|
|
|
$
|
(7,120
|
)
|
|
|
(33.11
|
)%
|
|
|
8.91
|
%
|
|
|
(2.82
|
)%
|
+300bp
|
|
|
15,780
|
|
|
|
(5,727
|
)
|
|
|
(26.63
|
)%
|
|
|
9.49
|
%
|
|
|
(2.24
|
)%
|
+200bp
|
|
|
17,654
|
|
|
|
(3,853
|
)
|
|
|
(17.92
|
)%
|
|
|
10.28
|
%
|
|
|
(1.45
|
)%
|
+100bp
|
|
|
19,680
|
|
|
|
(1,827
|
)
|
|
|
(8.49
|
)%
|
|
|
11.09
|
%
|
|
|
(0.65
|
)%
|
0
|
|
|
21,507
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
11.73
|
%
|
|
|
0.00
|
%
|
-100bp
|
|
|
22,291
|
|
|
|
784
|
|
|
|
3.65
|
%
|
|
|
11.87
|
%
|
|
|
0.13
|
%
|
(1)
|
Assumes
instantaneous parallel changes in interest rates.
|
(2)
|
EVE
ratio represents the EVE divided by the economic value of assets.
|
Certain
shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling requires making certain
assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.
The above table assumes that the composition of our
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Management
of Market Risk (Continued)
interest-sensitive
assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration
or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk
exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect
of changes in market interest rates on our EVE and will differ from actual results.
Liquidity
and Capital Resources
Liquidity.
Liquidity is the ability to meet current and future financial obligations of a short-term nature that arise in the ordinary
course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and
to fund investing activities and current and planned expenditures. Our primary sources of funds are deposits, principal and interest
payments on loans and securities, proceeds from the sale of loans, and advances from the Federal Home Loan Bank of Pittsburgh.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term
investments including interest-bearing deposits in other financial institutions. The levels of these assets are dependent on our
operating, financing, lending, and investing activities during any given period. At September 30,2018, the Company had cash and
cash equivalents of $5.9 million. As of September 30, 2018 the Bank had $31.4 million in outstanding borrowings from the Federal
Home Loan Bank of Pittsburgh and had $54.9 million of available borrowing capacity.
At
September 30, 2018, the Bank had $13.0 million of loan commitments outstanding which includes $7.4 million of unused lines of
credit, $3.8 million of unadvanced construction funds, and $1.8 million of commitments to extend credit. We have no other material
commitments or demands that are likely to affect our liquidity. If loan demand was to increase faster than expected, or any unforeseen
demand or commitment was to occur, we could access our borrowing capacity with the Federal Home Loan Bank of Pittsburgh.
Time
deposits due within one year of September 30, 2018 totaled $26.5 million. If these deposits do not remain with us, we will be
required to seek other sources of funds, including other time deposits and Federal Home Loan Bank of Pittsburgh advances. Depending
on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we paid on time deposits
at September 30, 2018. We believe, however, based on past experience that a significant portion of our time deposits will remain
with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
SSB
Bancorp, Inc. is a separate legal entity from SSB Bank and must provide for its own liquidity to pay any dividends to its stockholders
and for other corporate purposes. SSB Bancorp, Inc.’s primary source of liquidity is dividend payments it may receive from
SSB Bank. SSB Bank’s ability to pay dividends to SSB Bancorp, Inc. is governed by applicable laws and regulations. At September
30, 2018, SSB Bancorp, Inc. (on an unconsolidated basis) had liquid assets of $3.5 million.
Capital
Resources. At September 30, 2018, SSB Bank exceeded all regulatory capital requirements and it was categorized as “well
capitalized.” We are not aware of any conditions or events since the most recent notification that would change our category.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. The following tables
present our contractual obligations as of the dates indicated.
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less Than One Year
|
|
|
One to
Three Years
|
|
|
Three to
Five Years
|
|
|
More Than Five Years
|
|
|
|
(In thousands)
|
|
At September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
$
|
31,375
|
|
|
$
|
6,250
|
|
|
$
|
15,125
|
|
|
$
|
-
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
$
|
26,416
|
|
|
$
|
9,292
|
|
|
$
|
7,124
|
|
|
$
|
-
|
|
|
$
|
10,000
|
|
Operating lease obligations
|
|
|
4
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Off-Balance
Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business
to meet the financing needs of our customers. These financial instruments include commitments to extend credit and unused lines
of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our
exposure to credit loss is represented by the
contractual
amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.