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Section 1: 10-Q (10-Q)

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Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q


 

 

☒  

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

 

For the quarterly period ended March 31, 2019

OR

 

 

☐  

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

 

For the transition period from                            to                           

Commission File No. 001‑38131


Esquire Financial Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland

    

27-5107901

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

100 Jericho Quadrangle, Suite 100, Jericho, New York

 

11753

(Address of Principal Executive Offices)

 

(Zip Code)

 

(516) 535‑2002

(Registrant’s Telephone Number, Including Area Code)

N/A

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


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

YES  ☒    NO  ☐

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

YES  ☒    NO  ☐

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

 

 

 

Large accelerated filer      ☐

    

Accelerated filer                       ☒

Non-accelerated filer         ☐

 

Smaller reporting company      ☒

 

 

Emerging growth company      ☒

 

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

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

YES  ☐    NO  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 1, 2019, there were 7,532,723 outstanding shares of the issuer’s common stock.

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

 

 

 

 

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

ESQ

 

The Nasdaq Stock Market LLC

 

 

 


 

Table of Contents

Esquire Financial Holdings, Inc.

Form 10‑Q

Table of Contents

 

    

 

    

Page

PART I. FINANCIAL INFORMATION 

 

3

 

 

 

Item 1. 

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

 

 

Notes to Interim Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2. 

 

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

 

21

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

33

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

33

 

 

 

 

 

PART II. OTHER INFORMATION 

 

34

 

 

 

Item 1. 

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

34

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

34

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

34

 

 

 

 

 

Item 5. 

 

Other Information

 

34

 

 

 

 

 

Item 6. 

 

Exhibits

 

35

 

 

 

 

 

 

 

SIGNATURES

 

36

 

 

 

2


 

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

681

 

$

659

Interest earning deposits

 

 

49,232

 

 

29,903

Total cash and cash equivalents

 

 

49,913

 

 

30,562

 

 

 

 

 

 

 

Securities available-for-sale, at fair value

 

 

152,909

 

 

145,698

Securities, restricted, at cost

 

 

2,583

 

 

2,583

 

 

 

 

 

 

 

Loans

 

 

490,019

 

 

468,101

Less: allowance for loan losses

 

 

(6,049)

 

 

(5,629)

Loans, net

 

 

483,970

 

 

462,472

Premises and equipment, net

 

 

2,920

 

 

2,694

Accrued interest receivable

 

 

3,721

 

 

3,855

Other assets

 

 

24,067

 

 

16,035

Total assets

 

$

720,083

 

$

663,899

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

$

230,062

 

$

212,721

Savings, NOW and money market

 

 

364,805

 

 

335,283

Time

 

 

20,115

 

 

20,417

Total deposits

 

 

614,982

 

 

568,421

 

 

 

 

 

 

 

Secured borrowings

 

 

89

 

 

89

Accrued expenses and other liabilities

 

 

7,539

 

 

2,615

Total liabilities

 

$

622,610

 

$

571,125

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 —

 

 

 —

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.01; authorized 2,000,000 shares; no shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, par value $0.01; authorized 15,000,000 shares; issued and outstanding 7,532,723 shares at March 31, 2019 and December 31, 2018

 

 

75

 

 

75

Additional paid-in capital

 

 

88,809

 

 

88,539

Retained earnings

 

 

9,759

 

 

6,774

Accumulated other comprehensive loss

 

 

(1,170)

 

 

(2,614)

Total stockholders’ equity

 

 

97,473

 

 

92,774

Total liabilities and stockholders’ equity

 

$

720,083

 

$

663,899

 

See accompanying condensed notes to interim condensed consolidated financial statements.

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

Ended March 31, 

 

    

2019

    

2018

Interest income:

 

 

 

 

 

 

Loans

 

$

7,192

 

$

5,289

Securities

 

 

1,065

 

 

865

Interest earning deposits and other

 

 

226

 

 

116

Total interest income

 

 

8,483

 

 

6,270

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

Savings, NOW and money market deposits

 

 

429

 

 

121

Time deposits

 

 

125

 

 

48

Borrowings

 

 

 1

 

 

 5

Total interest expense

 

 

555

 

 

174

 

 

 

 

 

 

 

Net interest income

 

 

7,928

 

 

6,096

Provision for loan losses

 

 

425

 

 

225

Net interest income after provision for loan losses

 

 

7,503

 

 

5,871

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

Merchant processing income

 

 

1,814

 

 

1,021

Customer related fees and service charges

 

 

267

 

 

1,054

Total noninterest income

 

 

2,081

 

 

2,075

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

Employee compensation and benefits

 

 

3,436

 

 

3,061

Occupancy and equipment, net

 

 

439

 

 

426

Professional and consulting services

 

 

494

 

 

628

FDIC and regulatory assessments

 

 

86

 

 

72

Advertising and marketing

 

 

68

 

 

125

Travel and business relations

 

 

112

 

 

157

Data processing

 

 

506

 

 

484

Other operating expenses

 

 

340

 

 

320

Total noninterest expense

 

 

5,481

 

 

5,273

 

 

 

 

 

 

 

Net income before income taxes

 

 

4,103

 

 

2,673

Income tax expense

 

 

1,118

 

 

715

 

 

 

 

 

 

 

Net income

 

$

2,985

 

$

1,958

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

Basic

 

$

0.40

 

$

0.27

Diluted

 

$

0.39

 

$

0.26

 

See accompanying condensed notes to interim condensed consolidated financial statements

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

Ended March 31, 

 

    

2019

    

2018

Net income

 

$

2,985

 

$

1,958

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gains (losses) arising during the period on securities available-for-sale

 

 

1,963

 

 

(1,727)

Reclassification adjustment for net gains included in net income

 

 

 —

 

 

 —

Tax effect

 

 

(519)

 

 

472

Total other comprehensive income (loss)

 

 

1,444

 

 

(1,255)

Total comprehensive income

 

$

4,429

 

$

703

 

See accompanying condensed notes to interim condensed consolidated financial statements.

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

Preferred

 

Common

 

 

Preferred

 

 

Common

 

 

 

paid-in

 

 

Retained

 

 

 

comprehensive

 

 

stockholders'

 

shares

 

shares

 

 

stock

 

 

stock

 

 

 

capital

 

 

earnings

 

 

 

loss

 

 

equity

Balance at January 1, 2019

 —

 

7,532,723

 

$

 —

 

$

75

 

 

$

88,539

 

$

6,774

 

 

$

(2,614)

 

$

92,774

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

2,985

 

 

 

 —

 

 

2,985

Other comprehensive income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

1,444

 

 

1,444

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

270

 

 

 —

 

 

 

 —

 

 

270

Balance at March 31, 2019

 —

 

7,532,723

 

$

 —

 

$

75

 

 

$

88,809

 

$

9,759

 

 

$

(1,170)

 

$

97,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

Preferred

 

Common

 

 

Preferred

 

 

Common

 

 

 

paid-in

 

 

Retained

 

 

 

comprehensive

 

 

stockholders'

 

shares

 

shares

 

 

stock

 

 

stock

 

 

 

capital

 

 

deficit

 

 

 

loss

 

 

equity

Balance at January 1, 2018

 —

 

7,326,536

 

$

 —

 

$

73

 

 

$

86,660

 

$

(1,960)

 

 

$

(1,390)

 

$

83,383

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

1,958

 

 

 

 —

 

 

1,958

Other comprehensive loss

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

(1,255)

 

 

(1,255)

Exercise of stock options, net of repurchases

 —

 

42,687

 

 

 —

 

 

 1

 

 

 

377

 

 

 —

 

 

 

 —

 

 

378

Restricted stock grants

 —

 

76,500

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

200

 

 

 —

 

 

 

 —

 

 

200

Balance at March 31, 2018

 —

 

7,445,723

 

$

 —

 

$

74

 

 

$

87,237

 

$

(2)

 

 

$

(2,645)

 

$

84,664

 

See accompanying condensed notes to interim condensed consolidated financial statements.

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ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

2,985

 

$

1,958

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

425

 

 

225

Depreciation

 

 

107

 

 

103

Stock compensation expense

 

 

270

 

 

200

Net amortization:

 

 

 

 

 

 

Securities

 

 

95

 

 

106

Loans

 

 

177

 

 

85

Right of use asset

 

 

90

 

 

 —

Changes in other assets and liabilities:

 

 

 

 

 

 

Accrued interest receivable

 

 

134

 

 

(695)

Other assets

 

 

(5,584)

 

 

(440)

Operating lease liability

 

 

(99)

 

 

 —

Accrued expenses and other liabilities

 

 

1,966

 

 

1,022

Net cash provided by operating activities

 

 

566

 

 

2,564

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Net change in loans

 

 

(22,100)

 

 

(18,761)

Purchases of securities available-for-sale

 

 

(9,918)

 

 

(22,765)

Principal repayments on securities available-for-sale

 

 

4,575

 

 

4,831

Purchases of premises and equipment

 

 

(333)

 

 

(18)

Net cash used in investing activities

 

 

(27,776)

 

 

(36,713)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Net increase in deposits

 

 

46,561

 

 

33,238

Decrease in secured borrowings

 

 

 —

 

 

(2)

Exercise of stock options

 

 

 —

 

 

378

Net cash provided by financing activities

 

 

46,561

 

 

33,614

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

19,351

 

 

(535)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

 

30,562

 

 

43,077

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

49,913

 

$

42,542

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

555

 

$

171

Taxes

 

 

51

 

 

75

Noncash transactions:

 

 

 

 

 

 

Right of use asset obtained in exchange for lease liability

 

 

3,640

 

 

 —

 

See accompanying condensed notes to interim condensed consolidated financial statements.

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ESQUIRE FINANCIAL HOLDINGS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Interim Consolidated Financial Statements include the accounts of Esquire Financial Holdings, Inc. and its wholly owned subsidiary, Esquire Bank, N.A, are collectively referred to as “the Company.” All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial information. In the opinion of management, the interim statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company on a consolidated basis and all such adjustments are recurring in nature. These financial statements and the accompanying notes should be read in conjunction with the Company’s audited financial statements for the years ended December 31, 2018 and 2017. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other period.

Subsequent Events

The Company has evaluated subsequent events for recognition and disclosure through the date of issuance.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the Consolidated Financial Statements.

New Accounting Pronouncements

On February 25, 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements.  Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The new standard was adopted by the Company on January 1, 2019 utilizing the modified retrospective transition approach where it was applied to all leases existing at the date of initial application. Upon adoption, we recognized a ROU asset, presented within other assets on the Consolidated Statement of Financial Condition, and a lease liability, presented within accrued expenses and other liabilities on the Consolidated Statement of Financial Condition, of approximately $3.1 million and $3.6 million, respectively.  

In transition, we elected the ‘package of practical expedients’, which permitted the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. Management did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.

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The new standard also provided practical expedients for an entity’s ongoing accounting. Management elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases with an initial term of 12 months or less, the Company did not recognize ROU assets or lease liabilities, and this included not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. As of March 31, 2019, there are no material short term leases.

In recognizing ROU lease assets and related lease liabilities, we exclude variable and non-lease components (such as taxes, insurance, and common area maintenance costs) and expense these costs as incurred. At lease commencement date, the lease payments over the expected term are discounted using our incremental borrowing rate referenced to the Federal Home Loan Bank advance rates of a similar term to determine the present value of our lease obligation and ROU asset to be recorded on the Statement of Financial Condition. Lease expense is then recognized on a straight-line basis.

The Company has committed to rent premises used in business operations under non-cancelable operating leases that have renewal options for additional 3-5 year terms which were not considered in determining our ROU asset or lease liability as renewal is not reasonably certain. As of March 31, 2019, ROU lease assets and related lease liabilities were $3.0 million and $3.5 million, respectively, and the Company does not have any leases that have not yet commenced.

 

 

 

 

 

 

 

As of and for the three months ended

 

 

    

March 31, 2019

 

 

 

(Dollars in thousands)

 

Operating lease cost

 

$

120

 

Weighted-average remaining lease term

 

 

7.58

years

Weighted-average discount rate

 

 

3.28

%

 

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows:

 

 

 

 

 

 

 

Year ending

 

 

 

December 31,

 

 

 

(In thousands)

2019 (a)

 

$

304

2020

 

 

519

2021

 

 

510

2022

 

 

523

2023

 

 

536

Thereafter 

 

 

1,641

Total lease payments 

 

$

4,033

Less: interest

 

 

491

Present value of lease liabilities

 

$

3,542

 

 

 

 

(a) Excluding three months ended March 31, 2019

 

 

 

 

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016‑13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU). This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model. It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable and certain other contracts. This ASU will be effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company plans to adopt ASU 2016-13 January 1, 2020 using the required modified retrospective method with a cumulative effect adjustment as of the beginning of the reporting period. The Company has gathered the necessary data and is working with a vendor on the implementation of this standard.

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NOTE 2 — Debt Securities

Available-for-Sale Securities

The amortized cost, gross unrealized gains and losses and estimated fair value of securities available for sale were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

    

Cost

    

Gains

    

Losses

    

Value

 

 

(In thousands)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – agency

 

$

26,880

 

$

189

 

$

(354)

 

$

26,715

Collateralized mortgage obligations (CMO’s) – agency

 

 

127,665

 

 

210

 

 

(1,681)

 

 

126,194

Total available-for-sale

 

$

154,545

 

$

399

 

$

(2,035)

 

$

152,909

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – agency

 

$

27,384

 

$

15

 

$

(724)

 

$

26,675

Collateralized mortgage obligations (CMO’s) – agency

 

 

121,913

 

 

32

 

 

(2,922)

 

 

119,023

Total available-for-sale

 

$

149,297

 

$

47

 

$

(3,646)

 

$

145,698

 

Mortgage-backed securities included all residential pass-through certificates guaranteed by FHLMC, FNMA, or GNMA and the CMO’s are backed by government agency pass-through certificates. The 2019 and 2018 pass-through certificates are fixed rate instruments. CMO’s, by virtue of the underlying residential collateral or structure, are fixed rate current pay sequentials or planned amortization classes (PAC’s). As actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations, these securities are not considered to have a single maturity date.

When purchasing investment securities, the Company’s overall interest-rate risk profile is considered as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the investment securities portfolio, management occasionally sells investment securities in response to, or in anticipation of, changes in interest rates and spreads, actual or anticipated prepayments, liquidity needs and credit risk associated with a particular security.

There were no sales or calls of securities for the three months ended March 31, 2019 and 2018.

At March 31, 2019, securities having a fair value of $127.9 million were pledged to the Federal Home Loan Bank of New York (FHLB) for borrowing capacity totaling $122.0 million. At December 31, 2018, securities having a fair value of $120.7 million were pledged to the FHLB for borrowing capacity totaling $115.0 million. At March 31, 2019 and December 31, 2018, the Company had no outstanding FHLB advances.

At March 31, 2019, securities having a fair value of $25.0 million were pledged to the Federal Reserve Bank of New York (FRB) for borrowing capacity totaling $24.3 million. At December 31, 2018, securities having a fair value of $25.0 million were pledged to the FRB for borrowing capacity totaling $24.2 million. At March 31, 2019 and December 31, 2018, the Company had no outstanding FRB borrowings.

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The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position as of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Than 12 Months

 

12 Months or Longer

 

Total

 

    

Fair
Value

    

Gross
Unrealized
Losses

    

Fair
Value

    

Gross
Unrealized
Losses

    

Fair
Value

    

Gross
Unrealized
Losses

 

 

(In thousands)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – agency

 

$

 —

 

$

 —

 

$

16,751

 

$

(354)

 

$

16,751

 

$

(354)

CMO’s – agency

 

 

4,256

 

 

(6)

 

 

87,903

 

 

(1,675)

 

 

92,159

 

 

(1,681)

Total temporarily impaired securities

 

$

4,256

 

$

(6)

 

$

104,654

 

$

(2,029)

 

$

108,910

 

$

(2,035)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - agency

 

$

9,528

 

$

(99)

 

$

15,497

 

$

(625)

 

$

25,025

 

$

(724)

CMO's - Agency

 

 

19,184

 

 

(73)

 

 

85,775

 

 

(2,849)

 

 

104,959

 

 

(2,922)

Total temporarily impaired securities

 

$

28,712

 

$

(172)

 

$

101,272

 

$

(3,474)

 

$

129,984

 

$

(3,646)

 

Management reviews the investment portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment (OTTI), management considers many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

At March 31, 2019, securities in unrealized loss positions were issuances from government sponsored entities. Due to the decline in fair value being attributable to changes in interest rates, not credit quality and because the Company does not have the intent to sell the securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider the securities to be other-than-temporarily impaired at March 31, 2019.

No impairment charges were recorded for the three months ended March 31, 2019 and 2018.

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NOTE 3 — Loans

The composition of loans by class is summarized as follows:

 

 

 

 

 

 

 

 

    

March 31, 2019

 

December 31, 2018

 

 

(In thousands)

1 – 4 family residential

 

$

52,569

        

$

56,043

Commercial

 

 

212,600

 

 

191,828

Multifamily

 

 

137,908

 

 

136,537

Commercial real estate

 

 

37,819

 

 

33,145

Construction

 

 

6,337

 

 

5,921

Consumer

 

 

42,190

 

 

43,675

Total Loans

 

 

489,423

 

 

467,149

 

 

 

 

 

 

 

Deferred costs and unearned premiums, net

 

 

596

 

 

952

Allowance for loan losses

 

 

(6,049)

 

 

(5,629)

Loans, net

 

$

483,970

 

$

462,472

 

The following tables present the activity in the allowance for loan losses by class for the three months ending March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 Family

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

    

Residential

    

Commercial

    

Multifamily

    

Real Estate

    

Construction

    

Consumer

    

Total

 

 

(In thousands)

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

407

 

$

3,110

 

$

952

 

$

357

 

$

149

 

$

654

 

$

5,629

Provision (credit) for loan losses

 

 

(27)

 

 

381

 

 

(3)

 

 

51

 

 

10

 

 

13

 

 

425

Recoveries

 

 

 —

 

 

 —

 

 

 —