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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 September 30, 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)


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

 

 

 

 

 

 

 

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

 

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 November 1, 2019, there were 7,541,670 outstanding shares of the issuer’s common stock.

 

 

 

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

 

23

 

 

 

 

 

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

Item 4. 

 

Controls and Procedures

 

38

 

 

 

 

 

PART II. OTHER INFORMATION 

 

39

 

 

 

Item 1. 

 

Legal Proceedings

 

39

 

 

 

 

 

Item 1A. 

 

Risk Factors

 

39

 

 

 

 

 

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

Item 3. 

 

Defaults Upon Senior Securities

 

39

 

 

 

 

 

Item 4. 

 

Mine Safety Disclosures

 

39

 

 

 

 

 

Item 5. 

 

Other Information

 

39

 

 

 

 

 

Item 6. 

 

Exhibits

 

40

 

 

 

 

 

 

 

SIGNATURES

 

41

 

 

 

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)

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,676

 

$

30,562

Securities available-for-sale, at fair value

 

 

139,165

 

 

145,698

Securities, restricted, at cost

 

 

2,665

 

 

2,583

 

 

 

 

 

 

 

Loans

 

 

533,949

 

 

468,101

Less: allowance for loan losses

 

 

(6,741)

 

 

(5,629)

Loans, net

 

 

527,208

 

 

462,472

Premises and equipment, net

 

 

2,872

 

 

2,694

Accrued interest receivable

 

 

3,159

 

 

3,855

Other assets

 

 

22,993

 

 

16,035

Total assets

 

$

759,738

 

$

663,899

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Demand

 

$

225,740

 

$

212,721

Savings, NOW and money market

 

 

398,812

 

 

335,283

Time

 

 

19,959

 

 

20,417

Total deposits

 

 

644,511

 

 

568,421

 

 

 

 

 

 

 

Secured borrowings

 

 

87

 

 

89

Accrued expenses and other liabilities

 

 

8,237

 

 

2,615

Total liabilities

 

$

652,835

 

$

571,125

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 —

 

 

 —

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.01; authorized 2,000,000 shares; no shares issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, par value $0.01; authorized 15,000,000 shares; issued and outstanding 7,541,670 shares at September 30, 2019 and 7,532,723 shares at December 31, 2018

 

 

75

 

 

75

Additional paid-in capital

 

 

89,398

 

 

88,539

Retained earnings

 

 

17,044

 

 

6,774

Accumulated other comprehensive gain (loss)

 

 

386

 

 

(2,614)

Total stockholders’ equity

 

 

106,903

 

 

92,774

Total liabilities and stockholders’ equity

 

$

759,738

 

$

663,899

 

See accompanying condensed notes to interim condensed consolidated financial statements.

3

Table of Contents

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30, 

 

Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

8,312

 

$

6,432

 

$

23,524

 

$

17,378

Securities

 

 

950

 

 

1,035

 

 

3,073

 

 

2,906

Interest earning deposits and other

 

 

236

 

 

153

 

 

706

 

 

470

Total interest income

 

 

9,498

 

 

7,620

 

 

27,303

 

 

20,754

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW and money market deposits

 

 

625

 

 

291

 

 

1,665

 

 

580

Time deposits

 

 

125

 

 

41

 

 

375

 

 

140

Borrowings

 

 

 1

 

 

12

 

 

 4

 

 

21

Total interest expense

 

 

751

 

 

344

 

 

2,044

 

 

741

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

8,747

 

 

7,276

 

 

25,259

 

 

20,013

Provision for loan losses

 

 

425

 

 

450

 

 

1,250

 

 

975

Net interest income after provision for loan losses

 

 

8,322

 

 

6,826

 

 

24,009

 

 

19,038

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Merchant processing income

 

 

3,284

 

 

1,300

 

 

7,994

 

 

3,532

Customer related fees and service charges

 

 

191

 

 

500

 

 

653

 

 

2,322

Total noninterest income

 

 

3,475

 

 

1,800

 

 

8,647

 

 

5,854

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

3,817

 

 

4,161

 

 

10,841

 

 

10,230

Occupancy and equipment

 

 

517

 

 

429

 

 

1,399

 

 

1,287

Professional and consulting services

 

 

816

 

 

547

 

 

2,146

 

 

1,859

FDIC and regulatory assessments

 

 

40

 

 

79

 

 

211

 

 

235

Advertising and marketing

 

 

230

 

 

146

 

 

592

 

 

442

Travel and business relations

 

 

136

 

 

116

 

 

372

 

 

384

Data processing

 

 

638

 

 

485

 

 

1,857

 

 

1,415

Other operating expenses

 

 

410

 

 

367

 

 

1,175

 

 

1,039

Total noninterest expense

 

 

6,604

 

 

6,330

 

 

18,593

 

 

16,891

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income before income taxes

 

 

5,193

 

 

2,296

 

 

14,063

 

 

8,001

Income tax expense

 

 

1,376

 

 

614

 

 

3,793

 

 

2,140

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,817

 

$

1,682

 

$

10,270

 

$

5,861

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.52

 

$

0.23

 

$

1.39

 

$

0.80

Diluted

 

$

0.49

 

$

0.22

 

$

1.32

 

$

0.76

 

See accompanying condensed notes to interim condensed consolidated financial statements

4

Table of Contents

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30, 

 

Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

Net income

 

$

3,817

 

$

1,682

 

$

10,270

 

$

5,861

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

650

 

 

(776)

 

 

4,138

 

 

(3,347)

Reclassification adjustment for net gains included in net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Tax effect

 

 

(184)

 

 

212

 

 

(1,138)

 

 

916

Total other comprehensive income (loss)

 

 

466

 

 

(564)

 

 

3,000

 

 

(2,431)

Total comprehensive income

 

$

4,283

 

$

1,118

 

$

13,270

 

$

3,430

 

See accompanying condensed notes to interim condensed consolidated financial statements.

5

Table of Contents

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

 

 

 

gain

 

 

equity

Balance at July 1, 2019

 —

 

7,536,723

 

$

 —

 

$

75

 

 

$

89,129

 

$

13,227

 

 

$

(80)

 

$

102,351

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

3,817

 

 

 

 —

 

 

3,817

Other comprehensive income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

466

 

 

466

Exercise of stock options, net of repurchases

 —

 

4,947

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

269

 

 

 —

 

 

 

 —

 

 

269

Balance at September 30, 2019

 —

 

7,541,670

 

$

 —

 

$

75

 

 

$

89,398

 

$

17,044

 

 

$

386

 

$

106,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

Preferred

 

Common

 

 

Preferred

 

 

Common

 

 

 

paid-in

 

 

Retained

 

 

 

comprehensive

 

 

stockholders'

 

shares

 

shares

 

 

stock

 

 

stock

 

 

 

capital

 

 

earnings

 

 

 

loss

 

 

equity

Balance at July 1, 2018

 —

 

7,445,723

 

$

 —

 

$

74

 

 

$

87,460

 

$

2,219

 

 

$

(3,257)

 

$

86,496

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

1,682

 

 

 

 —

 

 

1,682

Other comprehensive loss

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

(564)

 

 

(564)

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

881

 

 

 —

 

 

 

 —

 

 

881

Balance at September 30, 2018

 —

 

7,445,723

 

$

 —

 

$

74

 

 

$

88,341

 

$

3,901

 

 

$

(3,821)

 

$

88,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

Preferred

 

Common

 

 

Preferred

 

 

Common

 

 

 

paid-in

 

 

Retained

 

 

 

comprehensive

 

 

stockholders'

 

shares

 

shares

 

 

stock

 

 

stock

 

 

 

capital

 

 

earnings

 

 

 

gain

 

 

equity

Balance at January 1, 2019

 —

 

7,532,723

 

$

 —

 

$

75

 

 

$

88,539

 

$

6,774

 

 

$

(2,614)

 

$

92,774

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

10,270

 

 

 

 —

 

 

10,270

Other comprehensive income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

3,000

 

 

3,000

Exercise of stock options, net of repurchases

 —

 

8,947

 

 

 —

 

 

 —

 

 

 

50

 

 

 —

 

 

 

 —

 

 

50

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

809

 

 

 —

 

 

 

 —

 

 

809

Balance at September 30, 2019

 —

 

7,541,670

 

$

 —

 

$

75

 

 

$

89,398

 

$

17,044

 

 

$

386

 

$

106,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2018

 —

 

7,326,536

 

$

 —

 

$

73

 

 

$

86,660

 

$

(1,960)

 

 

$

(1,390)

 

$

83,383

Net income

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

5,861

 

 

 

 —

 

 

5,861

Other comprehensive loss

 —

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

(2,431)

 

 

(2,431)

Exercise of stock options, net of repurchases

 —

 

42,687

 

 

 —

 

 

 1

 

 

 

377

 

 

 —

 

 

 

 —

 

 

378

Restricted stock grants

 —

 

76,500

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

 

 

 

 —

 

 

 —

Stock compensation expense

 —

 

 —

 

 

 —

 

 

 —

 

 

 

1,304

 

 

 —

 

 

 

 —

 

 

1,304

Balance at September 30, 2018

 —

 

7,445,723

 

$

 —

 

$

74

 

 

$

88,341

 

$

3,901

 

 

$

(3,821)

 

$

88,495

 

See accompanying condensed notes to interim condensed consolidated financial statements.

6

Table of Contents

ESQUIRE FINANCIAL HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

10,270

 

$

5,861

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

 

 

 

 

 

 

Net cash used in operating activities:

 

 

 

 

 

 

Provision for loan losses

 

 

1,250

 

 

975

Depreciation

 

 

368

 

 

304

Stock compensation expense

 

 

809

 

 

1,304

Net amortization:

 

 

 

 

 

 

Securities

 

 

359

 

 

339

Loans

 

 

284

 

 

296

Right of use asset

 

 

272

 

 

 —

Changes in other assets and liabilities:

 

 

 

 

 

 

Accrued interest receivable

 

 

696

 

 

(1,572)

Other assets

 

 

(5,311)

 

 

(3,391)

Operating lease liability

 

 

(213)

 

 

 —

Accrued expenses and other liabilities

 

 

2,778

 

 

3,243

Net cash provided by operating activities

 

 

11,562

 

 

7,359

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Net change in loans

 

 

(66,270)

 

 

(89,211)

Purchases of securities available-for-sale

 

 

(9,918)

 

 

(40,844)

Principal repayments on securities available-for-sale

 

 

20,230

 

 

18,394

Purchase of securities, restricted

 

 

(82)

 

 

(220)

Purchase of equity investment without readily determinable fair value

 

 

 —

 

 

(2,410)

Purchases of premises and equipment

 

 

(546)

 

 

(374)

Net cash used in investing activities

 

 

(56,586)

 

 

(114,665)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Net increase in deposits

 

 

76,090

 

 

103,697

Decrease in secured borrowings

 

 

(2)

 

 

(6)

Exercise of stock options

 

 

50

 

 

378

Net cash provided by financing activities

 

 

76,138

 

 

104,069

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

31,114

 

 

(3,237)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

 

30,562

 

 

43,077

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

61,676

 

$

39,840

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

2,048

 

$

730

Taxes

 

 

3,016

 

 

1,955

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 and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other period. Certain balances in the prior year financial statements were reclassified to conform to current presentation. The reclassifications had no effect on prior year net income or stockholders’ equity.

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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Table of Contents

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.

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.

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. At its July 17, 2019 public meeting, FASB issued a proposal to delay the effective date of ASU 2016-13 for certain entities, including SEC filers classified as smaller reporting companies. On October 16, 2019, FASB voted for the delay, the revised effective date for adoption for the Company, which is classified as a smaller reporting company, is January 1, 2023. Due to this change in effective date, the Company plans to adopt ASU 2016-13 on January 1, 2023, 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 continues to prepare for the implementation of this standard.

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)

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – agency

 

$

25,541

 

$

609

 

$

(93)

 

$

26,057

Collateralized mortgage obligations (CMO’s) – agency

 

 

113,085

 

 

449

 

 

(426)

 

 

113,108

Total available-for-sale

 

$

138,626

 

$

1,058

 

$

(519)

 

$

139,165

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – agency

 

$

27,384

 

$

15

 

$

(724)

 

$

26,675

Collateralized mortgage obligations (CMO’s) – agency

 

 

121,913

 

 

32