SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Nature of Business
Anchor Bancorp (the “Company”), a Washington corporation, was formed in connection with the conversion of Anchor Mutual Savings Bank (the “Bank”) from the mutual to the stock form of organization. On January 25, 2011, the Bank completed its conversion from mutual to stock form, changed its name to “Anchor Bank” and became the wholly-owned subsidiary of the Company.
Anchor Bank is a community-based savings bank primarily serving Western Washington through its
nine
full-service bank offices within Grays Harbor, Thurston, Lewis, and Pierce counties, and
one
loan production office located in King County, Washington. Anchor Bank’s business consists of attracting deposits from the public and utilizing those deposits to originate loans.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2018 (“2018 Form 10-K”). The results of operations for the three months ended September 30, 2018 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019. Certain prior year amounts have been reclassified to conform to current fiscal year presentation. The reclassifications had no impact on previously reported consolidated net income or equity. The Company has evaluated events and transactions subsequent to September 30, 2018 for potential recognition or disclosure.
Note 3 - Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
Leases
(Topic 842
). The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date; a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. This ASU amended the new leases standard to give entities another option for transition and to provide lessors with a practical expedient. The transition option allows entities to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption. The practical expedient provides lessors with an option to not separate non-lease components from the associated lease components when certain criteria are met and requires them to account for the combined component in accordance with the new revenue standard if the associated non-lease components are the predominant components. The amendments have the same effective date as ASU 2016-02. The effect of the adoption will depend on leases at time of adoption. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases the adoption of these ASUs is not expected to have a material impact on the Company's consolidated financial statements.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Once adopted, we expect our allowance for loan losses to increase, however, until our evaluation is complete the magnitude of the increase will not be known.
In March 2017, the FASB issued ASU No. 2017-08,
Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
. The ASU shortens the amortization period for certain callable debt securities held at a premium. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("AOCI").
ASU 2018-02 eliminates the stranded tax effects within AOCI resulting from the application of current U.S. GAAP in response to the change in the U.S. corporate income tax rate from 35 percent to 21 percent as part of the Tax Cuts and Jobs Act of 2017 enacted in December 2017 (the "Tax Act"). Stranded tax effects unrelated to the Tax Act are released from AOCI using the security-by-security approach. The Company elected to early adopt ASU 2018-02 effective during the year ended June 30, 2018 and applied the provisions retrospectively within our Consolidated Balance Sheets and Consolidated Statements of Shareholders' Equity. This adoption resulted in a one-time reclassification of the effect of remeasuring deferred tax liabilities related to items, primarily unrealized gains and losses on investments, within AOCI to retained earnings resulting from the change in the U.S. corporate income tax rate. This reclassification resulted in a decrease to AOCI and an increase to retained earnings in the amount of $39,496 for the year ended June 30, 2018, with no net impact to total stockholders' equity.
In March 2018, the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740).
This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Act for which the accounting under ASC Topic 740 was not yet complete but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under ASC Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the Consolidated Financial Statements in the Form 10-Q for the quarter ended December 31, 2017. As of September 30, 2018 the Company did not incur any adjustments to the provisional recognition.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
This ASU amends the accounting for shared-based payments awards to nonemployees to align with the accounting for employee awards. Under the new guidance, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. Amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2018-07 is not expected to have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
“Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”)
. This ASU modifies the disclosure requirements on fair value measurements. The following disclosure requirements were removed from FASB Accounting Standards Codification (“ASC”) Topic 820 - Fair Value Measurement: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. This ASU clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the following disclosure requirements for Level 3 measurements: (1) changes in unrealized gains and losses for the period included in other comprehensive income for the recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Amendments in this ASU are effective for
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for any removed or modified disclosures. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's consolidated financial statements.
Application of New Accounting Guidance
On July 1, 2018, the Company adopted FASB issued ASU No. 2014‑09,
Revenue from Contracts with Customers
and all subsequent amendments to the ASU (collectively “ASC 606”)
,
which created Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB issued ASU No. 2015‑14,
Revenue from Contracts with Customers (Topic 606)
, which postponed the effective date of 2014‑09. 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. In general, the new guidance requires companies to use more judgment and make more estimates than under past guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. For financial reporting purposes, the Company utilized the modified retrospective approach, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. As a bank holding company, key revenue sources, such as interest income on loans, investment securities and deposits, as well as other sources of income including loan fees, security sales, and derivatives have been identified as out of the scope of this new guidance. Management conducted an assessment of the revenue streams that were affected by the new guidance and identified those considered material and in scope to ensure compliance with the new guidance concluding those related to credit and debit card fees, and service charges and fees on deposit accounts. No additional changes to processes or procedures were identified for the recognition of revenues in scope. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. The additional disclosures required by this ASU have been included in “Note 13 - Revenue from Contracts with Customers”.
On July 1, 2018, the Company adopted FASB issued ASU No. 2016‑01,
Financial Instruments - Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The new guidance improves the recognition and measurement of financial instruments. This ASU requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This ASU also eliminates the requirement 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. The adoption of ASU No. 2016-01 did not have a material impact on the Company’s consolidated financial statements. The disclosures to the Company’s consolidated financial statements have been updated appropriately using the exit price notion in “Note 9 - Fair Value of Financial Instruments”.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force
. The ASU is intended to reduce diversity in practice in how certain transactions are presented and classified in the statement of cash flows. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2016-15 did not
have a material impact on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230), Restricted Cash
. The ASU amends the required statement of cash flow disclosures to include the change in amounts generally described as restricted cash. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2016-18 did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation Stock Compensation (Topic 718): Scope of Modification Accounting
. This ASU provides clarity on the guidance related to stock compensation when there has been changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting under ASC 718. The ASU provides the three following criteria must be met in order to not account for the effect of the modification of terms or conditions: the fair value, the vesting conditions and the classification as an equity or liability instrument of the modified award is the same as the original award immediately before the original award is modified. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2017-09 did not have a material impact on the Company's consolidated financial statements.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
This ASU amends the hedge accounting recognition and presentation requirements in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. Management adopted the new guidance on July 1, 2018. The adoption of ASU No. 2017-12 did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software
(Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
This ASU address how a customer should account for the costs of implementing a cloud computing service arrangement (also referred to as a “hosting arrangement”). Entities should account for costs associated with implementing a cloud computing arrangement that is considered a service contract in the same way as accounting for implementation costs incurred to develop or obtain software for internal use using the guidance in ASC 350-40. The amendments also addresses when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment and includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. Amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. The adoption of ASU No. 2018-15 is not expected to have a material impact on the Company's consolidated financial statements.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Earnings Per Share ("EPS")
Basic earnings per common share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period, without considering any dilutive items. Unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. Therefore, under the two-class method, the difference in EPS is not significant since the Company did not pay dividends. The following table details the calculation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
2018
|
|
2017
|
|
(Dollars in thousands, except share data)
|
Net income
|
$
|
1,287
|
|
|
$
|
1,044
|
|
Earnings allocated to common shareholders
|
$
|
1,287
|
|
|
$
|
1,044
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
2,484,011
|
|
|
2,421,049
|
|
Potentially dilutive incremental shares
|
5,464
|
|
|
11,911
|
|
Diluted weighted-average common shares outstanding
|
2,489,475
|
|
|
2,432,960
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.52
|
|
|
$
|
0.43
|
|
Diluted earnings per share
|
$
|
0.52
|
|
|
$
|
0.43
|
|
Shares owned by the Company's ESOP that have not been allocated are not considered to be outstanding for the purpose of computing basic and diluted EPS. As of September 30, 2018 and September 30, 2017 there were
46,766
and
53,649
shares, respectively, which had not been allocated under the Company's ESOP.
Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For both the three months ended September 30, 2018 and 2017, there were
no
anti-dilutive shares included in the computation of diluted earnings per share.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Investments
The amortized cost and estimated fair market values of investment securities as of
September 30, 2018
and
June 30, 2018
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(In thousands)
|
Securities available-for-sale
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
152
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
FHLMC
(1)
|
10,037
|
|
|
10
|
|
|
(418
|
)
|
|
9,629
|
|
FNMA
(2)
|
7,011
|
|
|
—
|
|
|
(340
|
)
|
|
6,671
|
|
GNMA
(3)
|
386
|
|
|
—
|
|
|
(21
|
)
|
|
365
|
|
|
$
|
17,586
|
|
|
$
|
10
|
|
|
$
|
(779
|
)
|
|
$
|
16,817
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
FHLMC
|
$
|
1,684
|
|
|
$
|
28
|
|
|
$
|
(88
|
)
|
|
$
|
1,624
|
|
FNMA
|
943
|
|
|
35
|
|
|
(30
|
)
|
|
948
|
|
GNMA
|
660
|
|
|
—
|
|
|
(44
|
)
|
|
616
|
|
|
$
|
3,287
|
|
|
$
|
63
|
|
|
$
|
(162
|
)
|
|
$
|
3,188
|
|
(1)
Federal Home Loan Mortgage Corporation ("Freddie Mac")
(2)
Federal National Mortgage Association ("Fannie Mae")
(3)
Government National Mortgage Association ("Ginnie Mae")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(In thousands)
|
Securities available-for-sale
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
FHLMC
|
10,337
|
|
|
11
|
|
|
(350
|
)
|
|
9,998
|
|
FNMA
|
7,494
|
|
|
—
|
|
|
(323
|
)
|
|
7,171
|
|
GNMA
|
421
|
|
|
—
|
|
|
(20
|
)
|
|
401
|
|
|
$
|
18,407
|
|
|
$
|
11
|
|
|
$
|
(693
|
)
|
|
$
|
17,725
|
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
FHLMC
|
$
|
1,805
|
|
|
30
|
|
|
(84
|
)
|
|
$
|
1,751
|
|
FNMA
|
982
|
|
|
40
|
|
|
(26
|
)
|
|
996
|
|
GNMA
|
797
|
|
|
—
|
|
|
(44
|
)
|
|
753
|
|
|
$
|
3,584
|
|
|
$
|
70
|
|
|
$
|
(154
|
)
|
|
$
|
3,500
|
|
There were
56
and
55
securities in an unrealized loss position at September 30, 2018 and June 30, 2018, respectively. The unrealized losses on investments in mortgage-backed securities relate principally to the general change in interest rates and illiquidity, and not credit quality, that has occurred since the securities' purchase dates, and such unrecognized losses or gains will continue to vary with general interest rate level fluctuations in the future. We do not intend to sell the temporarily impaired securities and it is not likely that we will be required to sell the securities prior to their maturity. We do expect to recover the entire amortized cost basis of the securities. The fair value of temporarily impaired securities, the amount of unrealized losses, and the length of time these unrealized losses existed as of the dates indicated, were as follows:
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
September 30, 2018
|
(In thousands)
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
$
|
5,071
|
|
|
$
|
(154
|
)
|
|
$
|
4,320
|
|
|
$
|
(265
|
)
|
|
$
|
9,391
|
|
|
$
|
(419
|
)
|
FNMA
|
—
|
|
|
—
|
|
|
6,671
|
|
|
(340
|
)
|
|
6,671
|
|
|
(340
|
)
|
GNMA
|
—
|
|
|
—
|
|
|
365
|
|
|
(20
|
)
|
|
365
|
|
|
(20
|
)
|
|
$
|
5,071
|
|
|
$
|
(154
|
)
|
|
$
|
11,356
|
|
|
$
|
(625
|
)
|
|
$
|
16,427
|
|
|
$
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
September 30, 2018
|
(In thousands)
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,141
|
|
|
$
|
(88
|
)
|
|
$
|
1,141
|
|
|
$
|
(88
|
)
|
FNMA
|
—
|
|
|
—
|
|
|
410
|
|
|
(30
|
)
|
|
410
|
|
|
(30
|
)
|
GNMA
|
—
|
|
|
—
|
|
|
616
|
|
|
(44
|
)
|
|
616
|
|
|
(44
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,167
|
|
|
$
|
(162
|
)
|
|
$
|
2,167
|
|
|
$
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
June 30, 2018
|
(In thousands)
|
Securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
$
|
5,696
|
|
|
$
|
(143
|
)
|
|
$
|
3,650
|
|
|
$
|
(207
|
)
|
|
$
|
9,346
|
|
|
$
|
(350
|
)
|
FNMA
|
781
|
|
|
(27
|
)
|
|
6,389
|
|
|
(296
|
)
|
|
7,170
|
|
|
(323
|
)
|
GNMA
|
—
|
|
|
—
|
|
|
402
|
|
|
(20
|
)
|
|
402
|
|
|
(20
|
)
|
|
$
|
6,477
|
|
|
$
|
(170
|
)
|
|
$
|
10,441
|
|
|
$
|
(523
|
)
|
|
$
|
16,918
|
|
|
$
|
(693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
June 30, 2018
|
(In thousands)
|
Securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,206
|
|
|
$
|
(84
|
)
|
|
$
|
1,206
|
|
|
$
|
(84
|
)
|
FNMA
|
—
|
|
|
—
|
|
|
434
|
|
|
(26
|
)
|
|
434
|
|
|
(26
|
)
|
GNMA
|
—
|
|
|
—
|
|
|
753
|
|
|
(44
|
)
|
|
753
|
|
|
(44
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,393
|
|
|
$
|
(154
|
)
|
|
$
|
2,393
|
|
|
$
|
(154
|
)
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contractual maturities of securities at
September 30, 2018
are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.
|
|
|
|
|
|
|
|
|
September 30, 2018
|
Amortized
Cost
|
|
Fair Value
|
|
(In thousands)
|
Securities available-for-sale
|
|
Municipal bonds:
|
|
|
|
Due after five to ten years
|
$
|
152
|
|
|
$
|
152
|
|
Mortgage-backed securities:
|
|
|
|
FHLMC
|
10,037
|
|
|
9,629
|
|
FNMA
|
7,011
|
|
|
6,671
|
|
GNMA
|
386
|
|
|
365
|
|
|
$
|
17,586
|
|
|
$
|
16,817
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
|
Mortgage-backed securities:
|
|
|
|
FHLMC
|
$
|
1,684
|
|
|
$
|
1,624
|
|
FNMA
|
943
|
|
|
948
|
|
GNMA
|
660
|
|
|
616
|
|
|
$
|
3,287
|
|
|
$
|
3,188
|
|
There were no sales of securities available-for-sale for the three months ended September 30, 2018 and 2017.
Pledged securities at the dates indicated are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
June 30, 2018
|
Pledged to secure:
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
(In thousands)
|
Public deposits
|
$
|
3,825
|
|
|
$
|
3,671
|
|
|
$
|
4,035
|
|
|
$
|
3,903
|
|
FHLB borrowings
|
727
|
|
|
730
|
|
|
766
|
|
|
770
|
|
Federal Reserve borrowing line
|
1,145
|
|
|
1,070
|
|
|
1,323
|
|
|
1,249
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Loans Receivable, net
Loans receivable consisted of the following at the dates indicated:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
June 30,
2018
|
|
(In thousands)
|
Real estate:
|
|
|
|
One-to-four family
|
$
|
63,387
|
|
|
$
|
62,110
|
|
Multi-family
|
56,292
|
|
|
57,639
|
|
Commercial
|
156,452
|
|
|
150,050
|
|
Construction
|
64,106
|
|
|
85,866
|
|
Land
|
5,133
|
|
|
5,515
|
|
Total real estate
|
345,370
|
|
|
361,180
|
|
Consumer:
|
|
|
|
|
|
Home equity
|
12,522
|
|
|
12,291
|
|
Credit cards
|
2,198
|
|
|
2,284
|
|
Automobile
|
299
|
|
|
372
|
|
Other consumer
|
1,139
|
|
|
960
|
|
Total consumer
|
16,158
|
|
|
15,907
|
|
|
|
|
|
Business:
|
|
|
|
Commercial business
|
13,098
|
|
|
20,329
|
|
Total loans
|
374,626
|
|
|
397,416
|
|
Less:
|
|
|
|
|
|
Deferred loan fees and loan premiums, net
|
915
|
|
|
1,002
|
|
Allowance for loan losses
|
4,420
|
|
|
4,370
|
|
Loans receivable, net
|
$
|
369,291
|
|
|
$
|
392,044
|
|
Allowance for Loan Losses.
The allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties.
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to- four family
|
|
Multi-
family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Consumer
(1)
|
|
Commercial
business
|
|
Unallocated
|
|
Three months ended 9/30/18
|
|
(In thousands)
|
Allowance for loan losses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
339
|
|
|
$
|
585
|
|
|
$
|
1,478
|
|
|
$
|
1,280
|
|
|
$
|
83
|
|
|
$
|
353
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
4,370
|
|
Provision (benefit) for loan losses
|
41
|
|
|
73
|
|
|
239
|
|
|
(355
|
)
|
|
(21
|
)
|
|
40
|
|
|
33
|
|
|
—
|
|
|
50
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
Recoveries
|
14
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Ending balance
|
$
|
394
|
|
|
$
|
658
|
|
|
$
|
1,717
|
|
|
$
|
926
|
|
|
$
|
62
|
|
|
$
|
378
|
|
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
4,420
|
|
|
|
(1)
|
Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to- four family
|
|
Multi-
family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Consumer
(1)
|
|
Commercial
business
|
|
Unallocated
|
|
Three months ended 9/30/17
|
|
(In thousands)
|
Allowance for loan losses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
495
|
|
|
$
|
580
|
|
|
$
|
1,566
|
|
|
$
|
651
|
|
|
$
|
120
|
|
|
$
|
378
|
|
|
$
|
316
|
|
|
$
|
—
|
|
|
$
|
4,106
|
|
Provision (benefit) for loan losses
|
(207
|
)
|
|
10
|
|
|
168
|
|
|
169
|
|
|
(1
|
)
|
|
(40
|
)
|
|
(24
|
)
|
|
—
|
|
|
75
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
(200
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(201
|
)
|
Recoveries
|
14
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
17
|
|
|
5
|
|
|
—
|
|
|
37
|
|
Ending balance
|
$
|
302
|
|
|
$
|
590
|
|
|
$
|
1,534
|
|
|
$
|
821
|
|
|
$
|
119
|
|
|
$
|
354
|
|
|
$
|
297
|
|
|
$
|
—
|
|
|
$
|
4,017
|
|
|
|
(1)
|
Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.
|
A loan is considered impaired when the Company has determined that it may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan by loan basis for all loans in the portfolio except for the smaller groups of homogeneous consumer loans in the portfolio.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents loans individually evaluated for impairment by class of loans as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investments
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
(In thousands)
|
With no allowance recorded
|
|
|
|
|
|
One-to-four family
|
$
|
703
|
|
|
$
|
896
|
|
|
$
|
—
|
|
Home equity
|
316
|
|
|
330
|
|
|
—
|
|
Commercial business
|
63
|
|
|
125
|
|
|
—
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,295
|
|
|
$
|
2,305
|
|
|
$
|
95
|
|
Land
|
246
|
|
|
246
|
|
|
6
|
|
Home equity
|
252
|
|
|
252
|
|
|
65
|
|
Other consumer
|
12
|
|
|
12
|
|
|
12
|
|
Commercial business
|
141
|
|
|
162
|
|
|
17
|
|
Total
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,998
|
|
|
$
|
3,201
|
|
|
$
|
95
|
|
Land
|
246
|
|
|
246
|
|
|
6
|
|
Home equity
|
568
|
|
|
582
|
|
|
65
|
|
Other consumer
|
12
|
|
|
12
|
|
|
12
|
|
Commercial business
|
204
|
|
|
287
|
|
|
17
|
|
Total
|
$
|
4,028
|
|
|
$
|
4,328
|
|
|
$
|
195
|
|
The following table presents loans individually evaluated for impairment by class of loans as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded Investments
|
|
Unpaid Principal Balance
|
|
Related Allowance
|
|
(In thousands)
|
With no allowance recorded
|
|
|
|
|
|
One-to-four family
|
$
|
608
|
|
|
$
|
794
|
|
|
$
|
—
|
|
Home equity
|
330
|
|
|
345
|
|
|
—
|
|
Commercial business
|
285
|
|
|
366
|
|
|
—
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,341
|
|
|
$
|
2,351
|
|
|
$
|
85
|
|
Land
|
300
|
|
|
300
|
|
|
13
|
|
Home equity
|
150
|
|
|
150
|
|
|
80
|
|
Other consumer
|
14
|
|
|
14
|
|
|
13
|
|
Total
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,949
|
|
|
$
|
3,145
|
|
|
$
|
85
|
|
Land
|
300
|
|
|
300
|
|
|
13
|
|
Home equity
|
480
|
|
|
495
|
|
|
80
|
|
Other consumer
|
14
|
|
|
14
|
|
|
13
|
|
Commercial business
|
285
|
|
|
366
|
|
|
—
|
|
Total
|
$
|
4,028
|
|
|
$
|
4,320
|
|
|
$
|
191
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Three Months Ended September 30, 2017
|
|
|
|
Average Recorded Investment
|
|
Interest Income
Recognized
|
|
Average Recorded Investment
|
|
Interest Income
Recognized
|
|
(In thousands)
|
With no allowance recorded
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
656
|
|
|
$
|
1
|
|
|
$
|
1,716
|
|
|
$
|
3
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
996
|
|
|
—
|
|
Home equity
|
323
|
|
|
1
|
|
|
281
|
|
|
1
|
|
Commercial business
|
174
|
|
|
1
|
|
|
480
|
|
|
1
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,318
|
|
|
$
|
9
|
|
|
$
|
3,084
|
|
|
$
|
11
|
|
Land
|
273
|
|
|
7
|
|
|
310
|
|
|
7
|
|
Home equity
|
201
|
|
|
1
|
|
|
261
|
|
|
1
|
|
Other consumer
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial business
|
71
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Total
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
2,974
|
|
|
$
|
10
|
|
|
$
|
4,800
|
|
|
$
|
14
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
996
|
|
|
—
|
|
Land
|
273
|
|
|
7
|
|
|
310
|
|
|
7
|
|
Home equity
|
524
|
|
|
2
|
|
|
542
|
|
|
2
|
|
Other consumer
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial business
|
245
|
|
|
1
|
|
|
492
|
|
|
—
|
|
Total
|
$
|
4,029
|
|
|
$
|
20
|
|
|
$
|
7,140
|
|
|
$
|
23
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
Multi-
family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Consumer(1)
|
|
Commercial
business
|
|
Unallocated
|
|
Total
|
|
(In thousands)
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
394
|
|
|
$
|
658
|
|
|
$
|
1,717
|
|
|
$
|
926
|
|
|
$
|
62
|
|
|
$
|
378
|
|
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
4,420
|
|
Ending balance: individually evaluated for impairment
|
95
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
77
|
|
|
17
|
|
|
—
|
|
|
195
|
|
Ending balance: collectively evaluated for impairment
|
$
|
299
|
|
|
$
|
658
|
|
|
$
|
1,717
|
|
|
$
|
926
|
|
|
$
|
56
|
|
|
$
|
301
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
63,387
|
|
|
$
|
56,292
|
|
|
$
|
156,452
|
|
|
$
|
64,106
|
|
|
$
|
5,133
|
|
|
$
|
16,158
|
|
|
$
|
13,098
|
|
|
$
|
—
|
|
|
$
|
374,626
|
|
Ending balance: individually evaluated for impairment
|
2,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
580
|
|
|
204
|
|
|
—
|
|
|
4,028
|
|
Ending balance: collectively evaluated for impairment
|
$
|
60,389
|
|
|
$
|
56,292
|
|
|
$
|
156,452
|
|
|
$
|
64,106
|
|
|
$
|
4,887
|
|
|
$
|
15,578
|
|
|
$
|
12,894
|
|
|
$
|
—
|
|
|
$
|
370,598
|
|
|
|
(1)
|
Consumer loans include home equity, credit cards, auto and other consumer loans.
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
Multi-
family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Consumer(1)
|
|
Commercial
business
|
|
Unallocated
|
|
Total
|
|
(In thousands)
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
339
|
|
|
$
|
585
|
|
|
$
|
1,478
|
|
|
$
|
1,280
|
|
|
$
|
83
|
|
|
$
|
353
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
4,370
|
|
Ending balance: individually evaluated for impairment
|
85
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
93
|
|
|
—
|
|
|
—
|
|
|
191
|
|
Ending balance: collectively evaluated for impairment
|
$
|
254
|
|
|
$
|
585
|
|
|
$
|
1,478
|
|
|
$
|
1,280
|
|
|
$
|
70
|
|
|
$
|
260
|
|
|
$
|
252
|
|
|
$
|
—
|
|
|
$
|
4,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
$
|
62,110
|
|
|
$
|
57,639
|
|
|
$
|
150,050
|
|
|
$
|
85,866
|
|
|
$
|
5,515
|
|
|
$
|
15,907
|
|
|
$
|
20,329
|
|
|
$
|
—
|
|
|
$
|
397,416
|
|
Ending balance: individually evaluated for impairment
|
2,949
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300
|
|
|
494
|
|
|
285
|
|
|
—
|
|
|
4,028
|
|
Ending balance: collectively evaluated for impairment
|
$
|
59,161
|
|
|
$
|
57,639
|
|
|
$
|
150,050
|
|
|
$
|
85,866
|
|
|
$
|
5,215
|
|
|
$
|
15,413
|
|
|
$
|
20,044
|
|
|
$
|
—
|
|
|
$
|
393,388
|
|
|
|
(1)
|
Consumer loans include home equity, credit cards, auto, and other consumer loans.
|
Nonaccrual and Past Due Loans
. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.
The following table presents the recorded investment in nonaccrual loans by type of loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
June 30, 2018
|
|
(In thousands)
|
One-to-four family
|
$
|
450
|
|
|
$
|
507
|
|
Home equity
|
297
|
|
|
207
|
|
Commercial business
|
141
|
|
|
222
|
|
Total
|
$
|
888
|
|
|
$
|
936
|
|
There were
no
loans past due 90 days or more and still accruing interest at September 30, 2018 and June 30, 2018.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents past due loans, net of partial loan charge-offs, by class of loan, as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days Or
More Past Due
(1)
|
|
Total Past
Due
|
|
Current
|
|
Total Loans
|
|
(In thousands)
|
One-to-four family
|
$
|
330
|
|
|
$
|
179
|
|
|
$
|
450
|
|
|
$
|
959
|
|
|
$
|
62,428
|
|
|
$
|
63,387
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56,292
|
|
|
56,292
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
156,452
|
|
|
156,452
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64,106
|
|
|
64,106
|
|
Land
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,133
|
|
|
5,133
|
|
Home equity
|
57
|
|
|
—
|
|
|
297
|
|
|
354
|
|
|
12,168
|
|
|
12,522
|
|
Credit cards
|
6
|
|
|
4
|
|
|
—
|
|
|
10
|
|
|
2,188
|
|
|
2,198
|
|
Automobile
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
299
|
|
|
299
|
|
Other consumer
|
3
|
|
|
3
|
|
|
—
|
|
|
6
|
|
|
1,133
|
|
|
1,139
|
|
Commercial business
|
—
|
|
|
—
|
|
|
141
|
|
|
141
|
|
|
12,957
|
|
|
13,098
|
|
Total
|
$
|
396
|
|
|
$
|
186
|
|
|
$
|
888
|
|
|
$
|
1,470
|
|
|
$
|
373,156
|
|
|
$
|
374,626
|
|
|
|
|
(1)
Includes loans on nonaccrual status.
|
The following table presents past due loans, net of partial loan charge-offs, by class of loan as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
90 Days Or
More Past Due
(1)
|
|
Total Past
Due
|
|
Current
|
|
Total
Loans
|
|
(In thousands)
|
One-to-four family
|
$
|
683
|
|
|
$
|
122
|
|
|
$
|
507
|
|
|
$
|
1,312
|
|
|
$
|
60,798
|
|
|
$
|
62,110
|
|
Multi-family
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,639
|
|
|
57,639
|
|
Commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150,050
|
|
|
150,050
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85,866
|
|
|
85,866
|
|
Land
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,515
|
|
|
5,515
|
|
Home equity
|
220
|
|
|
—
|
|
|
207
|
|
|
427
|
|
|
11,864
|
|
|
12,291
|
|
Credit cards
|
6
|
|
|
8
|
|
|
—
|
|
|
14
|
|
|
2,270
|
|
|
2,284
|
|
Automobile
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
372
|
|
|
372
|
|
Other consumer
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
956
|
|
|
960
|
|
Commercial business
|
9
|
|
|
—
|
|
|
222
|
|
|
231
|
|
|
20,098
|
|
|
20,329
|
|
Total
|
$
|
922
|
|
|
$
|
130
|
|
|
$
|
936
|
|
|
$
|
1,988
|
|
|
$
|
395,428
|
|
|
$
|
397,416
|
|
(1)
Includes loans on nonaccrual status.
Credit Quality Indicators.
We utilize a ten-point risk rating system and assign a risk rating for all credit exposures. The risk rating system is designed to define the basic characteristics and identify risk elements of each credit extension.
Credits risk rated 1 through 7 are considered to be “pass” credits. Pass credits can be assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on our watch and special mention lists, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower's financial capacity and threaten their ability to fulfill debt obligations in the future. A seasoned loan with a Debt Service Coverage Ratio ("DSCR") of greater than
1.00
is the minimum acceptable level for a "Pass Credit". Particular attention is paid to the coverage trend analysis as any loan with a declining DSCR trend may warrant a higher risk grade even if the current coverage is at or above the
1.00
threshold.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credits classified as Watch are risk rated 6 and possess weaknesses that deserve management's close attention. These assets do not expose the Bank to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. We use this rating when a material documentation deficiency exists but correction is anticipated within an acceptable time frame.
A loan classified as Watch may have the following characteristics:
|
|
•
|
Acceptable asset quality, but requiring increased monitoring. Strained liquidity and less than anticipated performance. The loan may be fully leveraged.
|
|
|
•
|
Apparent management weakness, perhaps demonstrated by an irregular flow of adequate and/or timely performance information required to support the credit.
|
|
|
•
|
The borrower has a plausible plan to correct problem(s) in the near future that is devoid of material uncertainties.
|
|
|
•
|
Lacks reserve capacity, so the risk rating will improve or decline in relatively short time (results of corrective actions should be apparent within six months or less).
|
Credits classified as Special Mention are risk rated 7. These credits have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.
A loan classified as Special Mention may have the following characteristics:
|
|
•
|
Performance is poor or significantly less than expected. A debt service deficiency either exists or cannot be ruled out.
|
|
|
•
|
Generally an undesirable business credit. Assets in this category are protected, but are potentially weak. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard. Special Mention assets have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Bank's credit position at some future date.
|
|
|
•
|
Assets which might be detailed in this category include credits that the lending officer may be unable to supervise properly because of lack of expertise, an inadequate loan agreement, the condition of and control over collateral, failure to obtain proper documentation, or any other deviations from prudent lending practices.
|
|
|
•
|
An adverse trend in the borrower's operations or an imbalanced position in the balance sheet which does not jeopardize liquidation may best be handled by this classification.
|
|
|
•
|
A Special Mention classification should not be used as a compromise between a pass and substandard rating. Assets in which actual, not potential, weaknesses are evident and significant, and should be considered for more serious criticism.
|
A loan classified as Substandard is risk rated 8. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. An asset is considered Substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.
A loan classified as Substandard may have the following characteristics:
|
|
•
|
Unacceptable business credit. The asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt.
|
|
|
•
|
Though no loss is envisioned, the outlook is sufficiently uncertain to preclude ruling out the possibility. Some liquidation of assets will likely be necessary as a corrective measure.
|
|
|
•
|
Assets in this category may demonstrate performance problems such as debt servicing deficiencies with no immediate relief, including having a DSCR of less than
1.00
. Borrowers have an inability to adjust to prolonged and unfavorable industry or economic trends. Management's character and/or effectiveness have become suspect.
|
A loan classified as Doubtful is risk rated 9 and has all the inherent weaknesses as those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable is improbable.
A loan classified as Doubtful is risk rated 9 and has the following characteristics:
|
|
•
|
The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
•
|
Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.
|
A loan risk rated 10 is a loan for which a total loss is expected.
A loan classified as a Loss has the following characteristics:
|
|
•
|
An uncollectible asset or one of such little value that it does not warrant classification as an active, earning asset. Such an asset may, however, have recovery or salvageable value, but not to the point of deferring full write off, even though some recovery may occur in the future.
|
|
|
•
|
The Bank will charge off such assets as a loss during the accounting period in which they were identified.
|
|
|
•
|
Loan to be eliminated from the active loan reporting system via charge off.
|
The following table presents the internally assigned grade as of
September 30, 2018
, by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to- four
family
|
|
Multi-
family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Home equity
|
|
Credit cards
|
|
Automobile
|
|
Other
consumer
|
|
Commercial business
|
|
Total
|
|
(In thousands)
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
62,334
|
|
|
$
|
55,047
|
|
|
$
|
155,652
|
|
|
$
|
62,486
|
|
|
$
|
5,133
|
|
|
$
|
11,838
|
|
|
$
|
2,188
|
|
|
$
|
299
|
|
|
$
|
1,126
|
|
|
$
|
12,898
|
|
|
$
|
369,001
|
|
Watch
|
155
|
|
|
1,245
|
|
|
800
|
|
|
1,620
|
|
|
—
|
|
|
198
|
|
|
10
|
|
|
—
|
|
|
3
|
|
|
59
|
|
|
4,090
|
|
Special Mention
|
448
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
189
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
647
|
|
Substandard
|
450
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
888
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
63,387
|
|
|
$
|
56,292
|
|
|
$
|
156,452
|
|
|
$
|
64,106
|
|
|
$
|
5,133
|
|
|
$
|
12,522
|
|
|
$
|
2,198
|
|
|
$
|
299
|
|
|
$
|
1,139
|
|
|
$
|
13,098
|
|
|
$
|
374,626
|
|
The following table presents the internally assigned grade as of
June 30, 2018
, by class of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to- four family
|
|
Multi-family
|
|
Commercial
real estate
|
|
Construction
|
|
Land
|
|
Home equity
|
|
Credit cards
|
|
Automobile
|
|
Other
consumer
|
|
Commercial business
|
|
Total
|
|
(In thousands)
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
$
|
60,525
|
|
|
$
|
57,315
|
|
|
$
|
148,584
|
|
|
$
|
85,866
|
|
|
$
|
5,515
|
|
|
$
|
11,637
|
|
|
$
|
2,270
|
|
|
$
|
360
|
|
|
$
|
951
|
|
|
$
|
19,829
|
|
|
$
|
392,852
|
|
Watch
|
689
|
|
|
324
|
|
|
1,466
|
|
|
—
|
|
|
—
|
|
|
297
|
|
|
14
|
|
|
12
|
|
|
5
|
|
|
278
|
|
|
3,085
|
|
Special Mention
|
389
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
543
|
|
Substandard
|
507
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
207
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
222
|
|
|
936
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
62,110
|
|
|
$
|
57,639
|
|
|
$
|
150,050
|
|
|
$
|
85,866
|
|
|
$
|
5,515
|
|
|
$
|
12,291
|
|
|
$
|
2,284
|
|
|
$
|
372
|
|
|
$
|
960
|
|
|
$
|
20,329
|
|
|
$
|
397,416
|
|
Troubled Debt Restructures
. A troubled debt restructure ("TDR") is a loan where the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider so that the borrower can continue to make payments while minimizing the Company's potential loss. The modifications have included items such as lowering the interest rate on the loan for a period of time and extending the maturity date of the loan. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and is in the Bank's best interest. At
September 30, 2018
, there were no commitments to lend additional funds to borrowers whose loans have been modified in a TDR.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents TDRs by accrual versus nonaccrual status and by loan class as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Accrual
Status
|
|
Nonaccrual
Status
|
|
Total
Modifications
|
|
(In thousands)
|
One-to-four family
|
$
|
2,431
|
|
|
$
|
103
|
|
|
$
|
2,534
|
|
Land
|
246
|
|
|
—
|
|
|
246
|
|
Home equity
|
121
|
|
|
—
|
|
|
121
|
|
Other consumer
|
12
|
|
|
—
|
|
|
12
|
|
Commercial business
|
63
|
|
|
—
|
|
|
63
|
|
Total
|
$
|
2,873
|
|
|
$
|
103
|
|
|
$
|
2,976
|
|
The following table presents TDRs by accrual versus nonaccrual status and by loan class as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Accrual
Status
|
|
Nonaccrual
Status
|
|
Total
Modifications
|
|
(In thousands)
|
One-to-four family
|
$
|
2,443
|
|
|
$
|
108
|
|
|
$
|
2,551
|
|
Land
|
299
|
|
|
—
|
|
|
299
|
|
Home equity
|
124
|
|
|
—
|
|
|
124
|
|
Other consumer
|
14
|
|
|
—
|
|
|
14
|
|
Commercial business
|
63
|
|
|
—
|
|
|
63
|
|
Total
|
$
|
2,943
|
|
|
$
|
108
|
|
|
$
|
3,051
|
|
There were
no
new TDR loans, or renewals or modifications of existing TDR loans during the three months ended September 30, 2018 and 2017.
For the three months ended September 30, 2018 and 2017, there were
no
TDRs for which there was a payment default within 12 months of their restructure.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Real Estate Owned, net
The following table is a summary of REO activity for the three months ended September 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Balance at the beginning of the period
|
$
|
737
|
|
|
$
|
867
|
|
Net loans transferred to real estate owned
|
53
|
|
|
1,791
|
|
Capitalized improvements
|
2
|
|
|
—
|
|
Impairments
|
(50
|
)
|
|
—
|
|
Balance at the end of the period
|
$
|
742
|
|
|
$
|
2,658
|
|
At September 30, 2018, there were two loans secured by residential real estate properties for which formal foreclosure proceedings were in process.
Note 8 - Employee Benefit Plans
On January 25, 2011, the Company established an ESOP for the benefit of substantially all employees. The ESOP borrowed
$1.0 million
from the Company and used those funds to acquire
102,000
shares of the Company's common stock at the time of the initial public offering at a price of
$10.00
per share.
Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company's discretionary contributions to the ESOP and earnings on the ESOP assets. Payments of principal and interest are due annually on June 30th, the Company's fiscal year end.
As shares are committed to be released from collateral, the Company reports compensation expense equal to the daily average market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued throughout the year.
Compensation expense related to the ESOP for the
three months ended September 30, 2018
and
2017
was
$49,000
and
$43,000
, respectively.
Shares held by the ESOP as of the dates indicated are as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
June 30, 2018
|
|
(Dollars in thousands)
|
Allocated shares
|
55,234
|
|
|
53,514
|
|
Unallocated shares
|
46,766
|
|
|
48,486
|
|
Total ESOP shares
|
102,000
|
|
|
102,000
|
|
Fair value of unallocated shares
|
$
|
1,323
|
|
|
$
|
1,268
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Fair Value Measurements
On July 1, 2018, the Company adopted ASU 2016-01,
Financial Instruments - Overall (Subtopic 825‑10), Recognition and Measurement of Financial Assets and Financial Liabilities,
which requires us to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes rather than the previous method of entry price notion. Under the entry price notion, the fair value estimate of loans receivable was based on discounted cash flow. At September 30, 2018, the exit price notion used to estimate the fair value of loans receivable was based on similar techniques, with the addition of current origination spreads, liquidity premiums, or credit adjustments. The fair value of nonperforming loans is based on the underlying value of the collateral for periods prior to and after adoption of ASU 2016-01.
Assets and liabilities measured at fair value on a recurring basis
- Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly. The following definitions describe the levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: Significant observable inputs other than quoted prices included within Level 1, such as quoted prices in markets that are not active, and inputs other than quoted prices that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions market participants would use in pricing an asset or liability based on the best information available in the circumstances.
There were no transfers between Level 1, Level 2, or Level 3 during the
three months ended September 30, 2018
. The following tables show the Company's assets and liabilities at the dates indicated measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Municipal bonds
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
152
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
FHLMC
|
—
|
|
|
9,629
|
|
|
—
|
|
|
9,629
|
|
FNMA
|
—
|
|
|
6,671
|
|
|
—
|
|
|
6,671
|
|
GNMA
|
—
|
|
|
365
|
|
|
—
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Municipal bonds
|
$
|
—
|
|
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
155
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
FHLMC
|
—
|
|
|
9,998
|
|
|
—
|
|
|
9,998
|
|
FNMA
|
—
|
|
|
7,171
|
|
|
—
|
|
|
7,171
|
|
GNMA
|
—
|
|
|
401
|
|
|
—
|
|
|
401
|
|
Assets and liabilities measured at fair value on a nonrecurring basis
- Assets and liabilities are considered to be reflected at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, a nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the balances of assets measured at fair value on a nonrecurring basis at September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,331
|
|
|
$
|
2,331
|
|
Land
|
—
|
|
|
—
|
|
|
246
|
|
|
246
|
|
Home equity
|
—
|
|
|
—
|
|
|
252
|
|
|
252
|
|
Other consumer
|
—
|
|
|
—
|
|
|
12
|
|
|
12
|
|
Commercial business
|
—
|
|
|
—
|
|
|
141
|
|
|
141
|
|
Total impaired loans
|
—
|
|
|
—
|
|
|
2,982
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
Real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
599
|
|
|
$
|
599
|
|
Total real estate owned
|
—
|
|
|
—
|
|
|
599
|
|
|
599
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,581
|
|
|
$
|
3,581
|
|
The following table presents the balances of assets measured at fair value on a nonrecurring basis at June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In thousands)
|
Impaired loans:
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
One-to-four family
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,443
|
|
|
$
|
2,443
|
|
Land
|
—
|
|
|
—
|
|
|
300
|
|
|
300
|
|
Home equity
|
—
|
|
|
—
|
|
|
221
|
|
|
221
|
|
Other consumer
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
Total impaired loans
|
—
|
|
|
—
|
|
|
2,978
|
|
|
2,978
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,978
|
|
|
$
|
2,978
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The fair values of impaired loans and real estate owned properties are generally based on third party appraisal of the properties, resulting in Level 3 classification.
The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 2018 and June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Average Discount)
|
|
(Dollars in thousands)
|
Impaired loans
|
$
|
2,982
|
|
|
Fair value of underlying collateral
|
|
Discount applied to the obtained appraisal
|
|
0% - 10% (6%)
|
Real estate owned
|
$
|
599
|
|
|
Fair value of underlying collateral
|
|
Discount applied to the obtained appraisal
|
|
0% - 100% (8%)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Fair Value
|
|
Valuation Technique(s)
|
|
Unobservable Input(s)
|
|
Range (Average Discount)
|
|
(Dollars in thousands)
|
Impaired loans
|
$
|
2,978
|
|
|
Fair value of underlying collateral
|
|
Discount applied to the obtained appraisal
|
|
0% - 10% (7%)
|
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of the Company's financial instruments as of
September 30, 2018
and
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Carrying Amount
|
|
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
(In thousands)
|
Financial Instruments-Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
50,546
|
|
|
$
|
50,546
|
|
|
$
|
50,546
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available-for-sale
|
16,817
|
|
|
16,817
|
|
|
—
|
|
|
16,817
|
|
|
—
|
|
Securities held-to-maturity
|
3,287
|
|
|
3,188
|
|
|
—
|
|
|
3,188
|
|
|
—
|
|
FHLB stock
|
2,047
|
|
|
2,047
|
|
|
—
|
|
|
2,047
|
|
|
—
|
|
Loans held for sale
|
999
|
|
|
999
|
|
|
999
|
|
|
—
|
|
|
—
|
|
Loans receivable
|
373,711
|
|
|
363,243
|
|
|
—
|
|
|
—
|
|
|
363,243
|
|
Accrued interest receivable
|
1,424
|
|
|
1,424
|
|
|
—
|
|
|
1,424
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments-Liabilities
|
|
|
|
|
|
|
|
|
|
Demand deposits, savings and money market
|
$
|
204,439
|
|
|
$
|
204,439
|
|
|
$
|
204,439
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposit
|
161,218
|
|
|
160,509
|
|
|
—
|
|
|
160,509
|
|
|
—
|
|
FHLB advances
|
37,000
|
|
|
36,667
|
|
|
—
|
|
|
36,667
|
|
|
—
|
|
Advance payments by borrowers for taxes and insurance
|
1,975
|
|
|
1,975
|
|
|
1,975
|
|
|
—
|
|
|
—
|
|
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Carrying Amount
|
|
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
(In thousands)
|
Financial Instruments-Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
17,568
|
|
|
$
|
17,568
|
|
|
$
|
17,568
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Securities available-for-sale
|
17,725
|
|
|
17,725
|
|
|
—
|
|
|
17,725
|
|
|
—
|
|
Securities held-to-maturity
|
3,584
|
|
|
3,500
|
|
|
—
|
|
|
3,500
|
|
|
—
|
|
FHLB stock
|
2,047
|
|
|
2,047
|
|
|
—
|
|
|
2,047
|
|
|
—
|
|
Loans held for sale
|
98
|
|
|
98
|
|
|
98
|
|
|
—
|
|
|
—
|
|
Loans receivable
|
396,414
|
|
|
385,570
|
|
|
—
|
|
|
—
|
|
|
385,570
|
|
Accrued interest receivable
|
1,423
|
|
|
1,423
|
|
|
—
|
|
|
1,423
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments-Liabilities
|
|
|
|
|
|
|
|
|
|
Demand deposits, savings and money market
|
$
|
193,545
|
|
|
$
|
193,545
|
|
|
$
|
193,545
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Certificates of deposit
|
165,476
|
|
|
164,886
|
|
|
—
|
|
|
164,886
|
|
|
—
|
|
FHLB advances
|
37,000
|
|
|
36,666
|
|
|
—
|
|
|
36,666
|
|
|
—
|
|
Advance payments by borrowers for taxes and insurance
|
1,077
|
|
|
1,077
|
|
|
1,077
|
|
|
—
|
|
|
—
|
|
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Cash and cash equivalents, accrued interest receivable and advance payments by borrowers for taxes and insurance
-The carrying amount is a reasonable estimate of fair value.
Securities
- The estimated fair values of securities are based on quoted market prices of similar securities.
FHLB stock
- FHLB stock is carried at par and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the member institutions, and can only be purchased and redeemed at par.
Loans held for sale
- The fair value of loans held-for-sale is based on quoted market prices from FHLMC. FHLMC quotes are updated daily and represent prices at which loans are exchanged in high volumes and in a liquid market.
Loans receivable
- For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value of fixed-rate loans is estimated using discounted cash flow analysis, utilizing interest rates that would be offered for loans with similar terms to borrowers of similar credit quality. As a result of current market conditions, cash flow estimates have been further discounted to include a credit factor. The fair value of nonperforming loans is estimated using the fair value of the underlying collateral.
Demand deposits, savings, money market, and certificates of deposit
- The fair value of the Bank's demand deposits, savings, and money market accounts is the amount payable on demand. The fair value of fixed-maturity certificates is estimated using a discounted cash flow analysis using current rates offered for deposits of similar remaining maturities.
FHLB advances
- The fair value of the Bank's FHLB advances was calculated using the discounted cash flow method. The discount rate was equal to the current rate offered by the FHLB for advances of similar remaining maturities.
Commitments to extend credit represent the principal categories of off-balance-sheet financial instruments
- The fair values of these commitments are not material since they are for a short period of time and are subject to customary credit terms.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 - Stock-Based Compensation
On October 21, 2015, the Company’s stockholders approved the Anchor Bancorp 2015 Equity Incentive Plan ("Plan"), which provides for awards of restricted stock, restricted stock units, and stock options to directors, advisory directors, directors emeriti, officers and employees. The cost of awards under the Plan generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the Plan is
193,800
. Shares of common stock issued under the Plan may be authorized but unissued.
As of September 30, 2018, awards for restricted stock totaling
87,572
were outstanding and no stock options were granted. Awarded shares of restricted stock typically vest over various periods as long as the director, advisory director, directors emeriti, officer or employee remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.
For the three months ended September 30, 2018 total compensation expense for the Plan was
$13,000
, and the related income tax benefit was
$3,000
.
The following tables provide a summary of changes in non-vested restricted stock awards for the three months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2018
|
|
|
|
|
|
|
Weighted-Average Grant Date Fair Value
|
|
|
Shares
|
|
Non-vested at July 1, 2018
|
|
7,456
|
|
|
$
|
25.75
|
|
Granted
|
|
—
|
|
|
—
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited and canceled
|
|
—
|
|
|
—
|
|
Non-vested at September 30, 2018
|
|
7,456
|
|
|
25.75
|
|
As of September 30, 2018, there was
$51,000
of total unrecognized compensation costs related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately
two
years.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Federal Income Taxes
On December 22, 2017, the U.S. Government enacted the Tax Act. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate federal income tax rate from a maximum of 35% to a flat 21% rate. The corporate income tax rate reduction was effective January 1, 2018. Because the Company has a fiscal year end of June 30, the reduced corporate income tax rate resulted in the application of a blended federal statutory income tax rate for its fiscal year 2018 of 28% and is now a flat 21% for fiscal 2019 and thereafter.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.
As of September 30, 2018, the Condensed Consolidated Statements of Financial Condition included a net deferred tax asset of
$3.2 million
. The Company's primary deferred tax assets relate to the allowance for loan losses. The Company has prepared federal tax returns through June 30, 2018. At June 30, 2018 the net operating loss carryforward was
$2.2 million
which will begin to expire in 2031.
Under GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a portion of the deferred tax asset will not be realized. Our policy is to evaluate our deferred tax assets on a quarterly basis and record a valuation allowance for our deferred tax asset if we do not have sufficient positive evidence indicating that it is more likely than not that some or all of the deferred tax asset will be realized. Each quarter, we consider positive evidence, which may include taxes paid in carryback years, reversing timing differences, available tax planning strategies, and projected taxable income and weigh it against negative evidence, which may include cumulative losses in the most recent three year period and uncertainty regarding short-term future earnings, among other items. At September 30, 2018, management determined that no valuation allowance on the deferred tax asset was required. This determination was based on sufficient positive evidence associated with our return to profitability, demonstrated through cumulative earnings over the recent three year period, strong quarterly income, and our projections for future taxable income.
Note 12 - Agreement and Plan of Merger
On July 17, 2018, the Company entered into an Agreement and Plan of Merger ("merger agreement") with FS Bancorp, Inc., a Washington corporation (“FS Bancorp”). The merger agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into FS Bancorp (the "merger") with FS Bancorp as the surviving corporation in the merger. Immediately after the effective time of the merger, FS Bancorp intends to merge Anchor Bank, a wholly-owned subsidiary of the Company, with and into 1st Security Bank of Washington, a wholly-owned subsidiary of FS Bancorp, with 1st Security Bank of Washington as the surviving institution in the bank merger.
Under terms of the merger agreement, each share of Anchor Bancorp common stock will receive fixed consideration consisting of
0.2921
shares of FS Bancorp common stock and
$12.40
per share in cash. FS Bancorp will pay aggregate consideration of
725,585
shares of FS Bancorp common stock and
$30.8 million
in cash.
The merger agreement contains customary representations and warranties from both FS Bancorp and Anchor Bancorp, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of its business during the interim period between the execution of the merger agreement and the closing, including, in the case of the Anchor Bancorp, specific forbearances with respect to its business activities, (2) Anchor Bancorp’s obligation to call a meeting of its shareholders to approve the merger agreement, and, subject to certain exceptions, that its board of directors recommend that the Anchor Bancorp’s shareholders vote to approve the merger agreement, and (3) Anchor Bancorp’s non-solicitation obligations regarding alternative acquisition proposals. The merger agreement provides certain termination rights for both FS Bancorp and Anchor Bancorp and further provides that a termination fee of
$2.7 million
will be payable by Anchor Bancorp upon termination of the merger agreement under certain circumstances.
ANCHOR BANCORP AND SUBSIDIARY
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The completion of the merger is subject to customary conditions, including approval of the merger agreement by the Anchor Bancorp’s shareholders at a special meeting of shareholders scheduled on November 13, 2018. The required regulatory approvals have been received from the Washington Department of Financial Institutions and the Federal Deposit Insurance Corporation in connection with the proposed merger of Anchor Bancorp with and into FS Bancorp as well as the merger of Anchor Bank into 1st Security Bank. The Federal Reserve Board also granted FS Bancorp's requested waiver from its application filing requirements. The merger is expected to be completed in the fourth calendar quarter of 2018.
The foregoing description of the merger agreement does not purport to be complete and is qualified in its entirety by reference to the merger agreement, attached as Exhibit 2.1 to Anchor Bancorp’s Current Report on Form 8-K which was filed with the SEC on July 18, 2018.
Note 13 - Revenue from Contracts with Customers
As noted in Note 1, the Company adopted the provisions of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606),
on July 1, 2018 and all subsequent ASUs that modified Topic 606. Results for reporting periods beginning after June 30, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 605.
Revenue Recognition
In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
All of the Company’s revenue from contracts with customers in scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. For the three months ended September 30, 2018, the Company recognized $261,000 in total deposit fees, which included $191,000 of fees from non-sufficient funds, both considered in scope of ASC 606, and $888,000 of noninterest income considered not in scope of ASC 606.