Edgar Filing: Standard AVB Financial Corp.

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, 2017

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. 333-215069

Standard AVB Financial Corp.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		27-3100949
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2640 Monroeville Blvd. Monroeville, Pennsylvania		15146
(Address of Principal Executive Offices)		(Zip Code)

(412) 856-0363

(Registrant’s Telephone Number, Including Area Code)

Standard Financial Corp.

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

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

YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

YES x NO ¨

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

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if 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 x

4,785,563 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of November 9, 2017.

Standard AVB Financial Corp.

Table of Contents

	Part I – Financial Information

ITEM 1.	Financial Statements (Unaudited)	3-36

	Consolidated Statements of Financial Condition as of September 30, 2017 and December 31, 2016	3

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	5

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2017	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	7

	Notes to Consolidated Statements	8-36

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37-43

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	43

ITEM 4.	Controls and Procedures	43

	PART II – Other Information

ITEM 1.	Legal Proceedings	44

ITEM 1A.	Risk Factors	44

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

ITEM 3.	Defaults Upon Senior Securities	44

ITEM 4.	Mine Safety Disclosures	44

ITEM 5.	Other Information	44

ITEM 6.	Exhibits	44

	Signatures	45

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EXPLANATORY NOTE

On August 29, 2016, Standard Financial Corp. and Allegheny Valley Bancorp, Inc. (“Allegheny Valley”) entered into an Agreement and Plan of Merger, which contemplated that Allegheny Valley would merge with and into Standard Financial Corp., with Standard Financial Corp. as the surviving entity to be known as “Standard AVB Financial Corp.” (the “Company”). On April 7, 2017, Allegheny Valley merged with and into Standard Financial Corp. Accordingly, the Company is now referred to as “Standard AVB Financial Corp.” This Quarterly Report on Form 10-Q addresses the financial condition and operations of Standard AVB Financial Corp. at and for the three and nine months ended September 30, 2017. The 2017 periods include the acquisition of Allegheny Valley, effective as of the close of business April 7, 2017.

The unaudited consolidated financial statements and other financial information contained in this quarterly report on Form 10-Q should be read in conjunction with the audited financial statements of Standard Financial Corp. at and for the year ended September 30, 2016 contained in the Company’s definitive prospectus dated February 1, 2017 (the “Prospectus”) as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 3, 2017.

On August 22, 2017, the Company changed its fiscal year end to December 31. As a result, the Company will file its Annual Report on Form 10-K for the period ended December 31, 2017.

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

Standard AVB Financial Corp.

Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data)

(Unaudited)

	September 30,			December 31,
	2017			2016
ASSETS
Cash on hand and due from banks	$	3,307		$	1,924
Interest-earning deposits in other institutions		16,982			8,596
Cash and Cash Equivalents		20,289			10,520

Investment securities available for sale, at fair value		77,716			42,948
Mortgage-backed securities available for sale, at fair value		63,758			17,733
Certificate of deposit		500			500
Federal Home Loan Bank stock, at cost		8,580			3,171
Loans receivable, net of allowance for loan losses of $3,945 and $3,837		747,334			381,532
Foreclosed real estate		419			251
Office properties and equipment, net		8,307			3,209
Bank-owned life insurance		21,904			15,044
Goodwill		25,985			8,769
Core deposit intangible		3,601			-
Accrued interest receivable and other assets		7,011			4,319

TOTAL ASSETS	$	985,404		$	487,996

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, savings and club accounts	$	496,987		$	224,630
Certificate accounts		214,666			137,557

Total Deposits		711,653			362,187

Federal Home Loan Bank short-term borrowings		25,028			-
Federal Home Loan Bank advances		103,514			47,668
Securities sold under agreements to repurchase		5,948			2,342
Advance deposits by borrowers for taxes and insurance		525			28
Accrued interest payable and other liabilities		5,446			2,781

TOTAL LIABILITIES		852,114			415,006

Stockholders' Equity
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued		-			-
Common stock, $0.01 par value per share, 40,000,000 shares authorized, 4,783,023 and 2,606,725 shares outstanding, respectively		48			26
Additional paid-in-capital		75,063			16,626
Retained earnings		59,653			59,107
Unearned Employee Stock Ownership Plan (ESOP) shares		(1,877	)		(1,992	)
Accumulated other comprehensive income (loss)		403			(777	)

TOTAL STOCKHOLDERS' EQUITY		133,290			72,990

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	985,404		$	487,996

See accompanying notes to the unaudited consolidated financial statements.

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Standard AVB Financial Corp.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Interest and Dividend Income
Loans, including fees	$	7,973	$	3,673		$	18,949	$	10,860
Mortgage-backed securities		386		90			900		290
Investments:
Taxable		161		81			397		276
Tax-exempt		376		209			953		594
Federal Home Loan Bank stock		150		39			280		123
Interest-earning deposits and federal funds sold		48		9			91		33
Total Interest and Dividend Income		9,094		4,101			21,570		12,176

Interest Expense
Deposits		963		673			2,503		1,977
Federal Home Loan Bank short-term borrowings		171		-			366		-
Federal Home Loan Bank advances		310		208			690		638
Securities sold under agreements to repurchase		2		-			3		1
Total Interest Expense		1,446		881			3,562		2,616

Net Interest Income		7,648		3,220			18,008		9,560

Provision for Loan Losses		100		105			267		105

Net Interest Income after Provision for Loan Losses		7,548		3,115			17,741		9,455

Noninterest Income
Service charges		677		406			1,719		1,218
Earnings on bank-owned life insurance		166		124			451		369
Net securities gains		18		26			11		119
Net loan sale gains		64		30			150		51
Investment management fees		80		51			274		152
Other income		8		14			128		42
Total Noninterest Income		1,013		651			2,733		1,951

Noninterest Expenses
Compensation and employee benefits		3,328		1,552			7,676		4,743
Data processing		230		118			636		350
Premises and occupancy costs		622		319			1,542		955
Automatic teller machine expense		103		99			438		276
Federal deposit insurance		78		40			201		154
Merger related expenses		-		709			3,089		709
Other operating expenses		1,402		457			2,734		1,230
Total Noninterest Expenses		5,763		3,294			16,316		8,417

Income before Income Tax Expense		2,798		472			4,158		2,989

Income Tax Expense (Benefit)
Federal		806		(39	)		1,013		602
State		56		110			261		219
Total Income Tax Expense		862		71			1,274		821

Net Income	$	1,936	$	401		$	2,884	$	2,168
Earnings Per Share:
Basic earnings per common share	$	0.42	$	0.17		$	0.75	$	0.85
Diluted earnings per common share	$	0.41	$	0.16		$	0.73	$	0.82

Cash dividends paid per common share	$	0.22	$	0.11		$	0.55	$	0.42
Basic weighted average shares outstanding		4,601,607		2,371,275			3,823,441		2,562,160
Diluted weighted average shares outstanding		4,735,708		2,444,204			3,937,889		2,637,980

See accompanying notes to the unaudited consolidated financial statements.

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Standard AVB Financial Corp.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Net Income	$	1,936		$	401		$	2,884		$	2,168

Other comprehensive income:

Unrealized gain (loss) on securities available for sale		(241	)		(163	)		1,562			387
Tax effect		86			55			(531	)		(131	)
Reclassification adjustment for security gains realized in income		(18	)		(26	)		(11	)		(119	)
Tax effect		6			9			4			40
Pension obligation change for defined benefit plan		23			(247	)		237			(247	)
Tax effect		(7	)		85			(81	)		85
Total other comprehensive income		(151	)		(287	)		1,180			15

Total Comprehensive Income (Loss)	$	1,785		$	114		$	4,064		$	2,183

See accompanying notes to the unaudited consolidated financial statements.

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Standard AVB Financial Corp.

Consolidated Statement of Changes in Stockholders' Equity

(Dollars in thousands, except per share data)

(Unaudited)

												Accumulated
			Additional						Unearned			Other			Total
	Common		Paid-In			Retained			ESOP			Comprehensive			Stockholders'
	Stock		Capital			Earnings			Shares			Income (Loss)			Equity

Balance, December 31, 2016	$	26	$	16,626		$	59,107		$	(1,992	)	$	(777	)	$	72,990

Net income		-		-			2,884			-			-			2,884

Other comprehensive income		-		-			-			-			1,180			1,180

Stock repurchases (4,759 shares)				(140	)											(140	)

Cash dividends ($0.55 per share)		-		-			(2,338	)		-			-			(2,338	)

Stock options exercised (12,960 shares)		-		214			-			-			-			214

Excess tax benefits from stock based compensation		-		73			-			-			-			73

Compensation expense on stock awards		-		457			-			-			-			457

Compensation expense on ESOP		-		183			-			115			-			298

Merger consideration (2,168,097 shares)		22		57,650			-			-			-			57,672

Balance, September 30, 2017	$	48	$	75,063		$	59,653		$	(1,877	)	$	403		$	133,290

See accompanying notes to the unaudited consolidated financial statements.

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Standard AVB Financial Corp.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2017			2016
Cash Flows From Operating Activities
Net income	$	2,884		$	2,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		622			185
Provision for loan losses		267			105
Net gain on securities		(11	)		(119	)
Origination of loans held for sale		(5,496	)		(2,911	)
Proceeds from sale of loans held for sale		5,646			2,728
Net loan sale gains		(150	)		(51	)
Compensation expense on ESOP		298			264
Compensation expense on stock awards		457			339
Deferred income taxes		(528	)		54
Decrease (increase) in accrued interest receivable and other assets		1,368			(355	)
Earnings on bank-owned life insurance		(451	)		(369	)
Increase in accrued interest payable and other liabiliites		838			136
Excess tax benefits from stock based compensation		(73	)		(60	)
Other, net		155			(101	)
Net Cash Provided by Operating Activities		5,827			2,013
Cash Flows Used In Investing Activities
Net increase in loans		(54,687	)		(24,583	)
Purchases of investment securities		(4,127	)		(12,841	)
Purchases of mortgage-backed securities		(20,247	)		(3,104	)
Purchases of certificates of deposit		-			(250	)
Proceeds from maturities of certificates of deposits		-			750
Proceeds from maturities/principal repayments/calls of investment securities		8,202			11,442
Proceeds from maturities/principal repayments/calls of mortgage-backed securities		7,241			3,595
Proceeds from sales of investment securities		9,219			285
Proceeds from sales of mortgage-backed securities		16,708			5,115
Purchase of Federal Home Loan Bank stock		(4,404	)		(153	)
Redemption of Federal Home Loan Bank stock		3,734			565
Proceeds from sales of foreclosed real estate		181			263
Net purchases of office properties and equipment		(1,173	)		(76	)
Cash and cash equivalents acquired		9,611			-
Net Cash Used in Investing Activities		(29,742	)		(18,992	)
Cash Flows From Financing Activities
Net increase in demand, savings and club accounts		8,835			28,811
Net increase in certificate accounts		6,687			13,301
Net increase in securities sold under agreements to repurchase		3,606			137
Net decrease in Federal Home Loan Bank short term borrowings		(43,596	)		-
Repayments of Federal Home Loan Bank advances		(5,789	)		(15,807	)
Proceeds from Federal Home Loan Bank advances		65,635			3,000
Net increase (decrease) in advance deposits by borrowers for taxes and insurance		497			(12	)
Excess tax benefits from stock based compensation		73			60
Exercise of stock options		214			-
Dividends paid		(2,338	)		(798	)
Stock repurchases		(140	)		(4,111	)
Net Cash Provided by Financing Activities		33,684			24,581
Net Increase in Cash and Cash Equivalents		9,769			7,602
Cash and Cash Equivalents - Beginning		10,520			10,559
Cash and Cash Equivalents - Ending	$	20,289		$	18,161
Supplementary Cash Flows Information
Interest paid	$	3,419		$	2,520
Income taxes paid	$	713		$	1,061
Supplementary Schedule of Noncash Investing and Financing Activities
Foreclosed real estate acquired in settlement of loans	$	354		$	221

See accompanying notes to the unaudited consolidated financial statements.

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Standard AVB Financial Corp.

Consolidated Statements of Cash Flows (Unaudited) Continued

SUPPLEMENTAL INFORMATION (continued)

Merger with Allegheny Valley Bancorp. Inc.
Non-cash assets acquired
Investment securities available for sale	$	95,919
Federal Home Loan Bank stock		4,739
Loans receivable, net of allowance for loan losses		311,736
Office properties and equipment, net		4,434
Accrued interest receivable		1,144
Bank owned life insurance		6,486
Core deposit intangible		4,116
Other assets		2,742
Goodwill		17,216
		448,532

Liabilities assumed
Certificate accounts		(70,422	)
Deposits other than certificate accounts		(263,522	)
Borrowings		(64,624	)
Accrued interest payable		(615	)
Other liabilities		(1,288	)
		(400,471	)

Net Non Cash Assets Acquired	$	48,061

Cash and cash equivalents acquired	$	9,611

See accompanying notes to the unaudited consolidated financial statements.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(1)

Consolidation

The accompanying consolidated financial statements include the accounts of Standard AVB Financial Corp. (the “Company”) and its direct and indirect wholly owned subsidiaries, Standard Bank, PaSB (the “Bank”), and Westmoreland Investment Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

(2)

Basis of Presentation

The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States. All adjustments (consisting of normal recurring adjustments), which, in the opinion of management are necessary for a fair presentation of the financial statements and to make the financial statements not misleading have been included. The unaudited consolidated financial statements and other financial information contained in this quarterly report on Form 10-Q should be read in conjunction with the audited financial statements of Standard Financial Corp. at and for the year ended September 30, 2016 contained in the Company’s definitive prospectus dated February 1, 2017 (the “Prospectus”) as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 3, 2017. The results for the three and nine month periods ended September 30, 2017 is not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017 or any future interim period. Certain amounts in the 2016 financial statements have been reclassified to conform to the 2017 presentation format. These reclassifications had no effect on stockholders’ equity or net income.

(3)

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The following table sets forth the computation of basic and diluted EPS for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net income available to common stockholders	$	1,936	$	401	$	2,884	$	2,168

Basic EPS:
Weighted average shares outstanding		4,601,607		2,371,275		3,823,441		2,562,160
Basic EPS	$	0.42	$	0.17	$	0.75	$	0.85

Diluted EPS:
Weighted average shares outstanding		4,601,607		2,371,275		3,823,441		2,562,160
Diluted effect of common stock equivalents		134,101		72,929		114,448		75,820
Total diluted weighted average shares outstanding		4,735,708		2,444,204		3,937,889		2,637,980
Diluted EPS	$	0.41	$	0.16	$	0.73	$	0.82

(4)

Recent Accounting Pronouncements

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(4)

Recent Accounting Pronouncements (Continued)

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Company’s preliminary analysis of its current portfolio, the impact to the Company’s balance sheet is estimated to result in less than a 1 percent increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(4)

Recent Accounting Pronouncements (Continued)

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, which provides a more robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. This update is not expected to have a significant impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations

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(4)

Recent Accounting Pronouncements (Continued)

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award. This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Investment Securities

Investment securities available for sale at September 30, 2017 and December 31, 2016 are as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
September 30, 2017:
U.S. government and agency obligations due:
Beyond 1 year but within 5 years	$	9,911	$	32	$	(41	)	$	9,902
Beyond 5 year but within 10 years		932		15		-			947
Corporate bonds due:
Beyond 1 year but within 5 years		5,401		23		(10	)		5,414
Beyond 5 years but within 10 years		507		9		-			516
Municipal obligations due:
Beyond 1 year but within 5 years		9,809		548		-			10,357
Beyond 5 years but within 10 years		29,835		426		(24	)		30,237
Beyond 10 years		16,154		125		(111	)		16,168
Equity securities		3,823		421		(69	)		4,175

	$	76,372	$	1,599	$	(255	)	$	77,716

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
December 31, 2016:
U.S. government and agency obligations due:
Beyond 1 year but within 5 years	$	9,000	$	-	$	(66	)	$	8,934
Corporate bonds due:
Beyond 1 year but within 5 years		2,028		-		(18	)		2,010
Beyond 5 years but within 10 years		506		9		-			515
Municipal obligations due:
Beyond 1 year but within 5 years		7,942		441		(7	)		8,376
Beyond 5 years but within 10 years		11,739		24		(213	)		11,550
Beyond 10 years		9,756		11		(367	)		9,400
Equity securities		2,050		234		(121	)		2,163

	$	43,021	$	719	$	(792	)	$	42,948

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(5)

Investment Securities (Continued)

For the three months ended September 30, 2017, gains on the sales of investment securities were $14,000, losses on sales were $7,000 and proceeds from such sales were $3.0 million. For the nine months ended September 30, 2017, gains on sales of investment securities were $29,000, losses on sales were $89,000 and proceeds from such sales were $9.2 million. For the three months ended September 30, 2016, gains on sales of investment securities were $38,000, losses on sales were $12,000 and proceeds from such sales were $166,000. For the nine months ended September 30, 2016, gains on sales of investment securities totaled $87,000, losses on sales were $50,000 and total proceeds from such sales were $285,000. Investment securities with a carrying value of $17.9 million and $18.8 million were pledged to secure repurchase agreements and public funds accounts at September 30, 2017 and December 31, 2016, respectively.

The following table shows the fair value and gross unrealized losses on investment securities and the length of time that the securities have been in a continuous unrealized loss position at September 30, 2017 and December 31, 2016 (dollars in thousands):

	September 30, 2017
	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

U.S. government and agency obligations	$	2,981	$	(19	)	$	1,978	$	(22	)	$	4,959	$	(41	)
Corporate bonds		754		-			1,009		(10	)		1,763		(10	)
Municipal obligations		3,029		(27	)		3,767		(108	)		6,796		(135	)
Equity securities		252		(35	)		794		(34	)		1,046		(69	)

Total	$	7,016	$	(81	)	$	7,548	$	(174	)	$	14,564	$	(255	)

	December 31, 2016
	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses

U.S. government and agency obligations	$	8,934	$	(66	)	$	-	$	-		$	8,934	$	(66	)
Corporate bonds		2,009		(18	)		-		-			2,009		(18	)
Municipal obligations		12,225		(558	)		1,207		(29	)		13,432		(587	)
Equity securities		196		(22	)		949		(99	)		1,145		(121	)

Total	$	23,364	$	(664	)	$	2,156	$	(128	)	$	25,520	$	(792	)

At September 30, 2017, the Company held 33 securities in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery, and the Company believes the collection of the investment and related interest is probable. Based on the above, the Company considers all of the unrealized losses to be temporary impairment losses.

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(6)

Mortgage-Backed Securities

Mortgage-backed securities available for sale at September 30, 2017 and December 31, 2016 are as follows (dollars in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
September 30, 2017:
Government pass-throughs:
Ginnie Mae	$	11,639	$	29	$	(57	)	$	11,611
Fannie Mae		20,087		174		-			20,261
Freddie Mac		13,539		92		(37	)		13,594
Private pass-throughs		10,647		21		(24	)		10,644
Collateralized mortgage obligations		7,693		-		(45	)		7,648

	$	63,605	$	316	$	(163	)	$	63,758

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
December 31, 2016:
Government pass-throughs:
Ginnie Mae	$	5,129	$	18	$	(54	)	$	5,093
Fannie Mae		5,403		93		(18	)		5,478
Freddie Mac		5,520		21		(20	)		5,521
Private pass-throughs		85		-		-			85
Collateralized mortgage obligations		1,571		1		(16	)		1,556

	$	17,708	$	133	$	(108	)	$	17,733

For the three months ended September 30, 2017, gains on sales of mortgage-backed securities totaled $13,000, losses totaled $2,000 and total proceeds from such sales were $1.2 million. For the nine months ended September 30, 2017, gain on sales of mortgage-backed securities totaled $88,000, losses totaled $17,000 and total proceeds from such sales were $16.7 million. During the three months ended September 30, 2016, there were no sales of mortgage-backed securities. For the nine months ended September 30, 2016, gains on sales of mortgage-backed securities totaled $82,000 with total proceeds from such sales of $5.1 million.

The amortized cost and fair value of mortgage-backed securities at September 30, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to repay obligations with or without prepayment penalties (in thousand):

	Amortized Cost		Fair Value
Due after five years through ten years	$	9,451	$	9,542
Due after ten years		54,154		54,216
Total Mortgage-Backed Securities	$	63,605	$	63,758

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(6)

Mortgage-Backed Securities (Continued)

The following table shows the fair value and gross unrealized losses on mortgage-backed securities and the length of time that the securities have been in a continuous unrealized loss position at September 30, 2017 and December 31, 2016 (dollars in thousands):

	September 30, 2017
	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Government pass-throughs:
Ginnie Mae	$	3,008	$	(19	)	$	2,761	$	(38	)	$	5,769	$	(57	)
Freddie Mac		1,484		(21	)		1,147		(16	)		2,631		(37	)
Private pass-throughs		3,197		(24	)		-		-			3,197		(24	)
Collateralized mortgage obligations		5,229		(34	)		490		(11	)		5,719		(45	)

Total	$	12,918	$	(98	)	$	4,398	$	(65	)	$	17,316	$	(163	)

	December 31, 2016
	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Government pass-throughs:
Ginnie Mae	$	2,352	$	(44	)	$	1,214	$	(10	)	$	3,566	$	(54	)
Fannie Mae		1,032		(18	)		-		-			1,032		(18	)
Freddie Mae		3,069		(20	)		-		-			3,069		(20	)
Collateralized mortgage obligations		1,494		(16	)		-		-			1,494		(16	)

Total	$	7,947	$	(98	)	$	1,214	$	(10	)	$	9,161	$	(108	)

At September 30, 2017, the Company held 12 mortgage-backed securities in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before their anticipated recovery, and the Company believes the collection of the investment and related interest is probable. Based on the above, the Company considers all of the unrealized loss to be temporary impairment loss.

Mortgage-backed securities with a carrying value of $20.7 million and $6.0 million were pledged to secure repurchase agreements and public fund accounts at September 30, 2017 and December 31, 2016, respectively.

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Loans Receivable and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio, and the related allowance for loan losses, as of September 30, 2017 and December 31, 2016 (dollars in thousands):

	Real Estate Loans
	One-to-four-				Home
	family		Commercial		Equity Loans
	Residential and		Real		and Lines		Commercial		Other
	Construction		Estate		of Credit		Business		Loans		Total
September 30, 2017:
Collectively evaluated for impairment	$	256,972	$	302,938	$	132,094	$	57,303	$	1,374	$	750,681
Individually evaluated for impairment		-		598		-		-		-		598
Total loans before allowance for loan losses	$	256,972	$	303,536	$	132,094	$	57,303	$	1,374	$	751,279

December 31, 2016:
Collectively evaluated for impairment	$	174,740	$	116,229	$	77,913	$	15,505	$	520	$	384,907
Individually evaluated for impairment		-		462		-		-		-		462
Total loans before allowance for loan losses	$	174,740	$	116,691	$	77,913	$	15,505	$	520	$	385,369

Total loans at September 30, 2017 were net of deferred loan fees of $315,000 and at December 31, 2016 were net of deferred loan costs of $150,000.

Included in total loans above are loans acquired from Allegheny Valley at the acquisition date, net of fair value adjustments of (dollars in thousands):

	Real Estate Loans
	One-to-four-				Home
	family		Commercial		Equity Loans
	Residential and		Real		and Lines		Commercial		Other
	Construction		Estate		of Credit		Business		Loans		Total

April 7, 2017	$	66,995	$	160,626	$	51,759	$	26,841	$	5,515	$	311,736

As a result of the acquisition of Allegheny Valley, the Company added $2,467,000 of loans that were accounted for in accordance with ASC 310-30. Based on a review of the loans acquired by senior lending management, which included an analysis of credit deterioration of the loans since origination, the Company recorded a specific credit fair value adjustment of $2,467,000. For loans that were acquired with specific evidence of deterioration in credit quality, loan losses will be accounted for through a reduction of the specific reserve and will not impact the allowance for loan losses. For loans acquired without a deterioration of credit quality, losses incurred will result in adjustments to the allowance for loan losses through the allowance for loan loss adequacy calculation. As of September 30, 2017, the outstanding balance of ASC 310-30 loans acquired from Allegheny Valley was $0 and the carrying value was $0 as all loans with a specific mark were charged off against that mark during the June quarter, with no resulting impact on net income.

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Loans Receivable and Related Allowance for Loan Losses (Continued)

The following table presents the components of the purchase accounting adjustments related to the purchased credit-impaired loans acquired:

Contractually required principal and interest	$	2,467
Non-accretable discount		(2,467	)
Expected cash flows		-
Accretable discount		-
Estimated fair value	$	-

There was no amortizable yield for purchased credit-impaired loans for the nine month period ended September 30, 2017.

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The three segments are: real estate, commercial business and other. The real estate loan segment is further disaggregated into three classes. One-to-four family residential mortgages (including residential construction loans) include loans to individuals secured by residential properties having maturities up to 30 years. Commercial real estate consists of loans to commercial borrowers secured by commercial or residential real estate. The repayment of commercial real estate loans is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Home equity loans and lines of credit include loans having maturities up to 20 years. The commercial business loan segment consists of loans to finance the activities of commercial business customers. The other loan segment consists primarily of consumer loans and overdraft lines of credit. The portfolio segments utilized in the calculation of the allowance for loan losses are disaggregated at the same level that management uses to monitor risk in the portfolio. Therefore the portfolio segments and classes of loans are the same.

There are various risks associated with lending to each portfolio segment. One-to-four family residential mortgage loans are typically longer-term loans which generally entail greater interest rate risk than consumer and commercial loans. Under certain economic conditions, housing values may decline, which may increase the risk that the collateral values are insufficient. Commercial real estate loans generally present a higher level of risk than loans secured by residences. This greater risk is due to several factors including but not limited to concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty in monitoring these types of loans. Furthermore, the repayment of commercial real estate loans is typically dependent upon successful operation of the related real estate project. If the cash flow from the project is reduced by such occurrences as leases not being obtained, renewed or not entirely fulfilled, the borrower’s ability to repay the loan may be impaired. Commercial business loans are primarily secured by business assets, inventories and accounts receivable which present collateral risk. The other loan segment generally has higher interest rates and shorter terms than one-to-four family residential mortgage loans, however, they can have additional credit risk due to the type of collateral securing the loan.

Management evaluates individual loans in all of the commercial segments for possible impairment if the relationship is greater than $200,000, and if the loan either is in nonaccrual status, risk-rated Substandard or Doubtful, greater than 90 days past due or represents a troubled debt restructuring. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired if the loan is not a commercial business or commercial real estate loan. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loan is part of a larger relationship that is impaired, has a classified risk rating, or is a trouble debt restructuring (“TDR”).

Once the decision has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is calculated by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The appropriate method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

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Loans Receivable and Related Allowance for Loan Losses (Continued)

Consistent with accounting and regulatory guidance, the Company recognizes a TDR when the Bank, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Company's objective in offering a TDR is to increase the probability of repayment of the borrower's loan. To be considered a TDR, the borrower must be experiencing financial difficulties and the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would not otherwise be considered. The Company did not modify any loans as TDRs during the three or nine month periods ended September 30, 2017 or 2016 nor did it have any TDRs within the preceding year where a concession had been made that then defaulted during the three or nine month periods ending September 30, 2017 or 2016.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary at September 30, 2017 and December 31, 2016 (dollars in thousands):

	Impaired Loans With Allowance				Impaired Loans Without Allowance		Total Impaired Loans
	Recorded		Related		Recorded		Recorded		Unpaid Principal
	Investment		Allowance		Investment		Investment		Balance
September 30, 2017:
Commercial real estate	$	-	$	-	$	598	$	598	$	630
Total impaired loans	$	-	$	-	$	598	$	598	$	630

December 31, 2016:
Commercial real estate	$	-	$	-	$	462	$	462	$	462
Total impaired loans	$	-	$	-	$	462	$	462	$	462

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (dollars in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Average investment in impaired loans:
Commercial real estate	$	1,562	$	594	$	1,003	$	696
Total impaired loans	$	1,562	$	594	$	1,003	$	696

There was no interest income recognized on impaired loans for the three and nine months ended September 30, 2017 and 2016, respectively.

Management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently performing but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the collection of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Any loan that has a specific allocation of the allowance for loan losses and is in the process of liquidation of the collateral is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.

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Loans Receivable and Related Allowance for Loan Losses (Continued)

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolio at origination. Commercial relationships are periodically reviewed internally for credit deterioration or improvement in order to confirm that the relationship is appropriately risk rated. The Audit Committee of the Company also engages an external consultant to conduct loan reviews. The scope of the annual external engagement, which is performed through semi-annual loan reviews, includes reviewing approximately the top 50 to 60 loan relationships, all watchlist loans greater than $100,000, all commercial Reg O loans, and a random sampling of new loan originations between $200,000 and $500,000 during the year. Status reports are provided to management for loans classified as Substandard on a quarterly basis, which results in a proactive approach to resolution. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass rating and the criticized ratings of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of September 30, 2017 and December 31, 2016 (dollars in thousands):

			Special
	Pass		Mention		Substandard		Doubtful		Total
September 30, 2017:
Real estate loans:
One-to-four-family residential and construction	$	255,048	$	308	$	1,616	$	-	$	256,972
Commercial real estate		297,423		5,201		912		-		303,536
Home equity loans and lines of credit		131,918		-		176		-		132,094
Commercial business loans		57,043		251		9		-		57,303
Other loans		1,374		-		-		-		1,374
Total	$	742,806	$	5,760	$	2,713	$	-	$	751,279

December 31, 2016:
Real estate loans:
One-to-four-family residential and construction	$	174,196	$	-	$	544	$	-	$	174,740
Commercial real estate		116,229		-		462		-		116,691
Home equity loans and lines of credit		77,812		-		101		-		77,913
Commercial business loans		15,505		-		-		-		15,505
Other loans		512		-		8		-		520
Total	$	384,254	$	-	$	1,115	$	-	$	385,369

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due based on the loans’ contractual due dates. Management considers nonperforming loans to be those loans that are past due 90 days or more and are still accruing as well as all other nonaccrual loans. At September 30, there was one loan on non-accrual status that was less than 90 days past due. The following table presents the segments of the loan portfolio summarized by the past due status of the loans still accruing and nonaccrual loans as of September 30, 2017 and December 31, 2016 (dollars in thousands):

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(7)

Loans Receivable and Related Allowance for Loan Losses (Continued)

			30-59 Days		60-89 Days		Non-Accrual		90 Days Past		Total
	Current		Past Due		Past Due		(90 Days+)		Due & Accruing		Loans
September 30, 2017:
Real estate loans:
One-to-four-family residential and construction	$	255,201	$	24	$	287	$	1,460	$	-	$	256,972
Commercial real estate		302,536		76		9		915		-		303,536
Home equity loans and lines of credit		131,787		34		19		254		-		132,094
Commercial business loans		57,289		5		-		9		-		57,303
Other loans		1,300		57		6		-		11		1,374
Total	$	748,113	$	196	$	321	$	2,638	$	11	$	751,279

December 31, 2016:
Real estate loans:
One-to-four-family residential and construction	$	173,138	$	739	$	319	$	544	$	-	$	174,740
Commercial real estate		116,478		53		60		100		-		116,691
Home equity loans and lines of credit		77,289		460		63		101		-		77,913
Commercial business loans		15,505		-		-		-		-		15,505
Other loans		510		2		-		8		-		520
Total	$	382,920	$	1,254	$	442	$	753	$	-	$	385,369

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. Management tracks the historical net charge-off activity for the loan segments which may be adjusted for qualitative factors. Pass rated credits are segregated from criticized credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors are evaluated using information obtained from internal, regulatory, and governmental sources such as national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, depth and ability of management; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Management utilizes an internally developed spreadsheet to track and apply the various components of the allowance. The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016. Activity in the allowance is presented for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(7)

Loans Receivable and Related Allowance for Loan Losses (Continued)

	Real Estate Loans
	One-to-four-						Home
	family			Commercial			Equity Loans
	Residential and			Real			and Lines			Commercial			Other
Three Months Ended:	Construction			Estate			of Credit			Business			Loans			Total
Balance at June 30, 2017	$	1,346		$	1,787		$	542		$	286		$	4		$	3,965
Charge-offs		(74	)		-			(45	)		-			(2	)		(121	)
Recoveries		-			-			1			-			-			1
Provision		107			90			(134	)		33			4			100
Balance at September 30, 2017	$	1,379		$	1,877		$	364		$	319		$	6		$	3,945

Balance at June 30, 2016	$	983		$	1,872		$	462		$	373		$	3		$	3,693
Charge-offs		-			(93	)		-			(2	)		(1	)		(96	)
Recoveries		77			2			-			15			4			98
Provision		190			5			85			(175	)		-			105
Balance at September 30, 2016	$	1,250		$	1,786		$	547		$	211		$	6		$	3,800

Nine Months Ended:
Balance at December 31, 2016	$	1,280		$	1,787		$	547		$	211		$	12		$	3,837
Charge-offs		(116	)		-			(51	)		(1	)		(24	)		(192	)
Recoveries		28			-			-			2			3			33
Provision		187			90			(132	)		107			15			267
Balance September 30, 2017	$	1,379		$	1,877		$	364		$	319		$	6		$	3,945

Balance at December 31, 2015	$	1,076		$	1,868		$	457		$	407		$	3		$	3,811
Charge-offs		(24	)		(93	)		-			(39	)		(4	)		(160	)
Recoveries		8			6			5			18			7			44
Provision		190			5			85			(175	)		-			105
Balance at September 30, 2016	$	1,250		$	1,786		$	547		$	211		$	6		$	3,800

	Real Estate Loans
	One-to-four-				Home
	family		Commercial		Equity Loans
	Residential and		Real		and Lines		Commercial		Other
	Construction		Estate		of Credit		Business		Loans		Total
Evaluated for Impairment:
Individually	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,379		1,877		364		319		6		3,945
Balance at September 30, 2017	$	1,379	$	1,877	$	364	$	319	$	6	$	3,945

Evaluated for Impairment:
Individually	$	-	$	-	$	-	$	-	$	-	$	-
Collectively		1,280		1,787		547		211		12		3,837
Balance at December 31, 2016	$	1,280	$	1,787	$	547	$	211	$	12	$	3,837

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(7)

Loans Receivable and Related Allowance for Loan Losses (Continued)

The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the loan portfolio at any given date. In addition, federal regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make changes to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to Management. Based on Management’s comprehensive analysis of the loan portfolio, they believe the current level of the allowance for loan losses is adequate.

(8)

Foreclosed Assets Held For Sale

Foreclosed assets acquired in the settlement of loans are carried at fair value less estimated costs to sell and are included in other assets on the Consolidated Statement of Financial Condition. As of September 30, 2017 and December 31, 2016, a total of $419,000 and $251,000 respectively, of foreclosed assets were included in other assets. As of September 30, 2017, included within the foreclosed assets totaling $419,000 were three residential properties acquired upon foreclosure, prior to the period end. As of September 30, 2017, the Company had initiated formal foreclosure procedures on $756,000 of loans, consisting of a $408,000 one-to-four family residential loans, a $53,000 home equity loan and a $295,000 commercial real estate loan.

(9)

Stock Based Compensation

In 2012, the Company’s stockholders approved the 2012 Equity Incentive Plan (the “2012 Plan”). The purpose of the 2012 Plan is to provide officers, employees and directors with additional incentives to promote growth and performance of Standard Financial Corp. The 2012 Plan authorizes the granting of options to purchase shares of the Company’s stock, which may be nonqualified stock options or incentive stock options, and restricted stock which is subject to vesting conditions and other restrictions. The 2012 Plan reserved an aggregate number of 486,943 shares of which 347,817 may be issued in connection with the exercise of stock options and 139,126 may be issued as restricted stock.

On July 25, 2012, certain directors and officers of the Company were awarded an aggregate of 278,075 options to purchase shares of common stock and 111,300 restricted shares of common stock. The awards vested over five years at the rate of 20% per year and the stock options have a ten year contractual life from the date of grant. The Company recognized expense associated with the restricted share awards over the five year vesting period. Remaining shares available to be issued under the stock option and restricted stock plans are 69,742 and 27,826, respectively.

As a result of the merger with Allegheny Valley on April 7, 2017, the Company assumed the stock plans allowing for the issuance of an additional 77,634 shares of Standard AVB Financial Corp. stock, of which 249 shares expired on April 10, 2017. The Plans provide for the granting of incentive stock options (as defined in section 422 of the Internal Revenue Code), nonstatutory stock options, restricted stock, and stock appreciation rights to eligible employees and directors. The Plans had an original term of ten years and they are administered by the Board of Directors or a committee designated by the Board.

The Company’s common stock closed at $16.50 per share on July 25, 2012, which is the exercise price of the options granted on that date. The estimated fair value of the stock options was $423,000, before the impact of income taxes. The per share weighted-average fair value of stock options granted with an exercise price equal to the market value on July 25, 2012 was $1.52 using the following Black-Scholes option pricing model assumptions: expected life of 7.5 years, expected dividend rate of 1.13%, risk-free interest rate of 1.10% and an expected volatility of 9.5% based on historical results of the stock prices of a bank peer group. Compensation expense on the options was $63,000, with a related tax benefit recorded of $6,000 for the nine months ended September 30, 2017. As of September 30, 2017, the options were fully vested.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(9)

Stock Based Compensation (Continued)

The following table summarizes transactions regarding the options under the Plan:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2016		248,075		$	16.50
Granted		-			-
Merger related options		73,051			19.61
Exercised		(12,960	)		16.50
Forfeited		-			16.50
Outstanding at September 30, 2017		308,166		$	17.24
Exercisable at September 30, 2017		308,166		$	17.24

On July 25, 2012, the date of grant, the fair value of the restricted stock awards was approximately $1.8 million, before the impact of income taxes. Compensation expense on the grants was $269,000, with a related tax benefit recorded of $91,000 for the nine months ended September 30, 2017. As of September 30, 2017, the restricted stock awards were fully vested and there was no remaining compensation cost to be recognized related to the grants.

The following table summarizes transactions regarding restricted stock under the Plan:

	Number of Restricted Shares			Weighted Average Grant Date Price Per Share
Non-vested shares at December 31, 2016		19,860		$	16.50
Granted		-			-
Vested		(19,860	)		16.50
Forfeited		-			-
Non-vested shares at September 30, 2017		-		$	-

(10)

Employee Stock Ownership Plan

The Company established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees in conjunction with the stock conversion on October 6, 2010. Eligible employees begin to participate in the plan after one year of service and become 20% vested in their accounts after two years of service, 40% after three years of service, 60% after four years of service, 80% after five years of service and 100% after six years of service, or earlier, upon death, disability or attainment of normal retirement age.

In connection with the stock conversion, the purchase of the 278,254 shares of the Company stock by the ESOP was funded by a loan from the Company through the Bank. Unreleased ESOP shares collateralize the loan payable, and the cost of the shares is recorded as a contra-equity account in the stockholders’ equity of the Company. Shares are released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan can include dividends, if any, on the unallocated stock held by the ESOP and discretionary contributions from the Company to the ESOP and earnings thereon.

Compensation expense is equal to the fair value of the shares committed to be released and unallocated ESOP shares are excluded from outstanding shares for purposes of computing earnings per share. Compensation expense related to the ESOP of $298,000 and $264,000 was recognized during the nine months ended September 30, 2017 and 2016, respectively. Dividends on unallocated shares are not treated as ordinary dividends and are instead used to repay the ESOP loan and recorded as compensation expense.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(10)

Employee Stock Ownership Plan (Continued)

As of September 30, 2017, the ESOP held a total of 264,841 shares of the Company’s stock, and there were 187,912 unallocated shares. The fair market value of the unallocated ESOP shares was $5.5 million at September 30, 2017.

(11)

Pension Information

The Company sponsors a pension plan which is a noncontributory defined benefit retirement plan. Effective August 1, 2005, the annual benefit provided to employees under this defined benefit pension plan was frozen by Standard Bank. Freezing the plan eliminated all future benefit accruals; however, the accrued benefit as of August 1, 2005 remained.

Net periodic pension benefit was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Interest cost	$	(36	)	$	(38	)	$	(108	)	$	(76	)
Expected return on plan assets		40			37			120			74
Settlement obligation		-			-			(105	)		-
Other components		(23	)		-			(69	)		-
Net periodic pension benefit	$	(19	)	$	(1	)	$	(162	)	$	(2	)

(12)

Fair Value of Assets and Liabilities

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that utilize model-based techniques for which all significant assumptions are observable in the market.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement; inputs to the valuation methodology that utilize model-based techniques for which significant assumptions are not observable in the market; or inputs to the valuation methodology that requires significant management judgment or estimation, some of which may be internally developed.

Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities on a quarterly basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(12)

Fair Value of Assets and Liabilities (Continued)

Assets Measured at Fair Value on a Recurring Basis

Investment and Mortgage-Backed Securities Available for Sale

Fair values of investment and mortgage-backed securities available for sale were primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 1 securities are comprised of equity securities. As quoted prices were available, unadjusted, for identical securities in active markets, these securities were classified as Level 1 measurements. Level 2 securities were primarily comprised of debt securities issued by government agencies, states and municipalities, corporations, as well as mortgage-backed securities issued by government agencies. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

On a quarterly basis, management reviews the pricing information received from the Company’s third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Company’s third-party pricing service. Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. As of September 30, 2017 and December 31, 2016, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets. On a quarterly basis, management also reviews a sample of securities priced by the Company’s third-party pricing service to review significant assumptions and valuation methodologies used. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted.

The following table presents the assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy (dollars in thousands):

	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
	or Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2017:
Investment securities available for sale:
U.S. government and agency obligations	$	-	$	10,849	$	-	$	10,849
Corporate bonds		-		5,930		-		5,930
Municipal obligations		-		56,762		-		56,762
Equity securities		4,175		-		-		4,175
Total investment securities available for sale		4,175		73,541		-		77,716
Mortgage-backed securities available for sale		-		63,758		-		63,758

Total recurring fair value measurements	$	4,175	$	137,299	$	-	$	141,474

December 31, 2016:
Investment securities available for sale:
U.S. government and agency obligations	$	-	$	8,934	$	-	$	8,934
Corporate bonds		-		2,525		-		2,525
Municipal obligations		-		29,326		-		29,326
Equity securities		2,163		-		-		2,163
Total investment securities available for sale		2,163		40,785		-		42,948
Mortgage-backed securities available for sale		-		17,733		-		17,733

Total recurring fair value measurements	$	2,163	$	58,518	$	-	$	60,681

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(12)

Fair Value of Assets and Liabilities (Continued)

The following table presents the assets measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy (dollars in thousands):

	Quoted Prices in		Significant
	Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable
	or Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2017:
Foreclosed real estate	$	-	$	-	$	419	$	419
Impaired loans		-		-		598		598
Total nonrecurring fair value measurements	$	-	$	-	$	1,017	$	1,017

December 31, 2016:
Foreclosed real estate	$	-	$	-	$	251	$	251
Impaired loans		-		-		462		462
Total nonrecurring fair value measurements	$	-	$	-	$	713	$	713

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

Quantitative Information about Level 3 Fair Value Measurements

Valuation

Unobservable

Range

September 30, 2017

December 31, 2016

Techniques

Input

(Weighted Average)

Foreclosed real estate

419

251

Appraisal of

Appraisal adjustments (2)

0% to 40% (19%)

collateral (1)

Liquidation expenses (2)

0% to 10% (8%)

Impaired loans

598

462

Fair value of

Appraisal adjustments (2)

0% to 20% (20%)

collateral (1), (3)

Liquidation expenses (2)

0% to 10% (6%)

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

(3)

Includes qualitative adjustments by management and estimated liquidation expenses.

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing the following financial instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(12)

Fair Value of Assets and Liabilities (Continued)

Loans Receivable

The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were first segregated by type such as commercial, real estate, and home equity, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Certificate Deposit Accounts

The fair values of the Company’s certificate deposit accounts were estimated using discounted cash flow analyses. The discount rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Company’s certificate deposit accounts do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Federal Home Loan Bank advances

The fair value of Federal Home Loan Bank advances was calculated using a discounted cash flow approach that applies a comparable FHLB advance rate to the weighted average maturity of the borrowings.

Other Financial Instruments

The carrying amounts reported in the consolidated statements of financial condition approximate fair value for the following financial instruments (Level 1): cash on hand and due from banks, interest-earning deposits in other institutions, certificate of deposit, Federal Home Loan Bank stock, accrued interest receivable, bank-owned life insurance, demand, savings and club accounts, securities sold under agreements to repurchase, Federal Home Loan Bank short term borrowings and accrued interest payable. For short-term financial assets, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest and noninterest-bearing demand, savings and club accounts, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity. For financial liabilities such as the Company’s securities sold under agreements to repurchase which are with commercial deposit customers, the carrying amount is a reasonable estimate of fair value due to the short time nature of the agreement.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(12)

Fair Value of Assets and Liabilities (Continued)

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2017 and December 31, 2016 (dollars in thousands):

					Fair Value Measurements
					Quoted Prices in		Significant
					Active Markets for		Other		Significant
			Total		Identical Assets		Observable		Unobservable
	Carrying		Fair		or Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2017:
Financial Instruments - Assets:
Cash on hand and due from banks	$	3,307		3,307		3,307	$	-	$	-
Interest-earning deposits in other institutions		16,982		16,982		16,982		-		-
Certificate of deposit		500		500		500		-		-
Investment securities		77,716		77,716		4,175		73,541		-
Mortgage-backed securities		63,758		63,758		-		63,758		-
Federal Home Loan Bank stock		8,580		8,580		8,580		-		-
Loans receivable		747,334		746,247		-		-		746,247
Bank-owned life insurance		21,904		21,904		21,904		-		-
Accrued interest receivable		2,486		2,486		2,486				-
Financial Instruments - Liabilities:										-
Demand, savings and club accounts		496,987		496,987		496,987		-		-
Certificate deposit accounts		214,666		215,179		-		-		215,179
Federal Home Loan Bank short-term borrowings		25,028		25,028		25,028		-		-
Federal Home Loan Bank advances		103,514		103,517		-		-		103,517
Securities sold under agreements to repurchase		5,948		5,948		5,948		-		-
Accrued interest payable		949		949		949		-		-

December 31, 2016:
Financial Instruments - Assets:
Cash on hand and due from banks	$	1,924	$	1,924	$	1,924	$	-	$	-
Interest-earning deposits in other institutions		8,596		8,596		8,596		-		-
Certificate of deposit		500		500		500		-		-
Investment securities		42,948		42,948		2,163		40,785		-
Mortgage-backed securities		17,733		17,733		-		17,733		-
Federal Home Loan Bank stock		3,171		3,171		3,171		-		-
Loans receivable		381,532		387,056		-		-		387,056
Bank-owned life insurance		15,044		15,044		15,044		-		-
Accrued interest receivable		1,155		1,155		1,155				-
Financial Instruments - Liabilities:										-
Demand, savings and club accounts		224,630		224,630		224,630		-		-
Certificate deposit accounts		137,557		138,552		-		-		138,552
Federal Home Loan Bank advances		47,668		47,768		-		-		47,768
Securities sold under agreements to repurchase		2,342		2,342		2,342		-		-
Accrued interest payable		191		191		191		-		-

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(13)

Accumulated Other Comprehensive Income

The following tables present the significant amounts reclassified out of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income by component for the three and nine months ended September 30, 2017 and 2016:

	Unrealized Gains on			Unrecognized
	Available for Sale			Pension
	Securities			Costs			Total
Balance as of June 30, 2017	$	1,159		$	(605	)	$	554

Other comprehensive loss before reclassification		(155	)		-			(155	)
Amount reclassified from accumulated other comprehensive loss		(12	)		16			4
Total other comprehensive income (loss)		(167	)		16			(151	)

Balance as of September 30, 2017	$	992		$	(589	)	$	403

Balance as of December 31, 2016	$	(32	)	$	(745	)	$	(777	)

Other comprehensive income before reclassification		1,031			-			1,031
Amount reclassified from accumulated other comprehensive income		(7	)		156			149
Total other comprehensive income		1,024			156			1,180

Balance as of September 30, 2017	$	992		$	(589	)	$	403

	Amount Reclassified
	from Accumulated			Affected Line on
	Other Comprehensive			the Consolidated
	Income (Loss)			Statements of Income

Three months ended September 30, 2017:
Unrealized gains on available for sale securities	$	18		Net securities gains
		(6	)	Income tax expense (benefit)
	$	12		Net of tax

Amortization of defined benefit items:
Actuarial gains	$	(23	)	Compensation and employee benefits
		7		Income tax expense (benefit)
	$	(16	)	Net of tax
Total reclassification for the period	$	(4	)	Net income

Nine months ended September 30, 2017:
Unrealized gains on available for sale securities	$	11		Net securities gains
		(4	)	Income tax expense (benefit)
	$	7		Net of tax

Amortization of defined benefit items:
Actuarial gains	$	(93	)	Compensation and employee benefits
Distribution settlement		(144	)	Compensation and employee benefits
		81		Income tax expense (benefit)
	$	(156	)	Net of tax
Total reclassification for the period	$	(149	)	Net income

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

	Unrealized Gains on			Unrecognized
	Available for Sale			Pension
	Securities			Costs			Total
Balance as of June 30, 2016	$	1,006		$	(583	)	$	423

Other comprehensive income (loss) before reclassification		(108	)		(201	)		(309	)
Amount reclassified from accumulated other comprehensive income (loss)		(17	)		39			22
Total other comprehensive income (loss)		(125	)		(162	)		(287	)

Balance as of September 30, 2016	$	881		$	(745	)	$	136

Balance as of December 31, 2015	$	705		$	(583	)	$	122

Other comprehensive income (loss) before reclassification		255			(201	)		54
Amount reclassified from accumulated other comprehensive income (loss)		(79	)		39			(40	)
Total other comprehensive income (loss)		176			(162	)		14

Balance as of September 30, 2016	$	881		$	(745	)	$	136

	Amount Reclassified
	from Accumulated			Affected Line on
	Other Comprehensive			the Consolidated
	Income			Statements of Income

Three months ended September 30, 2016
Unrealized gains on available for sale securities	$	26		Net securities gains
		(9	)	Income tax expense
	$	17		Net of tax

Amortization of defined benefit items:
Actuarial gains	$	(59	)	Compensation and employee benefits
		20		Income tax expense
	$	(39	)	Net of tax
Total reclassification for the period	$	(22	)	Net income

Nine months ended September 30, 2016
Unrealized gains on available for sale securities	$	119		Net securities gains
		(40	)	Income tax expense
	$	79		Net of tax

Amortization of defined benefit items:
Actuarial gains	$	(59	)	Compensation and employee benefits
		20		Income tax expense
	$	(39	)	Net of tax
Total reclassification for the period	$	40		Net income

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(14)

Merger with Allegheny Valley Bancorp, Inc.

On August 29, 2016, Standard Financial Corp. and Allegheny Valley entered into an Agreement and Plan of Merger, which contemplated that Allegheny Valley would merge with and into Standard Financial Corp., with Standard Financial Corp. as the surviving entity to be known as “Standard AVB Financial Corp.” On April 7, 2017, Allegheny Valley merged with and into Standard Financial Corp. Accordingly, the Company is now referred to as “Standard AVB Financial Corp.”

Under the terms of the Merger Agreement, each outstanding share of Allegheny Valley common stock was converted into the right to receive 2.083 shares of Standard AVB Financial common stock and cash in lieu of fractional shares (the “Merger Consideration”). As of the closing date, there were 1,040,923 outstanding shares of Allegheny Valley common stock which resulted in a total of 2,168,097 shares of Standard AVB Financial common stock issued for exchange, subject to adjustment for fractional shares. Cash for any fractional shares of Standard AVB Financial common stock was based on $26.60 for each whole share, based on the average closing price of Standard Financial common stock for the five trading days immediately preceding the merger date. In addition, each option to purchase Allegheny Valley common stock was converted into an option to purchase Standard AVB Financial common stock at the same terms and conditions as were applicable prior to the holding company merger, except that the number of shares of Standard AVB Financial common stock issuable upon exercise of a converted option was adjusted by multiplying the number of shares of Allegheny Valley common stock issuable by 2.083. Additionally, the exercise price per share of a converted option was adjusted by dividing the exercise price per share of the Allegheny Valley option by 2.083. Additionally, at the consummation of the holding company merger, each Allegheny Valley restricted stock award became fully vested and was converted into the right to receive the Merger Consideration.

The acquired assets and assumed liabilities were measured at estimated fair values. Management made significant estimates and exercised significant judgement in accounting for the acquisition. Management measured loan fair values based on loan file reviews, appraised collateral values, expected cash flows, historical loss factors of Allegheny Valley and charge-off statistics published by the FDIC. The Company also recorded an identifiable intangible asset representing the core deposit base of Allegheny Valley based on management’s evaluation of the cost of deposits relative to alternative funding sources. Management used significant estimates including the average lives of depository accounts, future interest rate levels, and the cost of servicing various depository products. Management used market quotations to determine the fair value of investment securities.

The merger resulted in the acquisition of loans with and without evidence of credit quality deterioration. The fair value of the loan portfolio included separate adjustments to reflect a credit risk and marketability component and a yield component reflecting the differential between portfolio and market yields. Allegheny Valley loans were deemed impaired at the acquisition date if the Company did not expect to receive all contractually required payments at the acquisition date. At the acquisition date, the Company recorded $2,467,000 of purchased credit impaired loans. These loans were reserved at 100% given the unlikelihood of collection of the principal and interest on the loans.

Allegheny Valley’s loans without evidence of credit deterioration were fair valued by discounting both expected principal and interest cash flows using observable discount rates for similar instruments that a market participant would consider in determining fair value. Additionally, consideration was given to management’s best estimates of default rates and payment speeds. At acquisition date, Allegheny Valley’s loan portfolio without evidence of deterioration totaled $316,448,000 and was recorded at a fair value of $311,736,000, which included an interest rate adjustment of $861,000 and a general credit adjustment of $3,851,000.

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STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(14)

Merger with Allegheny Valley Bancorp, Inc. (Continued)

The following table summarizes the merger with Allegheny Valley as of April 7, 2017:

(Dollars in thousands, except per share data)

Purchase Price Consideration in Common Stock
AVLY common shares settled for stock		1,040,924
Exchange Ratio		2.083
Standard AVB Financial Corp. shares issued		2,168,097
Value assigned to Standard AVB Financial common share	$	26.60
Purchase price per share	$	55.41
Purchase price assigned AVLY common shares exchanged for Standard AVB Financial Corp.				$	57,672

Net Assets Acquired:
AVLY shareholders' equity		48,398
AVLY Goodwill		(8,144	)
Total tangible equity		40,254

Adjustments to reflect assets acquired at fair value:
Loans
Interest rate		(861	)
General Credit		(3,851	)
Specific Credit-non amortizing		(2,467	)
Elimination of existing loan ALLL		3,886
Certificates of Deposit Yield Premium		(902	)
Core Deposit Intangible		4,116
Fixed assets		384
Deferred Tax Asset		(103	)
					40,456
Goodwill resulting from the merger				$	17,216

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(14)

Merger with Allegheny Valley Bancorp, Inc. (Continued)

The following condensed statement reflects the values assigned to Allegheny Valley. net assets as of the acquisition date:

Total Purchase Price			$	57,672

Net Assets Acquired:
Cash	9,611
Securities available for sale	95,919
Loan	311,736
Premises	4,434
Accrued Interest receivable	1,144
Bank-owned life insurance	6,486
Deferred tax assets	-
Core deposit intangible	4,116
Other assets	7,481
Time deposits	(70,422	)
Deposits other than time deposits	(263,522	)
Borrowings	(64,624	)
Accrued interest payable and other liabilities	(1,903	)
				40,456

Goodwill resulting from the AVLY merger			$	17,216

The Company recorded goodwill and other intangibles associated with the merger totaling $21,332,000. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize any impairment during the nine months ended September 30, 2017. The carrying amount of goodwill at September 30, 2017 related to the Allegheny Valley merger was $17,216,000, of which none is deductible for tax purposes.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives of such assets. The gross carrying amount of the core deposit intangible at September 30, 2017 was $3,601,000 with $514,000 of accumulated amortization as of that date.

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(14)

Merger with Allegheny Valley Bancorp, Inc. (Continued)

As of September 30, 2017, the current year and estimated future amortization expense for the core deposit intangible is (dollars in thousands):

Remaining	2017	$	257
	2018		836
	2019		628
	2020		472
	2021		352
	2022		325
	2023		325
	2024		325
	2025		81

		$	3,601

Results of operations for Allegheny Valley prior to the acquisition date are not included in the Consolidated Statement of Income for the three and nine month periods ended September 30, 2017. Financial information regarding the former Allegheny Valley operations that are included in the Consolidated Statement of Income for the three and nine months ended September 30, 2017 is impracticable to provide. Providing this information would have required assumptions and significant estimates of amounts that could not be independently substantiated due to the integration of the data processing platforms, internal systems and operational departments that occurred after the April 7, 2017 acquisition date.

Table of Contents

STANDARD AVB FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

September 30, 2017

(14)

Merger with Allegheny Valley Bancorp, Inc. (Continued)

The following table presents unaudited pro forma information as if the acquisition of Allegheny Valley had occurred on January 1, 2016. This has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Merger and acquisition costs and amortization of fair value adjustments are included in the amounts below.

	Proformas
	Nine-month period ended September 30,
	2017		2016
	(in thousands, except per share data)

Net interest income	$	22,121	$	21,270
Noninterest income		3,999		3,989
Net income		2,570		4,625
Pro forma earnings per share:
Basic	$	0.67	$	1.00
Diluted	$	0.65	$	0.98

Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The section should be read in conjunction with the notes and unaudited consolidated financial statements presented elsewhere in this report.

The Company’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2017 have remained unchanged from the disclosures presented in the Company’s audited financial statements for the year ended September 30, 2016 contained in the Company’s definitive prospectus dated February 1, 2017 (the “Prospectus”) as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on February 3, 2017.

Standard AVB Financial Corp. is a Maryland corporation that provides a wide array of retail and commercial financial products and services to individuals, families and businesses through 17 banking offices located in the Pennsylvania counties of Allegheny, Westmoreland and Bedford and Allegany County, Maryland through its wholly-owned subsidiary Standard Bank.

Comparison of Financial Condition at September 30, 2017 and December 31, 2016

General. The Company’s total assets as of September 30, 2017 were $985.4 million compared to $488.0 million at December 31, 2016, an increase of $497.4 million due primarily to the acquisition of Allegheny Valley.

Cash and Cash Equivalents. Cash and cash equivalents increased $9.8 million, or 92.9%, to $20.3 million at September 30, 2017 from $10.5 million at December 31, 2016. Cash from customers into deposit accounts, loan and security repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, purchases of investment securities and repayment of borrowed funds.

Investment Securities. Investment securities available for sale increased $34.8 million to $77.7 million at September 30, 2017 from $42.9 million at December 31, 2016. The increase in the securities portfolio includes $47.4 million of securities acquired from Allegheny Valley. Purchases of investment securities during the nine months ended September 30, 2017 were $4.1 million, offset by calls and maturities of municipals and government agency bonds totaling $8.2 million. In addition, sales of investment securities were $9.2 million during the nine months ended September 30, 2017.

Mortgage-Backed Securities. The Company’s mortgage-backed securities available for sale increased $46.0 million to $63.8 million at September 30, 2017 from $17.7 million at December 31, 2016. The increase in the mortgage-backed securities portfolio includes $48.5 million of securities acquired from Allegheny Valley. Purchases of mortgage-backed securities totaled $20.2 million, offset by repayments of $7.2 million during the nine month period. Sales of mortgage-backed securities were $16.7 million during the nine months ended September 30, 2017.

Loans. At September 30, 2017, net loans were $747.3 million, or 75.7%, of total assets compared to $381.5 million, or 78.2% of total assets at December 31, 2016. The $365.8 million, or 95.9% increase in total loans was due to the acquisition as well as net organic loan growth. The acquisition resulted in a net increase in loans receivable of $311.7 million on April 7, 2017. Included in the total increase to loans receivable as of September 30, 2017 were increases in 1-4 family residential and construction loans, commercial real estate loans, commercial business loans and home equity loans and lines of credit of $82.2 million or 47.1%, $186.8 million or 160.1%, $41.8 million or 269.6% and $54.2 million or 69.5%, respectively.

Deposits. The Company accepts deposits primarily from the areas in which our offices are located. Standard has consistently focused on building broader customer relationships and targeting small business customers to increase our core deposits. We also rely on our customer service to attract and retain deposits. Standard offers a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and individual retirement accounts. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals.

Deposits increased $349.5 million, or 96.5%, to $711.7 million at September 30, 2017 from $362.2 million at December 3, 2016. The increase includes $333.9 million of deposits acquired from Allegheny Valley. In addition, there were increases of $6.7 million in certificate of deposit accounts and $8.8 million in demand and savings accounts during the nine months ended September 30, 2017. The increase in certificate of deposit accounts was due primarily to customer preference for longer term certificates of deposits as interest rates have increased.

Borrowings. Our borrowings consist of overnight borrowings and advances from the Federal Home Loan Bank of Pittsburgh and funds borrowed under repurchase agreements. Short-term borrowings increased $25.0 million at September 30, 2017 from no short-term borrowings at December 31, 2016. Borrowings assumed in the acquisition totaled $64.6 million; all were short-term. Federal Home loan bank advances increased $55.8 million to $103.5 million from $47.7 million at September 30, 2016. The increase was due primarily to the extension of the short-term borrowings to longer term advances. Proceeds from Federal Home Loan Bank advances were $65.6 million, partially offset by a net decrease of $43.6 million in short-term borrowings and the repayment of $5.8 million of advances.

Stockholders’ Equity. Stockholders’ equity increased $60.3 or 82.6%, to $133.3 million at September 30, 2017 from $73.0 million at December 31, 2016. The increase was due primarily to the issuance of stock as merger consideration for the acquisition of Allegheny Valley. In addition, there was net income of $2.9 million for the nine months ended September 30, 2017 and the exercise of stock options valued at $214,000, was partially offset by dividends paid during the nine months ended September 30, 2017 of $2.3 million.

Average Balance and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

Table of Contents

	For the Three Months Ended September 30,
	2017								2016
	Average Outstanding Balance			Interest		Yield/Rate			Average Outstanding Balance			Interest		Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	743,466		$	7,973		4.25	%	$	376,320		$	3,673		3.87	%
Investment and mortgage-backed securities		143,368			923		2.55	%		64,920			380		2.32	%
FHLB stock		8,679			150		6.86	%		3,223			39		4.80	%
Interest-earning deposits		14,331			48		1.33	%		12,463			9		0.29	%
Total interest-earning assets		909,844			9,094		3.97	%		456,926			4,101		3.56	%
Noninterest-earning assets		69,719								31,044
Total assets	$	979,563							$	487,970
Interest-bearing liabilities:
Savings accounts	$	155,818			76		0.19	%	$	102,747			37		0.14	%
Certificates of deposit		215,915			781		1.44	%		137,053			593		1.72	%
Money market accounts		99,562			60		0.24	%		23,772			19		0.32	%
Demand and NOW accounts		89,618			46		0.20	%		63,587			24		0.15	%
Total deposits		560,913			963		0.68	%		327,159			673		0.82	%
Federal Home Loan Bank borrowings		118,354			481		1.61	%		50,646			208		1.63	%
Securities sold under agreements to repurchase		5,901			2		0.13	%		1,975			-		0.00	%
Total interest-bearing liabilities		685,168			1,446		0.84	%		379,780			881		0.92	%
Noninterest-bearing deposits		149,819								32,460
Noninterest-bearing liabilities		11,885								2,449
Total liabilities		846,872								414,689
Stockholders' equity		132,691								73,281
Total liabilities and stockholders' equity	$	979,563							$	487,970

Net interest income				$	7,648							$	3,220
Net interest rate spread ⁽¹⁾							3.13	%							2.64	%
Net interest-earning assets ⁽²⁾	$	224,676							$	77,146
Net interest margin ⁽³⁾							3.34	%							2.81	%
Average interest-earning assets to interest- bearing liabilities		132.79	%							120.31	%

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

Table of Contents

	For the Nine Months Ended September 30,
	2017								2016
	Average Outstanding Balance			Interest		Yield/Rate			Average Outstanding Balance			Interest		Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	616,281		$	18,949		4.11	%	$	367,454		$	10,860		3.94	%
Investment and mortgage-backed securities		118,244			2,250		2.54	%		64,590			1,160		2.39	%
FHLB and ACBB stock		6,666			280		5.62	%		3,446			123		4.76	%
Interest earning deposits		12,586			91		0.97	%		18,429			33		0.24	%
Total interest-earning assets		753,777			21,570		3.83	%		453,919			12,176		3.58	%
Noninterest-earning assets		54,696								28,093
Total assets	$	808,473							$	482,012
Interest-bearing liabilities:
Savings accounts	$	141,078			135		0.13	%	$	102,963			110		0.14	%
Certificates of deposit		189,959			2,100		1.48	%		133,478			1,779		1.78	%
Money market accounts		67,499			166		0.33	%		21,256			26		0.16	%
Demand and NOW accounts		83,373			102		0.16	%		68,389			62		0.12	%
Total deposits		481,909			2,503		0.69	%		326,086			1,977		0.81	%
Federal Home Loan Bank borrowings		94,882			1,056		1.49	%		54,561			638		1.56	%
Securities sold under agreements to repurchase		5,411			3		0.07	%		2,119			1		0.06	%
Total interest-bearing liabilities		582,202			3,562		0.82	%		382,766			2,616		0.91	%
Noninterest-bearing deposits		110,632								23,634
Noninterest-bearing liabilities		3,894								2,641
Total liabilities		696,728								409,041
Stockholders' equity		111,745								72,971
Total liabilities and stockholders' equity	$	808,473							$	482,012

Net interest income				$	18,008							$	9,560
Net interest rate spread ⁽¹⁾							3.01	%							2.67	%
Net interest-earning assets ⁽²⁾	$	171,575							$	71,153
Net interest margin ⁽³⁾							3.19	%							2.83	%
Average interest-earning assets to interest- bearing liabilities		129.47	%							118.59	%

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

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Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016

General. Net income for the quarter ended September 30, 2017 was $1.9 million compared to $401,000 for the quarter ended September 30, 2016, an increase of $1.5 million, or 382.8%. Earnings per share for the current period were $0.42 for basic and $0.41 for fully diluted compared to $0.17 for basic and $0.16 for fully diluted for the similar period in 2016.

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the quarter were 0.79% and 5.84%, respectively, compared to 0.33% and 2.19% for the same period in 2016.

Net Interest Income. Net interest income for the quarter ended September 30, 2017 was $7.6 million, an increase of 137.5% compared to the $3.2 million reported for the quarter ended September 30, 2016. Our net interest rate spread and net interest margin were 3.13% and 3.34%, respectively for the three months ended September 30, 2017, compared to 2.64% and 2.81% for the three months ended September 30, 2016, respectively.

Interest and Dividend Income. Total interest and dividend income increased by $5.0 million, or 121.8%, to $9.1 million for the three months ended September 30, 2017 compared to the same period in the prior year. The increase was due primarily due to an increase in interest and fees on loans (including the interest and fees on loans acquired through the Allegheny Valley acquisition). Average interest-earning assets increased to $909.8 million for the three months ended September 30, 2017 from $456.9 million for the same period in 2016. The average yield on interest-earning assets increased to 3.97% for the three months ended September 30, 2017 from 3.56% for the same period in the prior year.

Interest income on loans increased $4.3 million, or 117.1%, to $8.0 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The average yield on loans receivable increased to 4.25% for the three months ended September 30, 2017 from 3.87% for the same period in the prior year. The increase in average yield was primarily attributable to the origination of new loans at higher interest rates. Average loans receivable increased by $367.1 million, or 97.6%, to $743.5 million for the three months ended September 30, 2017 from $376.3 million for the same period in the prior year due mainly to growth from the acquisition, and increased loan production during the quarter.

Interest income on investment and mortgage-backed securities increased by $543,000, or 142.9%, to $923,000 for the three months ended September 30, 2017. The increase was due primarily to an increase in the average balance of investment and mortgage backed securities of $78.4 million or 120.8% to $143.4 million for the three months ended September 30, 2017 compared to the prior period due primarily to the acquisition. In addition, the average yield earned on investments and mortgage-backed securities increased to 2.55% for the three months ended September 30. 2017 from 2.32% for the same period in the prior year.

Interest Expense. Total interest expense increased by $565,000, or 64.1%, to $1.4 million for the three months ended September 30, 2017 from $881,000 for the same period in the prior year. This increase in interest expense was due to an increase in the average balance of interest-bearing liabilities of $305.4 million, or 80.4%, to $685.2 million for the three months ended September 30, 2017 from $379.8 million for the same period in the prior year, due primarily to the deposits acquired from Allegheny Valley. Partially offsetting this increase was a decrease in the average cost of interest-bearing liabilities to 0.84% for the three months ended September 30, 2017 from 0.92% for the same prior year period.

Interest expense on deposits increased by $290,000, or 43.1%, to $963,000 for the three months ended September 30, 2017 from $673,000 for the same period in the prior year. The average balance of interest bearing deposits increased $233.8 million, or 71.4% for the three months ended September 30, 2017, compared to the prior period. The increase is due primarily to the acquisition, and net inflows in certificates of deposits as customer preferences from short-term deposits to longer term certificates shifted with the recent rise in interest rates. The average cost of interest bearing deposits declined to 0.68% for the three months ended September 30, 2017 from 0.82% for the three months ended September 30, 2016, due primarily to the increased balance of lower cost deposits from the acquisition.

Interest expense on borrowed funds increased $273,000, or 131.3%, to $481,000 for the three months ended September 30, 2017 from $208,000 for the same period in the prior year. The average balance of advances increased $67.7 million, or 133.7%, to $118.3 million for the three months ended September 30, 2017 compared to the same period in the prior year due primarily to the borrowings assumed as a result of the acquisition. The average cost of borrowings decreased to 1.61% for the quarter ended September 30, 2017 from 1.63% for the quarter ended September 30, 2016.

Provision for Loan Losses. The provision for loan losses recorded for the three months ended September 30, 2017 was $100,000, compared to $105,000 in the prior year. Non-performing loans were $2.6 million or 0.35% of total loans at September 30, 2017, and $1.1 million or 0.29% of total loans at December 31, 2016. The increase in non-performing loans is due to the acquisition, however an adjustment of $3.8 million was allocated to the loans acquired in the merger as part of the general credit mark. The allowance for loan losses to non-performing loans was 148.9% at September 30, 2017 compared to 344.1% at December 31, 2016. The decrease in the allowance ratio was due to the adjustments to reflect the fair value of the loans acquired in the acquisition. In management’s judgment, the allowance for loan losses is at a sufficient level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. See “Non-Performing and Problem Assets” for additional information.

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Noninterest Income. Noninterest income increased $362,000, or 55.6%, to $1.0 million for the three months ended September 30, 2017 from $651,000 for the same period in 2016. The increase was due mainly to increased service charges on deposits, higher earnings on bank-owned life insurance, higher net loan sale gains and higher investment management fees, primarily related to the acquisition.

Noninterest Expenses. Noninterest expenses increased by $2.5 million or 75.0%, to $5.8 million for the three months ended September 30, 2017 compared to the same period in the prior year. The three month period in the prior year included merger expenses of $709,000. The increase was due primarily to an increase in compensation and employee benefits expenses of $1.8 million for the quarter ended September 30, 2017 compared to the same period in the prior year and an increase in premises and occupancy expense of $303,000 and other operating expenses of $1.1 million compared to the prior year quarter, each as a result of including operations of Allegheny Valley Bank beginning as of close of business April 7, 2017.

Income Tax Expense. The Company recorded a provision for income tax of $862,000 for the three months ended September 30, 2017 compared to $71,000 for the three months ended September 30, 2016. The effective tax rate was 30.8% for the three months ended September 30, 2017 and 15.0% for the three months ended September 30, 2016. The increase in income tax expense was due primarily to the higher level of taxable income.

Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016

General. Net income for the nine months ended September 30, 2017 was $2.9 million compared to $2.2 million for the nine months ended September 30, 2016, an increase of $716,000 or 33.0%. Earnings per share for the current period were $0.75 for basic and $0.73 for fully diluted compared to $0.85 for basic and $0.82 for fully diluted for the similar period in 2016.

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the nine months ended September 30, 2017 were 0.48% and 3.44%, respectively, compared to 0.60% and 3.96% for the same period in 2016.

Net Interest Income. Net interest income for the nine months ended September 30, 2017 was $18.0 million compared to $9.6 million for the nine months ended September 30, 2016. Our net interest rate spread and net interest margin were 3.01% and 3.19%, respectively for the nine months ended September 30, 2017 compared to 2.67% and 2.83% for the same period in the prior year.

Interest and Dividend Income. Total interest and dividend income increased by $9.4 million, or 77.1%, to $21.6 million for the nine months ended September 30, 2017 compared to the same period in the prior year. The increase was due primarily to an increase in interest and fees on loans related to the acquisition. Average interest-earning assets increased to $753.8 million for the nine months ended September 30, 2017 from $453.9 million for the same period in the prior year. The average yield on interest-earning assets increased to 3.83% for the nine months ended September 30, 2017 from 3.58% for the same period in the prior year.

Interest income on loans increased $8.1 million, or 74.5%, to $18.9 million for the nine months ended September 30, 2017 compared to the same period in the prior year. The average balance of loans receivable increased $248.8 million or 67.7%, to $616.3 million for the nine months ended September 30, 2017, from $367.5 million for the same period in the prior year due mainly to growth from the acquisition and an increase in originations of one-to-four family residential and commercial real estate loans. The average yield on loans receivable decreased to 4.11% for the nine months ended September 30, 2017 from 3.94% for the same period in the prior year.

Interest income on investment and mortgage-backed securities increased by $1.1 million, or 94%, to $2.3 million for the nine months ended September 30, 2017 from $1.2 million for the same period in the prior year. This increase was due primarily to an increase in the average balance of investment and mortgage-backed securities of $53.7 million, or 83.1%, to $118.2 million for the nine months ended September 30, 2017 from $64.6 million for the same period in the prior year. The average yield on investments and mortgage-backed securities increased to 2.54% for the nine months ended September 30, 2017 from 2.39% for the same period in the prior year.

Interest Expense. Total interest expense increased by $946,000, or 36.2%, to $3.6 million for the nine months ended September 30, 2017 compared to the same period in the prior year. The average balance of interest-bearing liabilities increased $199.4 million, or 52.1%, to $582.2 million for the nine months ended September 30, 2017 from $382.8 million for the same period in the prior year. The average cost of interest-bearing liabilities decreased to 0.82% for the nine months ended September 30, 2017 from 0.91% for the same prior year period.

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Interest expense on deposits increased $526,000, or 26.6%, to $2.5 million for the nine months ended September 30, 2017 from $2.0 million for the same period in the prior year. The average balance of interest bearing deposits increased $155.8 million, or 47.8%, to $481.9 million for the nine months ended September 30, 2017, compared to $326.1 million for the prior period. The average cost of interest bearing deposits declined from 0.81% for the nine months ended September 30, 2016 to 0.69% for the nine months ended September 30, 2017, due primarily to higher yielding, maturing certificates of deposit being replaced by lower yielding certificate products and the addition of lower cost deposits as a result of the acquisition.

Interest expense on borrowings increased $420,000, or 65.8%, to $1.1 million for the nine months ended September 30, 2017 from $638,000 for the same period in the prior year. The average balance of borrowings increased $40.3 million, or 73.9%, to $94.9 million for the nine months ended September 30, 2017 compared to $54.6 million for the prior period. The average cost of advances was 1.49% for the nine months ended September 30, 2017 compared to 1.56% for the nine months ended September 30, 2016.

Provision for Loan Losses. A provision for loan losses of $267,000 was recorded for the nine months ended September 30, 2017 compared to $105,000 for the same period in the prior year due in part to an increased balance of loans outstanding. The provision that was recorded was sufficient, in management’s judgment, to bring the allowance for loan losses to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. See “Non-Performing and Problem Assets” for additional information.

Noninterest Income. Noninterest income increased $782,000, or 40.1%, to $2.7 million for the nine months ended September 30, 2017 from $2.0 million for the same period in the prior year. The increase was due mainly to increased service charges on deposits, higher investment management fees and higher earnings on bank-owned life insurance, primarily related to the acquisition and higher loan sale gains, partially offset by lower net gains on sales of securities.

Noninterest Expenses. Noninterest expenses increased by $7.9 million, or 93.8% to $16.3 million for the nine months ended September 30, 2017 compared to the same period in the prior year. The increase was due primarily to merger related expenses of $3.1 million for the nine months ended September 30, 2017, compared to $709,000 for the nine months ended September 30, 2016. In addition, compensation and employee benefits increased $2.9 million for the nine months ended September 30, 2017 compared to the same period in the prior year due primarily to the addition of Allegheny Valley Bank’s operations beginning at the close of business April 7, 2017. Premises and occupancy expense increased $587,000 and other operating expenses increased $1.7 million compared to the prior year. The primary reason for the increased expenses was the acquisition.

Income Tax Expense. The Company recorded a provision for income tax of $1.3 million for the nine months ended September 30, 2017 compared to $821,000 for the nine months ended September 30, 2016. The effective tax rate was 30.6% for the nine months ended September 30, 2017 and 27.5% for the nine months ended September 30, 2016. The increase in income tax expense was due primarily to the higher level of taxable income. The increase in the effective tax rate is due to a lower level of nontaxable income, offset by certain nondeductible merger expenses.

Non-Performing and Problem Assets

Loans in arrears 90 days or more or in process of foreclosure (non-accrual loans) were as follows:

					Percentage of
	Number of Loans		Amount		Loans Receivable
	(Dollars in thousands)

September 30, 2017		42	$	2,638		0.35	%
December 31, 2016		14		753		0.20

At September 30, 2017 and December 31, 2016, the Company had impaired loans totaling $598,000 and $462,000, respectively. The largest impaired loan was a commercial real estate secured loan with a balance of $302,000 and $462,000 at September 30, 2017 and December 31, 2016, respectively. At December 31, 2016, that same loan, although not over 90 days delinquent, was considered impaired based on the recent delinquency issues and an analysis of the borrower’s financial performance.

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments and sales, borrowings from the Federal Home Loan Bank of Pittsburgh, repurchase agreements and maturities, principal repayments and the sale of available-for-sale securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee, under the direction of our Chief Financial Officer, is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. At September 30, 2017, the Company’s cash and cash equivalents amounted to $20.3 million. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2017.

Certificates of deposit due within one year of September 30, 2017 totaled $73.6 million, or 10.3% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and securities sales, repurchase agreements and Federal Home Loan Bank advances. We believe, however, based on historical experience and current market interest rates, we will retain upon maturity a large portion of the certificates of deposit with maturities of one year or less. Our maximum borrowing capacity at the FHLB at September 30, 2017 was $277.3 million.

Our stockholder’s equity was $133.3 million at September 30, 2017, an increase of $60.3 million or 82.6% from $73.0 million at December 31, 2016. The increase was due primarily to the issuance of 2,168,097 shares of stock as merger consideration in the acquisition. Also contributing to the increase was net income of $2.9 million, amortization of stock awards and options under our stock compensation plans of $457,000, an increase in other comprehensive income of $1.2 million and common stock earned by participants in the employees stock ownership plan of $183,000. These increases were partially offset by dividends paid of $2.3 million.

Current regulatory requirements specify that the Bank and similar institutions must maintain regulatory capital sufficient to meet tier 1 leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.50%, 6.00% and 8.00%, respectively. At September 30, 2017, Standard Bank was in compliance with all regulatory capital requirements ratios of 10.5%, 14.7%, 14.7% and 15.3%, respectively, and was considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2017, we had $106.3 million in loan commitments outstanding, $57.5 million of which were for commercial loans and $7.4 million which were for one- to four-family construction loans. In addition to commitments to originate loans, we had $29.8 million in unused home equity lines of credit to borrowers and $11.6 million in other commitments.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2017. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective as of September 30, 2017.

During the quarter ended September 30, 2017, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

During the nine months ended September 30, 2017 we were not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business. At September 30, 2017, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Item 1A.

Risk Factors

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed under the heading “Risk Factors” contained in the Joint Proxy Statement/Prospectus filed with the SEC on February 3, 2017. The Company’s evaluation of the risk factors applicable to it has not changed materially from those disclosed in the Joint Proxy Statement/Prospectus.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibit
Number		Description

3.1		Articles of Incorporation of Standard AVB Financial Corp., as amended (1)

3.2		Bylaws of Standard AVB Financial Corp., as amended (2)

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.0		The following materials for the quarter ended September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition, (ii) Statements of Income, (iii) Statements of Comprehensive Income, (iv) Statements of Changes in Stockholder’s Equity, (v) Statements of Cash Flows, and (vi) Notes to Financial Statements

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4, as amended (Commission File No. 333-215069).

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4, as amended (Commission File No. 333-215069).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STANDARD AVB FINANCIAL CORP.

Date: November 14, 2017	/s/ Timothy K. Zimmerman
	Timothy K. Zimmerman
	Chief Executive Officer

Date: November 14, 2017	/s/ Susan Parente
	Susan Parente
	Executive Vice President and Chief Financial Officer