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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

(Mark One)     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

OR

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

 

For the transition period from _______ to _______

 

Commission file number 0-23325

GFED.JPG

Guaranty Federal Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

43-1792717

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

   

2144 E Republic Rd, Suite F200

 

Springfield, Missouri

65804

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number: 1-833-875-2492

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.10 per share

GFED

NASDAQ Global Market

 

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 filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding as of October 31, 2020

Common Stock, Par Value $0.10 per share

4,364,152 Shares

 

 

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 
Condensed Consolidated Financial Statements (Unaudited):  

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Income

4

Condensed Consolidated Statements of Comprehensive Income

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

8

Notes to Condensed Consolidated Financial Statements

9

   

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

31

   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

40

   

Item 4. Controls and Procedures

41

   

PART II. OTHER INFORMATION

   

Item 1. Legal Proceedings

41

   

Item 1A. Risk factors

41

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

43

   

Item 3. Defaults Upon Senior Securities

43

   

Item 4. Mine Safety Disclosures

43

   

Item 5. Other Information

43

   

Item 6. Exhibits

44

   

Signatures

45
 

 

2

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019

 

ASSETS

 

9/30/2020

   

12/31/2019

 

Cash and due from banks

  $ 5,485,504     $ 5,114,067  

Interest-bearing demand deposits in other financial institutions

    116,518,226       87,557,842  

Cash and cash equivalents

    122,003,730       92,671,909  

Interest-bearing time deposits at other financial institutions

    6,230,414       250,000  

Available-for-sale securities

    152,236,508       118,245,314  

Stock in Federal Home Loan Bank, at cost

    3,852,100       3,757,500  

Mortgage loans held for sale

    5,259,413       2,786,564  

Loans receivable, net of allowance for loan losses of September 30, 2020 - $9,680,688 and December 31, 2019 - $7,607,587, respectively

    771,447,520       720,732,402  

Accrued interest receivable

    4,801,074       3,511,875  

Prepaid expenses and other assets

    8,235,182       8,862,954  

Goodwill

    1,434,982       1,434,982  

Core deposit intangible

    2,146,160       2,503,910  

Foreclosed assets held for sale

    646,450       991,885  

Premises and equipment, net

    18,247,400       19,164,496  

Operating lease right-of-use asset

    8,617,737       9,052,941  

Bank owned life insurance

    25,151,911       24,698,438  

Deferred and receivable income taxes

    4,488,254       3,359,455  
    $ 1,134,798,835     $ 1,012,024,625  

LIABILITIES AND STOCKHOLDERS' EQUITY

               

LIABILITIES

               

Deposits

  $ 926,919,606     $ 821,406,532  

Federal Home Loan Bank advances

    66,000,000       65,000,000  

Subordinated debentures issued to Capital Trusts

    15,465,000       15,465,000  

Subordinated notes, net

    19,552,770       -  

Note payable to bank

    -       11,200,000  

Advances from borrowers for taxes and insurance

    641,602       268,200  

Accrued expenses and other liabilities

    8,989,643       4,153,762  

Operating lease liabilities

    8,699,301       9,105,503  

Accrued interest payable

    724,200       793,746  
      1,046,992,122       927,392,743  

COMMITMENTS AND CONTINGENCIES

    -       -  

STOCKHOLDERS' EQUITY

               

Capital Stock:

               

Common stock, $0.10 par value; authorized 10,000,000 shares; issued September 30, 2020 and December 31, 2019 - 6,919,503 shares

    691,950       691,950  

Additional paid-in capital

    51,305,837       51,908,867  

Retained earnings, substantially restricted

    76,782,345       72,860,750  

Accumulated other comprehensive loss

    (868,752 )     (431,035 )
      127,911,380       125,030,532  

Treasury stock, at cost; September 30, 2020 and December 31, 2019 - 2,555,351 and 2,582,041 shares, respectively

    (40,104,667 )     (40,398,650 )
      87,806,713       84,631,882  
    $ 1,134,798,835     $ 1,012,024,625  

 

See Notes to Consolidated Financial Statements

 

3

 

 

GUARANTY FEDERAL BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (UNAUDITED)

 

   

Three months ended

   

Nine months ended

 
   

9/30/2020

   

9/30/2019

   

9/30/2020

   

9/30/2019

 

Interest Income

                               

Loans

  $ 8,814,378     $ 10,429,973     $ 27,461,918     $ 31,128,087  

Investment securities

    1,003,767       735,044       2,811,384       2,013,548  

Other

    150,111       416,604       652,869       835,929  
      9,968,256       11,581,621       30,926,171       33,977,564  

Interest Expense

                               

Deposits

    1,499,878       2,880,067       5,536,156       8,285,507  

FHLB advances

    302,949       282,845       860,375       928,131  

Subordinated debentures issued to Capital Trusts

    212,470       185,202       603,636       773,325  

Subordinated notes

    180,833       -       180,833       -  

Other

    40,613       111,364       278,677       243,385  
      2,236,743       3,459,478       7,459,677       10,230,348  

Net Interest Income

    7,731,513       8,122,143       23,466,494       23,747,216  

Provision for Loan Losses

    950,000       100,000       2,200,000       200,000  

Net Interest Income After Provision for Loan Losses

    6,781,513       8,022,143       21,266,494       23,547,216  

Noninterest Income

                               

Service charges

    370,203       442,051       1,092,830       1,262,821  

Net gain on sale of investment securities

    298,158       31,493       461,350       79,756  

Gain on sale of mortgage loans held for sale

    1,195,290       722,909       2,621,924       1,710,839  

Gain on sale of Small Business Administration loans

    498,737       301,187       498,737       798,763  

Commercial loan referral income

    160,872       -       1,097,358       -  

Net gain (loss) on foreclosed assets

    31,588       (134,145 )     (49,116 )     (113,279 )

Other income

    715,483       573,635       1,959,098       1,695,903  
      3,270,331       1,937,130       7,682,181       5,434,803  

Noninterest Expense

                               

Salaries and employee benefits

    4,588,647       4,144,402       12,677,040       12,056,592  

Occupancy

    1,164,931       1,149,242       3,480,873       3,389,417  

FDIC deposit insurance premiums

    107,039       40,000       192,039       257,628  

Data processing

    593,515       368,374       1,767,851       1,177,515  

Advertising

    122,250       102,500       366,750       402,500  

Amortization of core deposit intangible

    119,250       119,250       357,750       357,750  

Other expense

    1,039,617       1,029,688       2,944,906       2,982,096  
      7,735,249       6,953,456       21,787,209       20,623,498  

Income Before Income Taxes

    2,316,595       3,005,817       7,161,466       8,358,521  

Provision for Income Taxes

    418,819       455,275       1,275,462       1,259,116  

Net Income Available to Common Shareholders

  $ 1,897,776     $ 2,550,542     $ 5,886,004     $ 7,099,405  
                                 

Basic Income Per Common Share

  $ 0.44     $ 0.58     $ 1.36     $ 1.60  

Diluted Income Per Common Share

  $ 0.44     $ 0.57     $ 1.35     $ 1.58  

 

See Notes to Consolidated Financial Statements

 

4

 

 

 GUARANTY FEDERAL BANCSHARES, INC. 

 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

 THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) 

 

   

Three months ended

   

Nine months ended

 
   

9/30/2020

   

9/30/2019

   

9/30/2020

   

9/30/2019

 

NET INCOME

  $ 1,897,776     $ 2,550,542     $ 5,886,004     $ 7,099,405  

OTHER ITEMS OF COMPREHENSIVE INCOME:

                               

Change in unrealized gain on investment securities available-for-sale, before income taxes

    933,372       721,464       3,603,704       3,441,561  

Change in unrealized gain (loss) on interest rate swaps, before income taxes

    288,568       (852,090 )     (3,717,347 )     (3,694,933 )

Less: Reclassification adjustment for realized gains on investment securities included in net income, before income taxes

    (298,158 )     (31,493 )     (461,350 )     (79,756 )

Total other items of comprehensive income (loss)

    923,782       (162,119 )     (574,993 )     (333,128 )

Income tax expense (benefit) related to other items of comprehensive income

    222,076       (137,408 )     (137,276 )     (84,948 )

Other comprehensive income (loss)

    701,706       (24,711 )     (437,717 )     (248,180 )

TOTAL COMPREHENSIVE INCOME

  $ 2,599,482     $ 2,525,831     $ 5,448,287     $ 6,851,225  

 

See Notes to Consolidated Financial Statements

 

5

 

 

 GUARANTY FEDERAL BANCSHARES, INC. 

 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 

 QUARTERLY AND NINE MONTHS ENDED SEPTEMBER 30, 2020 (UNAUDITED) 

 

   

Common Stock

   

Additional Paid-In Capital

   

Treasury Stock

   

Retained Earnings

   

Accumulated Other Comprehensive Loss

   

Total

 

Balance, January 1, 2020

  $ 691,950     $ 51,908,867     $ (40,398,650 )   $ 72,860,750     $ (431,035 )   $ 84,631,882  

Net income

    -       -       -       2,104,845       -       2,104,845  

Other comprehensive loss

    -       -       -       -       (1,985,859 )     (1,985,859 )

Dividends on common stock ($0.15 per share)

    -       -       -       (654,735 )     -       (654,735 )

Treasury stock purchased

    -       -       (390,268 )     -       -       (390,268 )

Stock award plans

    -       (636,438 )     693,787       -       -       57,349  

Balance, March 31, 2020

    691,950       51,272,429       (40,095,131 )     74,310,860       (2,416,894 )     83,763,214  

Net income

    -       -       -       1,883,383       -       1,883,383  

Other comprehensive income

    -       -       -       -       846,436       846,436  

Dividends on common stock ($0.15 per share)

    -       -       -       (655,127 )     -       (655,127 )

Stock award plans

    -       (83,844 )     26,343       -       -       (57,501 )

Balance, June 30, 2020

    691,950       51,188,585       (40,068,788 )     75,539,116       (1,570,458 )     85,780,405  

Net income

    -       -       -       1,897,776       -       1,897,776  

Other comprehensive income

    -       -       -       -       701,706       701,706  

Dividends on common stock ($0.15 per share)

    -       -       -       (654,547 )     -       (654,547 )

Stock award plans

    -       117,252       (35,879 )     -       -       81,373  

Balance, September 30, 2020

  $ 691,950     $ 51,305,837     $ (40,104,667 )   $ 76,782,345     $ (868,752 )   $ 87,806,713  

 

See Notes to Consolidated Financial Statements

 

6

 

 GUARANTY FEDERAL BANCSHARES, INC. 

 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 

 QUARTERLY AND TWELVE MONTHS ENDED DECEMBER 31, 2019  

 

   

Common Stock

   

Additional Paid-In Capital

   

Treasury Stock

   

Retained Earnings

   

Accumulated Other Comprehensive Loss

   

Total

 

Balance, January 1, 2019

  $ 690,200     $ 51,382,585     $ (36,971,124 )   $ 65,829,687     $ (452,756 )   $ 80,478,592  

Net income

    -       -       -       2,120,364       -       2,120,364  

Other comprehensive income

    -       -       -       -       380,791       380,791  

Dividends on common stock ($0.13 per share)

    -       -       -       (582,817 )     -       (582,817 )

Stock award plans

    -       (53,689 )     222,789       -       -       169,100  

Stock options exercised

    1,000       50,900       -       -       -       51,900  

Balance, March 31, 2019

    691,200       51,379,796       (36,748,335 )     67,367,234       (71,965 )     82,617,930  

Net income

    -       -       -       2,428,499       -       2,428,499  

Other comprehensive loss

    -       -       -       -       (604,260 )     (604,260 )

Dividends on common stock ($0.13 per share)

    -       -       -       (581,021 )     -       (581,021 )

Treasury stock purchased

    -       -       (312,892 )     -       -       (312,892 )

Stock award plans

    -       195,599       (5,583 )     -       -       190,016  

Stock options exercised

    -       -       -       -       -       -  

Balance, June 30, 2019

    691,200       51,575,395       (37,066,810 )     69,214,712       (676,225 )     83,738,272  

Net income

    -       -       -       2,550,542       -       2,550,542  

Other comprehensive loss

    -       -       -       -       (24,711 )     (24,711 )

Dividends on common stock ($0.13 per share)

    -       -       -       (569,784 )     -       (569,784 )

Treasury stock purchased

    -       -       (2,151,696 )     -       -       (2,151,696 )

Stock award plans

    -       187,157       (24,950 )     -       -       162,207  

Stock options exercised

    400       19,920       -       -       -       20,320  

Balance, September 30, 2019

    691,600       51,782,472       (39,243,456 )     71,195,470       (700,936 )     83,725,150  

Net income

    -       -       -       2,315,685       -       2,315,685  

Other comprehensive income

    -       -       -       -       269,901       269,901  

Dividends on common stock ($0.15 per share)

    -       -       -       (650,405 )     -       (650,405 )

Treasury stock purchased

    -       -       (1,140,291 )     -       -       (1,140,291 )

Stock award plans

    -       108,965       (14,903 )     -       -       94,062  

Stock options exercised

    350       17,430       -       -       -       17,780  

Balance, December 31, 2019

  $ 691,950     $ 51,908,867     $ (40,398,650 )   $ 72,860,750     $ (431,035 )   $ 84,631,882  

 

See Notes to Consolidated Financial Statements

 

7

 

 

 GUARANTY FEDERAL BANCSHARES, INC. 

  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

 NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (UNAUDITED) 

 

   

9/30/2020

   

9/30/2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 5,886,004     $ 7,099,405  

Items not requiring (providing) cash:

               

Deferred income taxes

    (1,990,466 )     (64,536 )

Depreciation and amortization

    1,504,337       1,469,751  

Provision for loan losses

    2,200,000       200,000  

Gain on sale of Small Business Administration loans

    (498,737 )     (798,763 )

Gain on sale of mortgage loans held for sale and investment securities

    (3,083,274 )     (1,790,595 )

Loss on sale of foreclosed assets

    22,880       44,159  

Gain on sale of premises, equipment and other assets

    -       (6,069 )

Amortization of deferred income, premiums and discounts

    1,862,301       313,686  

Amortization of intangible assets

    357,750       357,750  

Amortization of subordinated notes issuance cost

    7,215       -  

Stock award plan expense

    81,221       521,323  

Accretion of purchase accounting adjustments

    (335,640 )     (1,281,313 )

Origination of loans held for sale

    (100,689,835 )     (24,039,578 )

Proceeds from sale of loans held for sale

    100,838,910       26,322,296  

Increase in cash surrender value of bank owned life insurance

    (453,473 )     (345,651 )

Changes in:

               

Accrued interest receivable

    (1,289,199 )     (84,805 )

Prepaid expenses and other assets

    1,740,752       (1,675,553 )

Accounts payable and accrued expenses

    930,947       1,850,394  

Net cash provided by operating activities

    7,091,693       8,091,901  

CASH FLOWS FROM INVESTING ACTIVITIES

               

Net change in loans

    (57,706,948 )     28,608,984  

Proceeds from sale of loans

    4,365,535       6,445,267  

Principal payments on available-for-sale securities

    17,327,023       4,959,143  

Proceeds from maturities of available-for-sale securities

    6,647,890       -  

Purchase of premises and equipment

    (558,239 )     (887,490 )

Purchase of available-for-sale securities

    (88,059,879 )     (56,910,103 )

Proceeds from sale of available-for-sale securities

    27,430,799       35,035,814  

Purchase of bank owned life insurance

    -       (4,000,000 )

Redemption (purchase) of FHLB stock

    (94,600 )     2,229,700  

Purchase of tax credit investments

    -       (3,168,435 )

Proceeds from sale of foreclosed assets held for sale

    7,189       507,969  

Net cash provided by (used in) investing activities

    (90,641,230 )     12,820,849  

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net increase in demand deposits, NOW accounts and savings accounts

    125,046,823       104,780,937  

Net decrease in certificates of deposit

    (19,533,749 )     (14,380,120 )

Proceeds from FHLB advances

    26,000,000       93,965,000  

Repayments of FHLB advances

    (25,000,000 )     (149,265,000 )

Proceeds from issuance of notes payable

    1,800,000       7,200,000  

Repayments of notes payable

    (13,000,000 )     (1,000,000 )

Repayment of subordinated debentures

    -       (6,186,000 )

Issuance of subordinated notes, net of issuance costs

    19,545,555       -  

Advances from borrowers for taxes and insurance

    373,402       408,630  

Stock options exercised

    -       72,220  

Cash dividends paid

    (1,960,405 )     (1,744,091 )

Treasury stock purchased

    (390,268 )     (2,464,588 )

Net cash provided by financing activities

    112,881,358       31,386,988  

INCREASE IN CASH AND CASH EQUIVALENTS

    29,331,821       52,299,738  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

    92,671,909       34,121,642  

CASH AND CASH EQUIVALENTS, END OF PERIOD

  $ 122,003,730     $ 86,421,380  

 

See Notes to Consolidated Financial Statements

 

8

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1: Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Guaranty Federal Bancshares, Inc.’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”). The results of operations for the periods are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet of the Company as of December 31, 2019, has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted.

 

 

Note 2: Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Guaranty Bank (the “Bank”). All significant intercompany transactions and balances have been eliminated in consolidation.

 

 

Note 3: Acquisition

 

On April 2, 2018, the Company completed the acquisition of Carthage, Missouri-based Hometown Bancshares, Inc. (“Hometown”), including its wholly owned bank subsidiary, Hometown Bank, National Association. Under the terms of the Agreement and Plan of Merger, each share of Hometown common stock was exchanged for $20.00 in cash and the transaction was valued at approximately $4.6 million. Hometown’s subsidiary bank, Hometown Bank, National Association, was merged into Guaranty Bank on June 8, 2018. Including the effects of the acquisition method accounting adjustments, the Company acquired approximately $178.8 million in assets, including approximately $143.9 million in loans (inclusive of loan discounts) and approximately $161.2 million in deposits. Goodwill of $1.4 million was recorded as a result of the transaction and is not deductible for tax purposes.

 

9

 
 

Note 4: Securities

 

The amortized cost and approximate fair values of securities classified as available-for-sale were as follows:

 

   

Amortized Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

(Losses)

   

Approximate

Fair Value

 

As of September 30, 2020

                               

Debt Securities:

                               

U. S. government agencies

  $ 7,282,000     $ 19,524     $ -     $ 7,301,524  

Municipals

    53,659,414       2,588,022       (34,637 )     56,212,799  

Corporates

    27,572,087       213,432       (146,793 )     27,638,726  

Mortgage-backed securities - private label

    13,145,778       237,257       (51,732 )     13,331,303  

Government sponsored asset-backed securities and SBA loan pools

    46,342,320       1,450,530       (40,694 )     47,752,156  
    $ 148,001,599     $ 4,508,765     $ (273,856 )   $ 152,236,508  

 

   

Amortized Cost

   

Gross

Unrealized

Gains

   

Gross

Unrealized

(Losses)

   

Approximate

Fair Value

 

As of December 31, 2019

                               

Debt Securities:

                               

U. S. government agencies

  $ 2,499,755     $ -     $ (11,962 )   $ 2,487,793  

Municipals

    35,625,038       675,382       (125,693 )     36,174,727  

Corporates

    15,395,190       154,942       (14,945 )     15,535,187  

Mortgage-backed securities - private label

    13,788,728       52,035       (29,392 )     13,811,371  

Government sponsored mortgage-backed securities and SBA loan pools

    49,844,049       585,641       (193,454 )     50,236,236  
    $ 117,152,760     $ 1,468,000     $ (375,446 )   $ 118,245,314  

 

Maturities of available-for-sale debt securities as of September 30, 2020:

 

   

Amortized Cost

   

Approximate

Fair Value

 

1-5 years

  $ 1,151,319     $ 1,149,719  

6-10 years

    42,499,397       43,180,499  

After 10 years

    44,862,785       46,822,831  

Mortgage-backed securities - private label not due on a single maturity date

    13,145,778       13,331,303  

Government sponsored asset-backed securities and SBA loan pools not due on a single maturity date

    46,342,320       47,752,156  
    $ 148,001,599     $ 152,236,508  

 

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $7,534,885 and $5,261,664 as of September 30, 2020 and December 31, 2019, respectively. The approximate fair value of pledged securities amounted to $7,939,918 and $5,358,929 as of September 30, 2020 and December 31, 2019, respectively.

 

Realized gains and losses are recorded as net securities gains. Gains and losses on sales of securities are determined on the specific identification method. Gross gains of $552,366 and $214,125 and gross losses of $91,016 and $134,369 for the nine months ended September 30, 2020 and September 30, 2019, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains and losses was $96,883 and $16,749 for the nine months ended September 30, 2020 and September 30, 2019, respectively.

 

10

 

The Company evaluates all securities quarterly to determine if any unrealized losses are deemed to be other than temporary. Certain investment securities are valued at less than their historical cost. These declines are primarily the result of the rate for these investments yielding less than current market rates. Based on evaluation of available evidence, management believes the declines in fair value for these securities are temporary. It is management’s intent to hold the debt securities to maturity or until recovery of the unrealized loss. Should the impairment of any of these debt securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified, to the extent the loss is related to credit issues, and to other comprehensive income to the extent the decline on debt securities is related to other factors and the Company does not intend to sell the security prior to recovery of the unrealized loss.

     

Certain other investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2020 and December 31, 2019, was $29,444,701 and $42,570,363, respectively, which is approximately 19% and 36% of the Company’s investment portfolio.

 

The following table shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019.

 

As of September 30, 2020

                                               
   

Less than 12 Months

   

12 Months or More

   

Total

 

Description of Securities

 

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

 
                                                 

U.S. government agencies

  $ -     $ -     $ -     $ -     $ -     $ -  

Municipals

    3,038,531       (34,637 )     -       -       3,038,531       (34,637 )

Corporates

    9,177,777       (146,793 )     -       -       9,177,777       (146,793 )

Mortgage-backed securities - private label

    5,305,270       (51,732 )     -       -       5,305,270       (51,732 )

Government sponsored asset-backed securities and SBA loan pools

    11,923,123       (40,694 )     -       -       11,923,123       (40,694 )
    $ 29,444,701     $ (273,856 )   $ -     $ -     $ 29,444,701     $ (273,856 )

 

 

As of December 31, 2019

                                               
   

Less than 12 Months

   

12 Months or More

   

Total

 

Description of Securities

 

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

   

Fair Value

   

Unrealized Losses

 
                                                 

U.S. government agencies

  $ 2,487,795     $ (11,962 )   $ -     $ -     $ 2,487,795     $ (11,962 )

Municipals

    7,083,208       (125,693 )     -       -       7,083,208       (125,693 )

Corporates

    2,452,005       (14,945 )     -       -       2,452,005       (14,945 )

Mortgage-backed securities - private label

    9,416,669       (29,392 )     -       -       9,416,669       (29,392 )

Government sponsored mortgage-backed securities and SBA loan pools

    18,112,148       (125,906 )     3,018,538       (67,548 )     21,130,686       (193,454 )
    $ 39,551,825     $ (307,898 )   $ 3,018,538     $ (67,548 )   $ 42,570,363     $ (375,446 )

 

11

 
 

Note 5: Loans and Allowance for Loan Losses

 

Categories of loans at September 30, 2020 and December 31, 2019 include:

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 

Real estate - residential mortgage:

               

One to four family units

  $ 128,467,837     $ 118,823,731  

Multi-family

    89,762,581       87,448,418  

Real estate - construction

    69,915,937       77,308,551  

Real estate - commercial

    304,555,366       300,619,387  

Commercial loans

    163,097,935       114,047,753  

Consumer and other loans

    27,478,627       30,666,185  

Total loans

    783,278,283       728,914,025  

Less:

               

Allowance for loan losses

    (9,680,688 )     (7,607,587 )

Deferred loan fees/costs, net

    (2,150,075 )     (574,036 )

Net loans

  $ 771,447,520     $ 720,732,402  

 

Classes of loans by aging at September 30, 2020 and December 31, 2019 were as follows:

 

As of September 30, 2020

                                                       
   

30-59 Days
Past Due

   

60-89 Days
Past Due

   

90 Days and

more Past Due

   

Total Past
Due

   

Current

   

Total Loans
Receivable

   

Total Loans >
90 Days and
Accruing

 
   

(In Thousands)

 

Real estate - residential mortgage:

                                                       

One to four family units

  $ 56     $ 311     $ 1,104     $ 1,471     $ 126,997     $ 128,468     $ -  

Multi-family

    -       -       -       -       89,763       89,763       -  

Real estate - construction

    -       811       3,626       4,437       65,479       69,916       -  

Real estate - commercial

    200       -       161       361       304,194       304,555       -  

Commercial loans

    17       -       348       365       162,733       163,098       -  

Consumer and other loans

    59       -       291       350       27,129       27,479       -  

Total

  $ 332     $ 1,122     $ 5,530     $ 6,984     $ 776,294     $ 783,278     $ -  

 

As of December 31, 2019

                                                       
   

30-59 Days
Past Due

   

60-89 Days
Past Due

   

90 Days and

more Past Due

   

Total Past
Due

   

Current

   

Total Loans
Receivable

   

Total Loans >
90 Days and
Accruing

 
   

(In Thousands)

 

Real estate - residential mortgage:

                                                       

One to four family units

  $ 83     $ 437     $ 125     $ 645     $ 118,179     $ 118,824     $ -  

Multi-family

    -       -       -       -       87,448       87,448       -  

Real estate - construction

    338       -       -       338       76,971       77,309       -  

Real estate - commercial

    -       -       43       43       300,576       300,619       -  

Commercial loans

    134       105       17       256       113,792       114,048       -  

Consumer and other loans

    48       26       -       74       30,592       30,666       -  

Total

  $ 603     $ 568     $ 185     $ 1,356     $ 727,558     $ 728,914     $ -  

 

12

 

Nonaccruing loans are summarized as follows:

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 

Real estate - residential mortgage:

               

One to four family units

  $ 2,380,345     $ 2,398,379  

Multi-family

    -       -  

Real estate - construction

    4,437,498       3,738,410  

Real estate - commercial

    3,236,784       2,941,143  

Commercial loans

    827,644       855,761  

Consumer and other loans

    130,905       69,784  

Total

  $ 11,013,176     $ 10,003,477  

 

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three and nine months ended September 30, 2020 and 2019:

 

Three months ended
September 30, 2020

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Balance, beginning of period

  $ 1,569     $ 2,998     $ 1,539     $ 794     $ 1,299     $ 466     $ 123     $ 8,788  

Provision charged to expense

    53       270       (30 )     126       158       41       332     $ 950  

Losses charged off

    -       -       (1 )     -       (17 )     (62 )     -     $ (80 )

Recoveries

    -       1       1       -       3       18       -     $ 23  

Balance, end of period

  $ 1,622     $ 3,269     $ 1,509     $ 920     $ 1,443     $ 463     $ 455     $ 9,681  

 

Nine months ended
September 30, 2020

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Balance, beginning of period

  $ 1,749     $ 2,267     $ 1,001     $ 746     $ 1,129     $ 443     $ 273     $ 7,608  

Provision charged to expense

    (127 )     995       508       174       325       143       182     $ 2,200  

Losses charged off

    -       -       (1 )     -       (49 )     (175 )     -     $ (225 )

Recoveries

    -       7       1       -       38       52       -     $ 98  

Balance, end of period

  $ 1,622     $ 3,269     $ 1,509     $ 920     $ 1,443     $ 463     $ 455     $ 9,681  

 

Three months ended
September 30, 2019

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Balance, beginning of period

  $ 2,169     $ 2,188     $ 948     $ 673     $ 1,236     $ 397     $ 60     $ 7,671  

Provision charged to expense

    (245 )     242       42       50       (125 )     99       37     $ 100  

Losses charged off

    -       (122 )     -       -       (106 )     (85 )     -     $ (313 )

Recoveries

    28       1       1       -       55       14       -     $ 99  

Balance, end of period

  $ 1,952     $ 2,309     $ 991     $ 723     $ 1,060     $ 425     $ 97     $ 7,557  

 

Nine months ended
September 30, 2019

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Balance, beginning of period

  $ 2,306     $ 2,093     $ 1,297     $ 641     $ 1,160     $ 373     $ 126     $ 7,996  

Provision charged to expense

    (523 )     317       (41 )     82       175       219       (29 )   $ 200  

Losses charged off

    -       (122 )     (271 )     -       (381 )     (199 )     -     $ (973 )

Recoveries

    169       21       6       -       106       32       -     $ 334  

Balance, end of period

  $ 1,952     $ 2,309     $ 991     $ 723     $ 1,060     $ 425     $ 97     $ 7,557  

 

13

 

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2020 and December 31, 2019:

 

As of September 30, 2020

 

Construction

   

Commercial
Real Estate

   

One to four

family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Ending balance: individually evaluated for impairment

  $ 626     $ 95     $ 249     $ -     $ 300     $ 18     $ -     $ 1,288  

Ending balance: collectively evaluated for impairment

  $ 996     $ 3,174     $ 1,260     $ 920     $ 1,142     $ 445     $ 455     $ 8,392  

Ending balance: loans acquired with deteriorated credit quality

  $ -     $ -     $ -     $ -     $ 1     $ -     $ -     $ 1  

Loans:

                                                               

Ending balance: individually evaluated for impairment

  $ 4,437     $ 1,023     $ 2,380     $ -     $ 680     $ 228     $ -     $ 8,748  

Ending balance: collectively evaluated for impairment

  $ 65,479     $ 301,025     $ 126,088     $ 89,763     $ 162,275     $ 27,251     $ -     $ 771,880  

Ending balance: loans acquired with deteriorated credit quality

  $ -     $ 2,507     $ -     $ -     $ 143     $ -     $ -     $ 2,650  

 

As of December 31, 2019

 

Construction

   

Commercial
Real Estate

   

One to four

family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

 

 

(In Thousands)

 
Allowance for loan losses:                                                                

Ending balance: individually evaluated for impairment

  $ 553     $ 24     $ 197     $ -     $ 299     $ 21     $ -     $ 1,094  

Ending balance: collectively evaluated for impairment

  $ 1,196     $ 2,243     $ 804     $ 746     $ 830     $ 422     $ 273     $ 6,514  

Ending balance: loans acquired with deteriorated credit quality

  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  

Loans:

                                                               

Ending balance: individually evaluated for impairment

  $ 4,742     $ 650     $ 2,613     $ -     $ 908     $ 220     $ -     $ 9,133  

Ending balance: collectively evaluated for impairment

  $ 72,567     $ 297,318     $ 116,211     $ 87,448     $ 112,956     $ 30,446     $ -     $ 716,946  

Ending balance: loans acquired with deteriorated credit quality

  $ -     $ 2,651     $ -     $ -     $ 184     $ -     $ -     $ 2,835  

 

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

 

14

 

Included in the Company’s loan portfolio are certain loans acquired in accordance with ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These loans were written down at acquisition to an amount estimated to be collectible. As a result, certain ratios regarding the Company’s loan portfolio and credit quality cannot be used to compare the Company to peer companies or to compare the Company’s current credit quality to prior periods. The ratios particularly affected by accounting under ASC 310-30 include the allowance for loan losses as a percentage of loans, nonaccrual loans, and performing assets, and nonaccrual loans and nonperforming loans as a percentage of total loans.

 

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. 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. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.    

 

The following table summarizes the recorded investment in impaired loans at September 30, 2020 and December 31, 2019: