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, 2020 (“2020 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, 2020, 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.
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 March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agencies
|
|
$
|
7,277,937
|
|
|
$
|
-
|
|
|
$
|
(293,249
|
)
|
|
$
|
6,984,688
|
|
Municipals
|
|
|
66,051,714
|
|
|
|
2,157,557
|
|
|
|
(743,209
|
)
|
|
|
67,466,062
|
|
Corporates
|
|
|
34,682,597
|
|
|
|
345,845
|
|
|
|
(394,092
|
)
|
|
|
34,634,350
|
|
Mortgage-backed securities - private label - commercial
|
|
|
6,406,588
|
|
|
|
76,714
|
|
|
|
(8,576
|
)
|
|
|
6,474,726
|
|
Mortgage-backed securities - private label - consumer
|
|
|
9,418,436
|
|
|
|
208,602
|
|
|
|
(95,228
|
)
|
|
|
9,531,810
|
|
Government sponsored asset-backed securities and SBA loan pools
|
|
|
53,763,840
|
|
|
|
1,054,204
|
|
|
|
(575,115
|
)
|
|
|
54,242,929
|
|
|
|
$
|
177,601,112
|
|
|
$
|
3,842,922
|
|
|
$
|
(2,109,469
|
)
|
|
$
|
179,334,565
|
|
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Approximate
Fair Value
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agencies
|
|
$
|
6,282,000
|
|
|
$
|
6,519
|
|
|
$
|
(4,885
|
)
|
|
$
|
6,283,634
|
|
Municipals
|
|
|
58,754,912
|
|
|
|
3,241,133
|
|
|
|
(26,991
|
)
|
|
|
61,969,054
|
|
Corporates
|
|
|
30,510,893
|
|
|
|
261,740
|
|
|
|
(171,811
|
)
|
|
|
30,600,822
|
|
Mortgage-backed securities - private label - commercial
|
|
|
5,399,385
|
|
|
|
55,712
|
|
|
|
(10,650
|
)
|
|
|
5,444,447
|
|
Mortgage-backed securities - private label - consumer
|
|
|
9,249,375
|
|
|
|
228,469
|
|
|
|
(25,747
|
)
|
|
|
9,452,097
|
|
Government sponsored asset-backed securities and SBA loan pools
|
|
|
49,053,252
|
|
|
|
1,391,728
|
|
|
|
(74,165
|
)
|
|
|
50,370,815
|
|
|
|
$
|
159,249,817
|
|
|
$
|
5,185,301
|
|
|
$
|
(314,249
|
)
|
|
$
|
164,120,869
|
|
Maturities of available-for-sale debt securities as of March 31, 2021:
|
|
Amortized Cost
|
|
|
Approximate
Fair Value
|
|
1-5 years
|
|
$
|
1,000,000
|
|
|
$
|
999,531
|
|
6-10 years
|
|
|
39,772,344
|
|
|
|
39,833,474
|
|
After 10 years
|
|
|
67,239,904
|
|
|
|
68,252,095
|
|
Mortgage-backed securities - private label - commercial not due on a single maturity date
|
|
|
6,406,588
|
|
|
|
6,474,726
|
|
Mortgage-backed securities - private label - consumer not due on a single maturity date
|
|
|
9,418,436
|
|
|
|
9,531,810
|
|
Government sponsored asset-backed securities and SBA loan pools not due on a single maturity date
|
|
|
53,763,840
|
|
|
|
54,242,929
|
|
|
|
$
|
177,601,112
|
|
|
$
|
179,334,565
|
|
The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $16,128,452 and $8,294,321 as of March 31, 2021 and December 31, 2020, respectively. The approximate fair value of pledged securities amounted to $16,624,795 and $8,749,409 as of March 31, 2021 and December 31, 2020, 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 $89,055 and $58,587 and gross losses of $16,842 and $30,688 for the three months ended March 31, 2021 and March 31, 2020, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains and losses was $15,165 and $5,859 for the three months ended March 31, 2021 and March 31, 2020, respectively.
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 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 March 31, 2021 and December 31, 2020, was $68,784,026 and $30,049,473 respectively, which is approximately 38% and 18% 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 March 31, 2021 and December 31, 2020.
As of March 31, 2021
|
|
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
|
|
$
|
6,984,688
|
|
|
$
|
(293,249
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,984,688
|
|
|
$
|
(293,249
|
)
|
Municipals
|
|
|
19,726,646
|
|
|
|
(665,287
|
)
|
|
|
940,820
|
|
|
|
(77,922
|
)
|
|
|
20,667,466
|
|
|
|
(743,209
|
)
|
Corporates
|
|
|
15,201,566
|
|
|
|
(390,164
|
)
|
|
|
1,002,423
|
|
|
|
(3,928
|
)
|
|
|
16,203,989
|
|
|
|
(394,092
|
)
|
Mortgage-backed securities - private label - commercial
|
|
|
1,007,242
|
|
|
|
(109
|
)
|
|
|
1,484,550
|
|
|
|
(8,467
|
)
|
|
|
2,491,792
|
|
|
|
(8,576
|
)
|
Mortgage-backed securities - private label - consumer
|
|
|
3,092,306
|
|
|
|
(95,228
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3,092,306
|
|
|
|
(95,228
|
)
|
Government sponsored mortgage-backed securities and SBA loan pools
|
|
|
19,343,785
|
|
|
|
(575,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
19,343,785
|
|
|
|
(575,115
|
)
|
|
|
$
|
65,356,233
|
|
|
$
|
(2,019,152
|
)
|
|
$
|
3,427,793
|
|
|
$
|
(90,317
|
)
|
|
$
|
68,784,026
|
|
|
$
|
(2,109,469
|
)
|
As of December 31, 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
|
|
$
|
1,495,116
|
|
|
$
|
(4,885
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,495,116
|
|
|
$
|
(4,885
|
)
|
Municipals
|
|
|
4,011,492
|
|
|
|
(26,991
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,011,492
|
|
|
|
(26,991
|
)
|
Corporates
|
|
|
14,869,853
|
|
|
|
(171,811
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
14,869,853
|
|
|
|
(171,811
|
)
|
Mortgage-backed securities - private label - commercial
|
|
|
1,481,805
|
|
|
|
(10,650
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,481,805
|
|
|
|
(10,650
|
)
|
Mortgage-backed securities - private label - consumer
|
|
|
2,391,511
|
|
|
|
(25,747
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,391,511
|
|
|
|
(25,747
|
)
|
Government sponsored mortgage-backed securities and SBA loan pools
|
|
|
5,799,696
|
|
|
|
(74,165
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,799,696
|
|
|
|
(74,165
|
)
|
|
|
$
|
30,049,473
|
|
|
$
|
(314,249
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
30,049,473
|
|
|
$
|
(314,249
|
)
|
Note 4:
|
Loans and Allowance for Loan Losses
|
Categories of loans at March 31, 2021 and December 31, 2020 include:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
114,706,270
|
|
|
$
|
115,799,200
|
|
Multi-family
|
|
|
88,353,385
|
|
|
|
90,028,775
|
|
Real estate - construction
|
|
|
85,711,951
|
|
|
|
70,847,330
|
|
Real estate - commercial
|
|
|
308,660,565
|
|
|
|
305,673,212
|
|
Commercial loans
|
|
|
133,076,722
|
|
|
|
144,326,350
|
|
Consumer and other loans
|
|
|
24,643,935
|
|
|
|
26,733,546
|
|
Total loans
|
|
|
755,152,828
|
|
|
|
753,408,413
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(9,887,939
|
)
|
|
|
(9,617,024
|
)
|
Deferred loan fees/costs, net
|
|
|
(2,044,113
|
)
|
|
|
(1,642,118
|
)
|
Net loans
|
|
$
|
743,220,776
|
|
|
$
|
742,149,271
|
|
Classes of loans by aging at March 31, 2021 and December 31, 2020 were as follows:
As of March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Total Loans >
90 Days and
Accruing
|
|
|
|
(In Thousands)
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
529
|
|
|
$
|
237
|
|
|
$
|
2,239
|
|
|
$
|
3,005
|
|
|
$
|
111,701
|
|
|
$
|
114,706
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,353
|
|
|
|
88,353
|
|
|
|
-
|
|
Real estate - construction
|
|
|
133
|
|
|
|
-
|
|
|
|
5,109
|
|
|
|
5,242
|
|
|
|
80,470
|
|
|
|
85,712
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
17
|
|
|
|
-
|
|
|
|
501
|
|
|
|
518
|
|
|
|
308,143
|
|
|
|
308,661
|
|
|
|
-
|
|
Commercial loans
|
|
|
55
|
|
|
|
-
|
|
|
|
4,784
|
|
|
|
4,839
|
|
|
|
128,238
|
|
|
|
133,077
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
32
|
|
|
|
124
|
|
|
|
20
|
|
|
|
176
|
|
|
|
24,468
|
|
|
|
24,644
|
|
|
|
-
|
|
Total
|
|
$
|
766
|
|
|
$
|
361
|
|
|
$
|
12,653
|
|
|
$
|
13,780
|
|
|
$
|
741,373
|
|
|
$
|
755,153
|
|
|
$
|
-
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater Than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Total Loans >
90 Days and
Accruing
|
|
|
|
(In Thousands)
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
623
|
|
|
$
|
1,058
|
|
|
$
|
1,071
|
|
|
$
|
2,752
|
|
|
$
|
113,047
|
|
|
$
|
115,799
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,029
|
|
|
|
90,029
|
|
|
|
-
|
|
Real estate - construction
|
|
|
1,239
|
|
|
|
-
|
|
|
|
4,189
|
|
|
|
5,428
|
|
|
|
65,419
|
|
|
|
70,847
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
264
|
|
|
|
76
|
|
|
|
161
|
|
|
|
501
|
|
|
|
305,172
|
|
|
|
305,673
|
|
|
|
-
|
|
Commercial loans
|
|
|
6
|
|
|
|
1
|
|
|
|
4,784
|
|
|
|
4,791
|
|
|
|
139,535
|
|
|
|
144,326
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
10
|
|
|
|
1
|
|
|
|
21
|
|
|
|
32
|
|
|
|
26,702
|
|
|
|
26,734
|
|
|
|
-
|
|
Total
|
|
$
|
2,142
|
|
|
$
|
1,136
|
|
|
$
|
10,226
|
|
|
$
|
13,504
|
|
|
$
|
739,904
|
|
|
$
|
753,408
|
|
|
$
|
-
|
|
Non-accruing loans are summarized as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
2,620,669
|
|
|
$
|
3,086,159
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
5,948,672
|
|
|
|
6,239,326
|
|
Real estate - commercial
|
|
|
3,849,156
|
|
|
|
3,932,241
|
|
Commercial loans
|
|
|
5,236,161
|
|
|
|
5,249,782
|
|
Consumer and other loans
|
|
|
125,090
|
|
|
|
121,090
|
|
Total
|
|
$
|
17,779,748
|
|
|
$
|
18,628,598
|
|
The following tables present the activity in the allowance for loan losses based on portfolio segment for the three months ended March 31, 2021 and 2020:
Three months ended
|
|
|
|
|
Commercial
|
|
|
One to four
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
March 31, 2021
|
|
Construction
|
|
|
Real Estate
|
|
|
family
|
|
|
Multi-family
|
|
|
Commercial
|
|
|
and Other
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Allowance for loan losses:
|
|
|
|
Balance, beginning of period
|
|
$
|
1,132
|
|
|
$
|
3,624
|
|
|
$
|
1,445
|
|
|
$
|
1,058
|
|
|
$
|
1,129
|
|
|
$
|
571
|
|
|
$
|
658
|
|
|
$
|
9,617
|
|
Provision charged to expense
|
|
|
363
|
|
|
|
206
|
|
|
|
(23
|
)
|
|
|
(60
|
)
|
|
|
122
|
|
|
|
(158
|
)
|
|
|
(50
|
)
|
|
$
|
400
|
|
Losses charged off
|
|
|
(121
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
-
|
|
|
$
|
(158
|
)
|
Recoveries
|
|
|
-
|
|
|
|
1
|
|
|
|
4
|
|
|
|
-
|
|
|
|
6
|
|
|
|
18
|
|
|
|
-
|
|
|
$
|
29
|
|
Balance, end of period
|
|
$
|
1,374
|
|
|
$
|
3,831
|
|
|
$
|
1,426
|
|
|
$
|
998
|
|
|
$
|
1,257
|
|
|
$
|
394
|
|
|
$
|
608
|
|
|
$
|
9,888
|
|
Three months ended
|
|
|
|
|
Commercial
|
|
|
One to four
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Construction
|
|
|
Real Estate
|
|
|
family
|
|
|
Multi-family
|
|
|
Commercial
|
|
|
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
|
|
|
(120
|
)
|
|
|
304
|
|
|
|
152
|
|
|
|
9
|
|
|
|
237
|
|
|
|
55
|
|
|
|
(137
|
)
|
|
$
|
500
|
|
Losses charged off
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
(62
|
)
|
|
|
-
|
|
|
$
|
(94
|
)
|
Recoveries
|
|
|
-
|
|
|
|
6
|
|
|
|
1
|
|
|
|
-
|
|
|
|
15
|
|
|
|
13
|
|
|
|
-
|
|
|
$
|
35
|
|
Balance, end of period
|
|
$
|
1,629
|
|
|
$
|
2,577
|
|
|
$
|
1,154
|
|
|
$
|
755
|
|
|
$
|
1,349
|
|
|
$
|
449
|
|
|
$
|
136
|
|
|
$
|
8,049
|
|
The following tables present the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2021 and December 31, 2020:
As of March 31, 2021
|
|
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
|
|
$
|
109
|
|
|
$
|
107
|
|
|
$
|
64
|
|
|
$
|
-
|
|
|
$
|
61
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
354
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,265
|
|
|
$
|
3,724
|
|
|
$
|
1,362
|
|
|
$
|
998
|
|
|
$
|
1,196
|
|
|
$
|
381
|
|
|
$
|
608
|
|
|
$
|
9,534
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
5,948
|
|
|
$
|
1,797
|
|
|
$
|
2,621
|
|
|
$
|
-
|
|
|
$
|
5,105
|
|
|
$
|
191
|
|
|
$
|
-
|
|
|
$
|
15,662
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
79,764
|
|
|
$
|
304,530
|
|
|
$
|
112,085
|
|
|
$
|
88,353
|
|
|
$
|
127,850
|
|
|
$
|
24,453
|
|
|
$
|
-
|
|
|
$
|
737,035
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
2,334
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
122
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,456
|
|
As of December 31, 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
|
|
$
|
114
|
|
|
$
|
117
|
|
|
$
|
112
|
|
|
$
|
-
|
|
|
$
|
62
|
|
|
$
|
15
|
|
|
$
|
-
|
|
|
$
|
420
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,018
|
|
|
$
|
3,507
|
|
|
$
|
1,333
|
|
|
$
|
1,058
|
|
|
$
|
1,066
|
|
|
$
|
556
|
|
|
$
|
658
|
|
|
$
|
9,196
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
6,239
|
|
|
$
|
1,810
|
|
|
$
|
3,110
|
|
|
$
|
-
|
|
|
$
|
5,111
|
|
|
$
|
202
|
|
|
$
|
-
|
|
|
$
|
16,472
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
64,608
|
|
|
$
|
301,453
|
|
|
$
|
112,689
|
|
|
$
|
90,029
|
|
|
$
|
139,083
|
|
|
$
|
26,532
|
|
|
$
|
-
|
|
|
$
|
734,394
|
|
Ending balance: loans acquired with deteriorated credit quality
|
|
$
|
-
|
|
|
$
|
2,410
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
132
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,542
|
|
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.
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 March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
|
(In Thousands)
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
2,457
|
|
|
$
|
2,457
|
|
|
$
|
-
|
|
|
$
|
2,780
|
|
|
$
|
2,780
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
5,081
|
|
|
|
5,081
|
|
|
|
-
|
|
|
|
5,081
|
|
|
|
5,081
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
3,340
|
|
|
|
3,340
|
|
|
|
-
|
|
|
|
3,419
|
|
|
|
3,419
|
|
|
|
-
|
|
Commercial loans
|
|
|
4,905
|
|
|
|
4,905
|
|
|
|
-
|
|
|
|
4,902
|
|
|
|
4,902
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
117
|
|
|
|
117
|
|
|
|
-
|
|
|
|
100
|
|
|
|
100
|
|
|
|
-
|
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
164
|
|
|
$
|
164
|
|
|
$
|
64
|
|
|
$
|
330
|
|
|
$
|
330
|
|
|
$
|
112
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
867
|
|
|
|
2,838
|
|
|
|
109
|
|
|
|
1,158
|
|
|
|
3,129
|
|
|
|
114
|
|
Real estate - commercial
|
|
|
791
|
|
|
|
791
|
|
|
|
107
|
|
|
|
801
|
|
|
|
801
|
|
|
|
117
|
|
Commercial loans
|
|
|
322
|
|
|
|
322
|
|
|
|
61
|
|
|
|
341
|
|
|
|
341
|
|
|
|
63
|
|
Consumer and other loans
|
|
|
74
|
|
|
|
74
|
|
|
|
13
|
|
|
|
102
|
|
|
|
102
|
|
|
|
15
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
2,621
|
|
|
$
|
2,621
|
|
|
$
|
64
|
|
|
$
|
3,110
|
|
|
$
|
3,110
|
|
|
$
|
112
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
5,948
|
|
|
|
7,919
|
|
|
|
109
|
|
|
|
6,239
|
|
|
|
8,210
|
|
|
|
114
|
|
Real estate - commercial
|
|
|
4,131
|
|
|
|
4,131
|
|
|
|
107
|
|
|
|
4,220
|
|
|
|
4,220
|
|
|
|
117
|
|
Commercial loans
|
|
|
5,227
|
|
|
|
5,227
|
|
|
|
61
|
|
|
|
5,243
|
|
|
|
5,243
|
|
|
|
63
|
|
Consumer and other loans
|
|
|
191
|
|
|
|
191
|
|
|
|
13
|
|
|
|
202
|
|
|
|
202
|
|
|
|
15
|
|
Total
|
|
$
|
18,118
|
|
|
$
|
20,089
|
|
|
$
|
354
|
|
|
$
|
19,014
|
|
|
$
|
20,985
|
|
|
$
|
421
|
|
The following table summarizes average impaired loans and related interest recognized on impaired loans for the three months ended March 31, 2021 and 2020:
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment
in Impaired
Loans
|
|
|
Interest
Income
Recognized
|
|
|
|
(In Thousands)
|
|
Loans without a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
2,680
|
|
|
$
|
-
|
|
|
$
|
1,091
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
5,081
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
3,391
|
|
|
|
2
|
|
|
|
2,765
|
|
|
|
-
|
|
Commercial loans
|
|
|
4,904
|
|
|
|
-
|
|
|
|
19
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
105
|
|
|
|
3
|
|
|
|
99
|
|
|
|
2
|
|
Loans with a specific valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
221
|
|
|
$
|
-
|
|
|
$
|
1,173
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
965
|
|
|
|
-
|
|
|
|
3,939
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
795
|
|
|
|
-
|
|
|
|
281
|
|
|
|
-
|
|
Commercial loans
|
|
|
328
|
|
|
|
-
|
|
|
|
904
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
106
|
|
|
|
-
|
|
|
|
169
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
2,901
|
|
|
$
|
-
|
|
|
$
|
2,264
|
|
|
$
|
-
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
6,046
|
|
|
|
-
|
|
|
|
3,939
|
|
|
|
-
|
|
Real estate - commercial
|
|
|
4,186
|
|
|
|
2
|
|
|
|
3,046
|
|
|
|
-
|
|
Commercial loans
|
|
|
5,232
|
|
|
|
-
|
|
|
|
923
|
|
|
|
-
|
|
Consumer and other loans
|
|
|
211
|
|
|
|
3
|
|
|
|
268
|
|
|
|
2
|
|
Total
|
|
$
|
18,576
|
|
|
$
|
5
|
|
|
$
|
10,440
|
|
|
$
|
2
|
|
At March 31, 2021, the Bank’s impaired loans shown in the table above included loans that were classified as troubled debt restructurings (“TDR”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.
In assessing whether or not a borrower is experiencing financial difficulties, the Bank considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy and (iv) the debtor’s projected cash flow is sufficient to satisfy the contractual payments due under the original terms of the loan without a modification.
The Bank considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Bank include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by the Bank generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a reduction on the face amount or maturity amount of the debt as stated in the original loan, (iv) a temporary period of interest-only payments, (v) a reduction in accrued interest, and (vi) an extension of amortization.
In March 2020, our regulators issued a statement titled “Interagency Statement on Loan Modifications and Reporting for Financial institutions with Customers Affected by the Coronavirus” that encouraged financial institutions to work prudently with borrowers who were expected to have difficulty in meeting payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further clarifies that qualified loan modifications are exempt by law from being classified as a TDR as defined by GAAP from March 1, 2020 until December 31, 2020. In December 2020, the Economic Aid to Hard Hit Small Businesses, Non-Profits and Ventures Act was enacted, which extended the CARES Act provisions until January 1, 2022. The Bank continues to work with impacted entities in the form of modifications, payment deferrals, extensions of repayment terms and/or other delays in payments, as necessary.
Due to the before mentioned regulatory changes, there were no troubled debt restructuring charge offs or increases to the allowance for loan losses related to TDRs during 2021 or 2020.
The following table presents the carrying balance of TDRs as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Real estate - residential mortgage:
|
|
|
|
|
|
|
|
|
One to four family units
|
|
$
|
1,178,475
|
|
|
$
|
1,178,876
|
|
Multi-family
|
|
|
-
|
|
|
|
-
|
|
Real estate - construction
|
|
|
3,728,165
|
|
|
|
3,700,084
|
|
Real estate - commercial
|
|
|
892,242
|
|
|
|
893,992
|
|
Commercial loans
|
|
|
363,539
|
|
|
|
368,310
|
|
Total
|
|
$
|
6,162,421
|
|
|
$
|
6,141,262
|
|
The Bank has allocated $168,881 and $142,393 of specific reserves to customers whose loan terms have been modified as a TDR as of March 31, 2021 and December 31, 2020, respectively.
As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks loans by an internal rating system. All loans are assigned an internal credit quality rating based on an analysis of the borrower’s financial condition. The criteria used to assign quality ratings to extensions of credit that exhibit potential problems or well-defined weaknesses are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on the Bank’s safety and soundness. The following are the internally assigned ratings:
Pass: This rating represents loans that have strong asset quality and liquidity along with a multi-year track record of profitability.
Special mention: This rating represents loans that are currently protected but are potentially weak. The credit risk may be relatively minor, yet constitute an increased risk in light of the circumstances surrounding a specific loan.
Substandard: This rating represents loans that show signs of continuing negative financial trends and unprofitability and therefore, is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.
Doubtful: This rating represents loans that have all the weaknesses of substandard classified loans with the additional characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Risk characteristics applicable to each segment of the loan portfolio are described as follows.
Real estate-Residential 1-4 family: The residential 1-4 family real estate loans are generally secured by owner-occupied 1-4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Real estate-Multi-Family: Loans secured by multi-family residential real estate generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.
Real estate-Construction: Construction and land development real estate loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.
Real estate-Commercial: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economies in the Bank’s market areas.
Commercial: The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.
Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.
The following tables provide information about the credit quality of the loan portfolio using the Bank’s internal rating system as of March 31, 2021 and December 31, 2020:
March 31, 2021
|
|
Construction
|
|
|
Commercial
Real Estate
|
|
|
One to four
family
|
|
|
Multi-family
|
|
|
Commercial
|
|
|
Consumer
and Other
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
79,581
|
|
|
$
|
264,614
|
|
|
$
|
110,881
|
|
|
$
|
86,924
|
|
|
$
|
120,230
|
|
|
$
|
24,453
|
|
|
$
|
686,683
|
|
Special Mention
|
|
|
-
|
|
|
|
4,490
|
|
|
|
729
|
|
|
|
1,429
|
|
|
|
5,012
|
|
|
|
-
|
|
|
|
11,660
|
|
Substandard
|
|
|
6,131
|
|
|
|
39,557
|
|
|
|
3,096
|
|
|
|
-
|
|
|
|
7,835
|
|
|
|
191
|
|
|
|
56,810
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
85,712
|
|
|
$
|
308,661
|
|
|
$
|
114,706
|
|
|
$
|
88,353
|
|
|
$
|
133,077
|
|
|
$
|
24,644
|
|
|
$
|
755,153
|
|
December 31, 2020
|
|
Construction
|
|
|
Commercial
Real Estate
|
|
|
One to four
family
|
|
|
Multi-family
|
|
|
Commercial
|
|
|
Consumer
and Other
|
|
|
Total
|
|
|
|
(In Thousands)
|
|
Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
64,531
|
|
|
$
|
262,771
|
|
|
$
|
110,615
|
|
|
$
|
90,029
|
|
|
$
|
130,874
|
|
|
$
|
26,532
|
|
|
$
|
685,352
|
|
Special Mention
|
|
|
-
|
|
|
|
4,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
123
|
|
|
|
-
|
|
|
|
4,565
|
|
Substandard
|
|
|
6,316
|
|
|
|
38,460
|
|
|
|
5,184
|
|
|
|
-
|
|
|
|
13,329
|
|
|
|
202
|
|
|
|
63,491
|
|
Doubtful
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
70,847
|
|
|
$
|
305,673
|
|
|
$
|
115,799
|
|
|
$
|
90,029
|
|
|
$
|
144,326
|
|
|
$
|
26,734
|
|
|
$
|
753,408
|
|
The above amounts include purchased credit impaired loans. At March 31, 2021, purchased credit impaired loans comprised of $2.5 million were rated “Substandard”.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees net of certain direct origination costs, are deferred and amortized as a level yield adjustment over the respective term of the loan.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the loan is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Commercial Loan Referral Income: In certain circumstances, the Company enters into variable-rate loan agreements (Assumable Rate Conversion “ARC” Master Servicing Agreements) with commercial loan customers, and the customer simultaneously enters into an interest swap agreement directly with a third-party (the “counterparty”). This allows the loan customer to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. The Company is required to enter into a transaction agreement as part of each loan. The agreement results in the assumption of credit and market risk equivalent by the Bank. The agreement states that in an event of default by the loan customer, the Bank must pay a termination amount to the extent it is positive. The termination value is defined by the Master Agreement, which is in essence the fair value of the derivative on the event date. The counterparty pays a fee to the Company for brokering the transaction and for servicing the loan/swap agreement between the customer and the counterparty. Fee income related to these agreements was $0 and $555,490 for the three months ended March 31, 2021 and 2020, respectively.
Note 5: Intangible Assets
The Company recorded $1.4 million of goodwill as a result of its 2018 Hometown acquisition. Goodwill is tested annually, or more often if circumstances warrant, for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Goodwill impairment was neither indicated nor recorded during the three months ended March 31, 2021. Goodwill amounts are not deductible for tax purposes.
Additionally, as part of the Hometown acquisition, core deposit premiums of $3.5 million were recorded. Core deposit premiums are amortized over a seven year period and are periodically evaluated, at least annually, as to the recoverability of their carrying value.
The Company’s goodwill and other intangibles (carrying basis and accumulated amortization) at March 31, 2021 and December 31, 2020 were as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in Thousands)
|
|
|
(in Thousands)
|
|
Goodwill
|
|
$
|
1,435
|
|
|
$
|
1,435
|
|
Core deposit intangible
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
3,520
|
|
|
|
3,520
|
|
Accumulated amortization
|
|
|
(1,612
|
)
|
|
|
(1,493
|
)
|
Core deposit intangible, net
|
|
|
1,908
|
|
|
|
2,027
|
|
Remaining balance
|
|
$
|
3,343
|
|
|
$
|
3,462
|
|
The Company’s estimated remaining amortization expense on intangibles as of March 31, 2021 is as follows:
|
Amortization Expense
|
|
|
(in Thousands)
|
|
|
|
|
|
|
|
Remainder of:
|
2021
|
|
$
|
358
|
|
|
2022
|
|
|
477
|
|
|
2023
|
|
|
477
|
|
|
2024
|
|
|
477
|
|
|
2025
|
|
|
119
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
1,908
|
|
Note 6: Leases
As of March 31, 2021, the Company has recorded operating Right of Use (“ROU”) assets of $8,320,050 and corresponding operating ROU liabilities of $8,420,949. At December 31, 2020, operating ROU assets were $8,469,661 with corresponding liabilities of $8,560,892. Additionally, as of March 31, 2021, the Company had financing ROU assets and liabilities of $538,825 compared to balances of $510,526 as of December 31, 2020. We maintain operating leases on land and buildings for certain branch facilities and our headquarters. Financing leases are primarily for equipment used at banking facilities. Most leases include options to renew, with renewal terms extending between one to twenty years. The exercise of renewal options is based on judgement of management as to whether or not the renewal option is reasonably certain to be exercised. Factors in determining whether or not the renewal option is reasonably certain to be exercised include, but are not limited to, the value of the leasehold improvements, the value of the renewal rate compared to market rates and the presence of factors that would cause significant economic penalty to the Company if the option is not exercised.
Expenses for finance leases are included in other interest expense and occupancy expense line items, whereas operating leases are expensed entirely in the occupancy expense line item. Leases with a term of less than twelve months are not recorded on the balance sheet and are expensed on a straight-line basis over the lease term. Discount rates used for the purpose of valuing the leases were based on rates available to the Company on fixed rate borrowings for similar lease terms.
The components of lease expense and their impact on the statement of income for the three months ended March 31, 2021 and 2020 are as follows:
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(In Thousands)
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
44,657
|
|
|
$
|
30,977
|
|
Interest on lease liabilities
|
|
|
1,696
|
|
|
|
2,096
|
|
Operating lease cost
|
|
|
272,545
|
|
|
|
272,335
|
|
Sublease income
|
|
|
(6,300
|
)
|
|
|
(12,300
|
)
|
|
|
|
|
|
|
|
|
|
Total lease costs
|
|
$
|
312,598
|
|
|
$
|
293,108
|
|
|
|
|
|
|
|
|
|
|
Additional lease information:
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term - financing leases (in years)
|
|
|
3.4
|
|
|
|
3.3
|
|
Weighted-average remaining lease term - operating leases (in years)
|
|
|
14.2
|
|
|
|
14.9
|
|
Weighted-average discount rate - financing leases
|
|
|
1.20
|
%
|
|
|
1.96
|
%
|
Weighted-average discount rate - operating leases
|
|
|
5.70
|
%
|
|
|
5.62
|
%
|
The following table sets forth, as of March 31, 2021, the future minimum lease cash payments and a reconciliation of the undiscounted cash flows to the lease liability:
|
|
|
Financing
|
|
|
Operating
|
|
|
Total
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
Remainder of:
|
2021
|
|
$
|
143
|
|
|
$
|
759
|
|
|
$
|
902
|
|
|
2022
|
|
|
184
|
|
|
|
1,011
|
|
|
|
1,195
|
|
|
2023
|
|
|
111
|
|
|
|
1,014
|
|
|
|
1,125
|
|
|
2024
|
|
|
68
|
|
|
|
856
|
|
|
|
924
|
|
|
2025
|
|
|
40
|
|
|
|
752
|
|
|
|
792
|
|
|
Thereafter
|
|
|
1
|
|
|
|
8,228
|
|
|
|
8,229
|
|
|
Total undiscounted future minimum lease cash payments
|
|
$
|
547
|
|
|
$
|
12,620
|
|
|
$
|
13,167
|
|
|
Present value discount
|
|
|
(8
|
)
|
|
|
(4,199
|
)
|
|
|
(4,207
|
)
|
|
Lease liability
|
|
$
|
539
|
|
|
$
|
8,421
|
|
|
$
|
8,960
|
|
Note 7: Subordinated Debentures Issued to Capital Trusts
During 2005, the Company formed two wholly owned grantor trust subsidiaries, Guaranty Statutory Trust I and Guaranty Statutory Trust II, to issue preferred securities representing undivided beneficial interests in the assets of the trusts and to invest the gross proceeds of the preferred securities in notes of the Company. Trust I issued $5,000,000 of preferred securities and Trust II issued $10,000,000 of preferred securities. The sole assets of Trust I were originally $5,155,000 aggregate principal amount of the Company’s fixed rate subordinated debenture notes due 2036, which were redeemable beginning in 2011. The sole assets of Trust II were originally $10,310,000 aggregate principal amount of the Company’s fixed/variable rate subordinated debenture notes due 2036, which were redeemable beginning in 2011. Trust II subordinated debenture notes bear interest at a fixed rate for five years and thereafter at a floating rate based on LIBOR. The preferred securities qualify as either Tier I or Tier II capital for regulatory purposes, subject to certain limitations. See Note 14: “Subsequent Events” for additional information regarding the full redemption of the $5,155,000 Trust I assets which will occur in May 2021.
Note 8: Subordinated Notes
On July 29, 2020, the Company completed a private offering of $20.0 million aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes due 2030 (the “Notes”). The Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. Costs related to the issuance of $454,445 reduced the proceeds received by the Company and will be amortized over the life of the notes. The Notes are intended to qualify as Tier 2 capital for regulatory purposes. The Notes have a stated maturity of September 30, 2030, are redeemable by the Company at its option, in whole or in part, on or after September 30, 2025, and at any time upon the occurrences of certain events. Prior to September 30, 2025, the Company may redeem the Notes, in whole but not in part, only under certain limited circumstances set forth in the Note. On or after September 30, 2025, the Company may redeem the Notes, in whole or in part, at its option, on any interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Notes being redeemed, together with any accrued and unpaid interest on the Notes being redeemed to but excluding the date of redemption. The Notes are not subject to redemption at the option of the holder. The Notes will bear interest at a fixed rate of 5.25% per year until September 30, 2025 or earlier redemption date. After October 1, 2025, but excluding the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 519 basis points. Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are unsecured, subordinated obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the Company, and rank junior in right of payment to the Company’s current and future senior indebtedness.
Note 9: Benefit Plans
The Company has stock-based employee compensation plans, which are described in the Company’s 2020 Annual Report. The following tables below summarize transactions under the Company’s equity plans for the three months ended March 31, 2021:
Restricted Stock
|
|
Number of
Shares
|
|
|
Weighted
Average Grant-
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Balance of shares non-vested as of January 1, 2021
|
|
|
28,037
|
|
|
$
|
21.80
|
|
Granted
|
|
|
20,126
|
|
|
|
18.35
|
|
Vested
|
|
|
(9,599
|
)
|
|
|
22.20
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance of shares non-vested as of March 31, 2021
|
|
|
38,564
|
|
|
$
|
19.90
|
|
In February 2021, the Company granted 6,979 shares of restricted stock to directors pursuant to the 2015 Equity Plan that have a cliff vesting at the end of one year and thus, expensed over that same period. These shares had a grant date market price of $18.79 per share. The total amount of expense for restricted stock grants to directors (including all previous year’s grants) during the three months March 31, 2021 and 2020 was $33,000 and $36,869, respectively.
For the three months ended March 31, 2021 and 2020, the Company granted 13,147 and 8,787 shares, respectively, of restricted stock to officers that have a cliff vesting at the end of three years. The expense is being recognized over the applicable vesting period. The total amount of expense for restricted stock grants to officers (including all previous year’s grants) during the three months ended March 31, 2021 and 2020 was $75,904 and $47,471, respectively.
Performance Stock Units
|
|
Performance
Stock Units
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
Balance of shares non-vested as of January 1, 2021
|
|
|
53,075
|
|
|
$
|
15.40
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance of shares non-vested as of March 31, 2021
|
|
|
53,075
|
|
|
$
|
15.40
|
|
During 2020, the Company has granted restricted stock units representing 53,075 hypothetical shares of common stock to officers. There are three possible levels of incentive awards: threshold (25%); target (50%); and maximum (100%). The restricted stock units vest based on two financial performance factors over the period from grant date to December 31, 2022 (the “Performance Period”). The two performance measurements of the Company (and the weight given to each measurement) applicable to each award level are as follows: (i) Earnings Per Share (50%) and (ii) Return on Average Assets (50%). In determining compensation expense, the fair value of the restricted stock unit awards was determined based on the closing price of the Company’s common stock on the date of grant, which averaged $15.40 per share. The expense is being recognized over the applicable vesting period. Due to the fact that the measurements cannot be determined at the time of the grant, the Company currently estimates that the most likely outcome is the achievement between the threshold and target levels. If during the Performance Period, additional information becomes available to lead the Company to believe a different level will be achieved for the Performance Period, the Company will reassess the number of units that will vest for the grant and adjust its compensation expense accordingly on a prospective basis. The total amount of expense for restricted stock units during the three months ended March 31, 2021 and 2020 was $12,573 and $0, respectively. The 2020 year-to-date figure includes credit amounts from prior year reversals of certain accruals related to final performance agreement payouts under previous grants and the reduction of stock price for valuing compensation expense in the current year.
Total stock-based compensation expense recognized for the three months ended March 31, 2021 and 2020 was $121,477 and $84,340, respectively. As of March 31, 2021, there was $677,220 of unrecognized compensation expense related to non-vested restricted stock awards to be recognized over the remaining vesting period.
Note 10: Income Per Common Share
|
|
For three months ended March 31, 2021
|
|
|
|
Income Available
to Common
Stockholders
|
|
|
Weighted Average
Common Shares
Outstanding
|
|
|
Per
Common Share
|
|
Basic Income per Common Share
|
|
$
|
2,216,016
|
|
|
|
4,337,870
|
|
|
$
|
0.51
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
12,226
|
|
|
|
|
|
Diluted Income per Common Share
|
|
$
|
2,216,016
|
|
|
|
4,350,096
|
|
|
$
|
0.51
|
|
|
|
For three months ended March 31, 2020
|
|
|
|
Income Available
to Common
Stockholders
|
|
|
Weighted Average
Common Shares
Outstanding
|
|
|
Per
Common Share
|
|
Basic Income per Common Share
|
|
$
|
2,104,845
|
|
|
|
4,309,441
|
|
|
$
|
0.49
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
26,861
|
|
|
|
|
|
Diluted Income per Common Share
|
|
$
|
2,104,845
|
|
|
|
4,336,302
|
|
|
$
|
0.49
|
|
Note 11: New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Codification Improvements to Topic 326, Financial Instruments – Credit Losses, have been released in November 2018 (2018-19), November 2019 (2019-10 and 2019-11) and a January 2020 Update (2020-02) that provided additional guidance on this Topic. Among other things, the amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For SEC filers meeting certain criteria, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For SEC filers that meet the criteria of a smaller reporting company (including this Company) and for non-SEC registrant public companies and other organizations, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has formed a committee that is assessing our data and evaluating the impact of adopting ASU 2016-13. The Company has also selected a third-party vendor to assist in generating loan level cash flows and disclosures. Based on the results from larger SEC filers and preliminary internal calculations there is likely a significant financial impact of adopting this standard. Estimated amounts and decisions pertaining to implementation of this standard will be evaluated over the next several quarters.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles: Goodwill and Other: Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the income tax effects of tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the quantitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. This standard was adopted during the second quarter of 2020 with no impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU applies to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. Disclosures removed by this ASU are the amount and reasons for transfers between Level 1 and Level 2, the policy for timing of transfers between levels and the valuation process for Level 3 measurements. This ASU modifies disclosures relating to investments in certain entities that calculate net asset value. Additional disclosures require by the ASU include: 1) change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and 2) range and weighted average of significant observable inputs used to develop Level 3 measurements. The prospective method of transition is required for the new disclosure requirements. The other amendments should be applied retrospectively. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years or January 1, 2020 for the Company. The Company adopted this standard during the first quarter of 2020 with no significant impact on the financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). This ASU provides guidance and timelines for the future transition from London Interbank Offered Rate (LIBOR) to alternative reference rates that are more observable or transaction based and less susceptible to manipulation. For financial institutions this will likely impact contracts already in place that reference LIBOR as the variable rate component. Items likely to be impacted are interest rate swaps, subordinated debt offerings, certain adjustable-rate loan contracts, certain variable rate investment instruments as well as other variable rate contracts. Current guidance has the use of LIBOR reference rates to end by December 31, 2021. In the meantime, institutions are to identify contracts that reference LIBOR, prepare their current systems for a transition to a new reference rate and to communicate any changes to impacted parties. The Company has identified existing items that reference LIBOR and is in the process of evaluating fall back language in each situation along with working with system providers and other third parties to ensure a successful adoption of new reference rates. The financial impact of adopting this standard is being evaluated with estimated amounts and decisions pertaining to implementation of this standard to be evaluated over the next several quarters.
Note 12: Derivative Financial Instruments
The Company records all derivative financial instruments at fair value in the financial statements. Derivatives are used as a risk management tool to hedge the exposure to changes in interest rates or other identified market risks.
When a derivative is intended to be a qualifying hedged instrument, the Company prepares written hedge documentation that designates the derivative as 1) a hedge of fair value of a recognized asset or liability (fair value hedge) or 2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item, and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.
In June 2017, the Company entered into a forward start interest rate swap agreement totaling $50 million notional amount to hedge against interest rate risk on FHLB advances. The swap rate paid is 2.12% and is hedged against three-month floating LIBOR with a termination date of February 2025. As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. At March 31, 2021, the Company reported a $2,053,389 unrealized loss, net of a $648,438 tax effect, in other comprehensive income related to this cash flow hedge.
In March 2019, the Company entered into a forward start interest rate swap agreement totaling $10.3 million notional amount to hedge against interest rate risk on variable rate subordinated debentures. The swap rate paid is 4.09% and is hedged against three-month floating LIBOR plus 145 basis points with a termination date of February 2026. As a cash flow hedge, the portion of the change in the fair value of the derivative that has been deemed highly effective is recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. At March 31, 2021, the Company reported a $628,821 unrealized loss, net of a $198,575 tax effect, in other comprehensive income related to this cash flow hedge.
The Company documents, both at inception and periodically over the life of the hedges, its analysis of actual and expected hedge effectiveness.
As of March 31, 2021, based on current fair values, the Company pledged cash collateral of $4.1 million to its counterparty for the swaps, included on the balance sheet in interest-bearing demand deposits in other financial institutions. As of December 31, 2020, based on then current fair values, the Company had pledged cash collateral of $5.1 million to the counterparty.
The following table presents the notional amounts and fair values of derivatives designated as hedging instruments on the consolidated balance sheets at March 31, 2021 and December 31, 2020:
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
Forward Start
|
|
Termination
|
|
Derivative
|
|
Notional
|
|
|
Rate
|
|
|
Rate
|
|
Balance Sheet
|
|
Estimated Fair Value at:
|
|
Inception Date
|
|
Date
|
|
Type
|
|
Amount
|
|
|
Paid
|
|
|
Hedged
|
|
Classfication
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/2018
|
|
2/28/2025
|
|
Interest rate swap -
FHLB Advances
|
|
$
|
50,000,000
|
|
|
|
2.12
|
%
|
|
3 month LIBOR
Floating
|
|
Other liabilites
|
|
$
|
(2,701,827
|
)
|
|
$
|
(3,760,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/23/2019
|
|
2/23/2026
|
|
Interest rate swap -
Subordinated Debentures
|
|
$
|
10,310,000
|
|
|
|
4.09
|
%
|
|
3 month LIBOR
Floating +145 bps
|
|
Other liabilites
|
|
$
|
(827,396
|
)
|
|
$
|
(1,180,909
|
)
|
The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
Derivative
|
|
Income Statement
|
|
Three months ended March 31,
|
|
Type
|
|
Classfication
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap -
FHLB Advances
|
|
Interest expense
|
|
$
|
238,411
|
|
|
$
|
39,841
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap -
Subordinated Debentures
|
|
Interest expense
|
|
$
|
62,962
|
|
|
$
|
21,441
|
|
Note 13: Disclosures about Fair Value of Assets and Liabilities
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
The following is a description of the inputs and valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.
Available-for-sale securities: Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. For these investments, the inputs used by the pricing service to determine fair value may include one or a combination of observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bid offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. government agencies, municipal securities and government sponsored mortgage-backed securities. The Company has no Level 3 securities.
Derivative financial instruments (Cash flow hedge): The Company’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets.
The following table presents the fair value measurements of assets recognized in the accompanying condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 and December 31, 2020 (dollar amounts in thousands):
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
Total fair value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agencies
|
|
$
|
-
|
|
|
$
|
6,985
|
|
|
$
|
-
|
|
|
$
|
6,985
|
|
Municipals
|
|
|
-
|
|
|
|
67,466
|
|
|
|
-
|
|
|
|
67,466
|
|
Corporates
|
|
|
-
|
|
|
|
34,634
|
|
|
|
-
|
|
|
|
34,634
|
|
Mortgage-backed securities - private label
|
|
|
-
|
|
|
|
16,007
|
|
|
|
-
|
|
|
|
16,007
|
|
Government sponsored asset-backed securities and SBA loan pools
|
|
|
-
|
|
|
|
54,243
|
|
|
|
-
|
|
|
|
54,243
|
|
Available-for-sale securities
|
|
$
|
-
|
|
|
$
|
179,335
|
|
|
$
|
-
|
|
|
$
|
179,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
-
|
|
|
$
|
3,529
|
|
|
$
|
-
|
|
|
$
|
3,529
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
Total fair value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agencies
|
|
$
|
-
|
|
|
$
|
6,284
|
|
|
$
|
-
|
|
|
$
|
6,284
|
|
Municipals
|
|
|
-
|
|
|
|
61,969
|
|
|
|
-
|
|
|
|
61,969
|
|
Corporates
|
|
|
-
|
|
|
|
30,601
|
|
|
|
-
|
|
|
|
30,601
|
|
Mortgage-backed securities - private label
|
|
|
-
|
|
|
|
14,896
|
|
|
|
|
|
|
|
14,896
|
|
Government sponsored mortgage-backed securities and SBA loan pools
|
|
|
-
|
|
|
|
50,371
|
|
|
|
-
|
|
|
|
50,371
|
|
Available-for-sale securities
|
|
$
|
-
|
|
|
$
|
164,121
|
|
|
$
|
-
|
|
|
$
|
164,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
-
|
|
|
$
|
4,941
|
|
|
$
|
-
|
|
|
$
|
4,941
|
|
The following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying statements of financial condition, as well as the general classification of such assets pursuant to the valuation hierarchy.
Foreclosed Assets Held for Sale: Fair value is estimated using recent appraisals, comparable sales and other estimates of value obtained principally from independent sources, adjusted for selling costs and discounts based on management’s assessment of the condition and marketability of the collateral. Foreclosed assets held for sale are classified within Level 3 of the valuation hierarchy.
Impaired loans (Collateral Dependent): Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 and December 31, 2020 (dollar amounts in thousands):
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
Total fair value
|
|
March 31, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,418
|
|
|
$
|
1,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,809
|
|
|
$
|
5,809
|
|
Foreclosed assets held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs
|
|
|
Level 2 inputs
|
|
|
Level 3 inputs
|
|
|
Total fair value
|
|
March 31, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
371
|
|
|
$
|
371
|
|
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurement (dollar amounts in thousands):
|
|
Fair Value
March 31, 2021
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
(Weighted Average)
|
Impaired loans (collateral dependent)
|
|
$
|
1,418
|
|
Market Comparable
|
|
Discount to reflect
realizable value
|
|
0%
|
-
|
80%
|
(16%)
|
Foreclosed assets held for sale
|
|
$
|
-
|
|
Market Comparable
|
|
Discount to reflect
realizable value
|
|
|
|
0%
|
(0%)
|
|
|
Fair Value
December 31, 2020
|
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
(Weighted Average)
|
Impaired loans (collateral dependent)
|
|
$
|
5,809
|
|
Market Comparable
|
|
Discount to reflect
realizable value
|
|
1%
|
-
|
80%
|
(7%)
|
Foreclosed assets held for sale
|
|
$
|
371
|
|
Market Comparable
|
|
Discount to reflect
realizable value
|
|
4%
|
-
|
4%
|
(4%)
|
The following tables present estimated fair values of the Company’s financial instruments at March 31, 2021 and December 31, 2020.
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Hierarchy
Level
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Hierarchy
Level
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
220,238,289
|
|
|
$
|
220,238,289
|
|
|
1
|
|
|
$
|
148,422,908
|
|
|
$
|
148,422,908
|
|
|
1
|
|
Interest-bearing time deposits at other institutions
|
|
|
2,455,000
|
|
|
|
2,455,135
|
|
|
2
|
|
|
|
4,760,089
|
|
|
|
4,771,605
|
|
|
2
|
|
Federal Home Loan Bank stock
|
|
|
4,088,700
|
|
|
|
4,088,700
|
|
|
2
|
|
|
|
3,896,900
|
|
|
|
3,896,900
|
|
|
2
|
|
Mortgage loans held for sale
|
|
|
7,990,141
|
|
|
|
8,177,951
|
|
|
2
|
|
|
|
11,359,174
|
|
|
|
11,626,174
|
|
|
2
|
|
Loans, net
|
|
|
743,220,776
|
|
|
|
735,178,970
|
|
|
3
|
|
|
|
742,149,271
|
|
|
|
737,701,011
|
|
|
3
|
|
Interest receivable
|
|
|
4,043,621
|
|
|
|
4,043,621
|
|
|
2
|
|
|
|
4,060,795
|
|
|
|
4,060,795
|
|
|
2
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,023,136,682
|
|
|
|
1,023,880,736
|
|
|
2
|
|
|
|
938,672,541
|
|
|
|
939,806,149
|
|
|
2
|
|
FHLB advances
|
|
|
66,000,000
|
|
|
|
66,072,251
|
|
|
2
|
|
|
|
66,000,000
|
|
|
|
66,089,183
|
|
|
2
|
|
Subordinated debentures issued to Capital Trusts
|
|
|
15,465,000
|
|
|
|
15,465,000
|
|
|
3
|
|
|
|
15,465,000
|
|
|
|
15,465,000
|
|
|
3
|
|
Subordinated notes, net
|
|
|
19,575,492
|
|
|
|
27,001,113
|
|
|
3
|
|
|
|
19,564,131
|
|
|
|
25,608,997
|
|
|
3
|
|
Interest payable
|
|
|
564,439
|
|
|
|
564,439
|
|
|
2
|
|
|
|
932,172
|
|
|
|
932,172
|
|
|
2
|
|
Unrecognized financial instruments (net of contractual value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Unused lines of credit
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Note 14: Subsequent Event
On April 8, 2021, the Company notified investors of its $5,155,000 aggregate principal amount of 6.92% Fixed Rate Junior Subordinated Debt Securities due 2036 (the “Debt Securities”) issued by a statutory trust subsidiary, Guaranty Statutory Trust I; and of its intent to fully redeem the issuance as allowed per Debt Securities agreements from its inception in 2005. All outstanding principal amounts, plus accrued and unpaid distributions will be redeemed as of May 23, 2021. Proceeds from a 2020 subordinated debt offering and a cash dividend from the Bank will be used to redeem the 2005 debt securities. The Company received all necessary regulatory approvals prior to the redemption of these instruments.
Note 15: Concentration of Cash Holdings
During the normal course of business, the Bank may have excess cash on deposit at other financial institutions. Each institution’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31, 2021, the Bank had $81.0 million in deposits above FDIC insured limits. These funds are held with three institutions that are each shown to be well capitalized as of March 31, 2021. Additionally, the Bank held $127.3 million in deposits at the Federal Reserve Bank at March 31, 2021.