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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 June 30, 2021

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

GFED20210630_10QIMG001.GIF


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 July 31, 2021

Common Stock, Par Value $0.10 per share

4,385,031 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

32

     

Item 3. Quantitative and Qualitative Disclosures about Market Risk

40

     

Item 4. Controls and Procedures

 

41

     

PART II. OTHER INFORMATION

     

Item 1. Legal Proceedings

 

42

     

Item 1A. Risk factors

 

42

     

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

42

     

Item 3. Defaults Upon Senior Securities

 

42

     

Item 4. Mine Safety Disclosures

42

     

Item 5. Other Information

 

42

     

Item 6. Exhibits

 

42

     

Signatures

   

 

2

 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

JUNE 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020

 
                 
                 

 

 

6/30/2021

   

12/31/2020

 
ASSETS                

Cash and due from banks

  $ 6,521,314     $ 6,366,370  

Interest-bearing demand deposits in other financial institutions

    111,105,681       142,056,538  

Cash and cash equivalents

    117,626,995       148,422,908  

Interest-bearing time deposits at other financial institutions

    250,000       4,760,089  

Available-for-sale securities

    196,016,993       164,120,869  

Stock in Federal Home Loan Bank, at cost

    4,093,700       3,896,900  

Mortgage loans held for sale

    5,858,688       11,359,174  

Loans receivable, net of allowance for loan losses of June 30, 2021 - $10,525,640 and December 31, 2020 - $9,617,024, respectively

    798,766,800       742,149,271  

Accrued interest receivable

    3,812,019       4,060,795  

Prepaid expenses and other assets

    7,543,667       7,741,903  

Goodwill

    1,434,982       1,434,982  

Core deposit intangible

    1,788,410       2,026,910  

Foreclosed assets held for sale

    738,736       546,450  

Premises and equipment, net

    17,451,127       17,898,409  

Operating lease right-of-use asset

    8,338,954       8,469,661  

Bank owned life insurance

    31,562,789       25,294,780  

Deferred and receivable income taxes

    3,265,767       4,069,838  
    $ 1,198,549,627     $ 1,146,252,939  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

LIABILITIES

               

Deposits

  $ 993,672,589     $ 938,672,541  

Federal Home Loan Bank advances

    66,000,000       66,000,000  

Subordinated debentures issued to Capital Trusts

    10,310,000       15,465,000  

Subordinated notes, net

    19,586,853       19,564,131  

Advances from borrowers for taxes and insurance

    505,194       218,846  

Accrued expenses and other liabilities

    6,130,984       7,870,991  

Operating lease liabilities

    8,449,519       8,560,892  

Accrued interest payable

    669,289       932,172  
      1,105,324,428       1,057,284,573  
                 

COMMITMENTS AND CONTINGENCIES

    -       -  
                 

STOCKHOLDERS' EQUITY

               

Capital Stock:

               

Common stock, $0.10 par value; authorized 10,000,000 shares; issued June 30, 2021 and December 31, 2020 - 6,919,503 shares

    691,950       691,950  

Additional paid-in capital

    51,244,002       51,337,219  

Retained earnings, substantially restricted

    80,490,395       77,073,707  

Accumulated other comprehensive income (loss)

    575,927       (53,378 )
      133,002,274       129,049,498  

Treasury stock, at cost; June 30, 2021 and December 31, 2020 - 2,534,472 and 2,553,851 shares, respectively

    (39,777,075 )     (40,081,132 )
      93,225,199       88,968,366  
    $ 1,198,549,627     $ 1,146,252,939  

 

 

See Notes to Condensed Consolidated Financial Statements

 

3

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
                                 
                                 
   

Three months ended

   

Six months ended

 
   

6/30/2021

   

6/30/2020

   

6/30/2021

   

6/30/2020

 

Interest Income

                               

Loans

  $ 8,884,455     $ 9,094,159     $ 17,701,548     $ 18,647,540  

Investment securities

    1,199,801       923,189       2,224,703       1,807,617  

Other

    105,403       141,710       240,012       502,758  
      10,189,659       10,159,058       20,166,263       20,957,915  

Interest Expense

                               

Deposits

    1,091,474       1,541,976       2,393,169       4,036,278  

FHLB advances

    313,302       283,830       623,942       557,426  

Subordinated debentures issued to Capital Trusts

    159,197       195,394       353,799       391,166  

Subordinated notes, net

    262,500       -       525,000       -  

Other

    1,683       115,209       3,379       238,064  
      1,828,156       2,136,409       3,899,289       5,222,934  

Net Interest Income

    8,361,503       8,022,649       16,266,974       15,734,981  

Provision for Loan Losses

    300,000       750,000       700,000       1,250,000  

Net Interest Income After

                               

Provision for Loan Losses

    8,061,503       7,272,649       15,566,974       14,484,981  

Noninterest Income

                               

Service charges

    441,119       313,423       805,181       722,627  

Net gain (loss) on sale of investment securities

    (5,553 )     135,293       66,660       163,192  

Gain on sale of mortgage loans held for sale

    1,043,526       883,223       2,115,338       1,426,634  

Gain on sale of Small Business Administration loans

    473,887       -       897,426       -  

Commercial loan referral income

    62,612       380,996       62,612       936,486  

Net loss on foreclosed assets

    (126,281 )     (73,778 )     (127,430 )     (80,704 )

Other income

    926,300       673,561       1,611,305       1,243,615  
      2,815,610       2,312,718       5,431,092       4,411,850  

Noninterest Expense

                               

Salaries and employee benefits

    4,481,689       4,138,779       8,848,068       8,088,393  

Occupancy

    1,142,604       1,164,853       2,271,252       2,315,942  

FDIC deposit insurance premiums

    147,299       85,000       290,505       85,000  

Data processing

    611,838       576,722       1,225,374       1,174,336  

Advertising

    122,250       122,250       244,500       244,500  

Amortization of core deposit intangible

    119,250       119,250       238,500       238,500  

Other expense

    1,012,977       1,046,477       1,974,791       1,905,289  
      7,637,907       7,253,331       15,092,990       14,051,960  

Income Before Income Taxes

    3,239,206       2,332,036       5,905,076       4,844,871  

Provision for Income Taxes

    723,024       448,653       1,172,878       856,643  

Net Income Available to Common Shareholders

  $ 2,516,182     $ 1,883,383     $ 4,732,198     $ 3,988,228  
                                 

Basic Income Per Common Share

  $ 0.58     $ 0.43     $ 1.09     $ 0.92  

Diluted Income Per Common Share

  $ 0.58     $ 0.43     $ 1.09     $ 0.92  

 

 

See Notes to Condensed Consolidated Financial Statements

 

4

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
   
                                 
   

Three months ended

   

Six months ended

 
   

6/30/2021

   

6/30/2020

   

6/30/2021

   

6/30/2020

 

NET INCOME

  $ 2,516,182     $ 1,883,383     $ 4,732,198     $ 3,988,228  

OTHER ITEMS OF COMPREHENSIVE INCOME:

                               

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

    2,482,283       1,652,778       (583,103 )     2,670,332  

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

    65,823       (403,272 )     1,477,796       (4,005,915 )

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

    5,553       (135,293 )     (66,660 )     (163,192 )

Total other items of comprehensive income (loss)

    2,553,659       1,114,213       828,033       (1,498,775 )

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

    612,878       267,777       198,728       (359,352 )

Other comprehensive income (loss)

    1,940,781       846,436       629,305       (1,139,423 )

TOTAL COMPREHENSIVE INCOME

  $ 4,456,963     $ 2,729,819     $ 5,361,503     $ 2,848,805  

 

 

See Notes to Condensed Consolidated Financial Statements

 

5

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2021 (UNAUDITED)

 
   
                                                 
   

Common

Stock

   

Additional Paid-

In Capital

   

Treasury

Stock

   

Retained

Earnings

   

Accumulated Other Comprehensive

Income (Loss)

   

Total

 

Balance, January 1, 2021

  $ 691,950     $ 51,337,219     $ (40,081,132 )   $ 77,073,707     $ (53,378 )   $ 88,968,366  

Net income

    -       -       -       2,216,016       -       2,216,016  

Other comprehensive loss

    -       -       -       -       (1,311,476 )     (1,311,476 )

Dividends on common stock ($0.15 per share)

    -       -       -       (654,754 )     -       (654,754 )

Stock award plans

    -       (195,671 )     304,057       -       -       108,386  

Balance, March 31, 2021

    691,950       51,141,548       (39,777,075 )     78,634,969       (1,364,854 )     89,326,538  

Net income

    -       -       -       2,516,182       -       2,516,182  

Other comprehensive income

    -       -       -       -       1,940,781       1,940,781  

Dividends on common stock ($0.15 per share)

    -       -       -       (660,756 )     -       (660,756 )

Stock award plans

    -       102,454       -       -       -       102,454  

Balance, June 30, 2021

  $ 691,950     $ 51,244,002     $ (39,777,075 )   $ 80,490,395     $ 575,927     $ 93,225,199  

 

 

See Notes to Condensed Consolidated Financial Statements

 

6

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

QUARTERLY AND TWELVE MONTHS ENDED DECEMBER 31, 2020

 
   
                                                 
   

Common

Stock

   

Additional Paid-

In Capital

   

Treasury

Stock

   

Retained

Earnings

   

Accumulated Other Comprehensive

Income (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  

Net income

    -       -       -       946,210       -       946,210  

Other comprehensive income

    -       -       -       -       815,374       815,374  

Dividends on common stock ($0.15 per share)

    -       -       -       (654,848 )     -       (654,848 )

Stock award plans

    -       31,382       23,535       -       -       54,917  

Balance, December 31, 2020

  $ 691,950     $ 51,337,219     $ (40,081,132 )   $ 77,073,707     $ (53,378 )   $ 88,968,366  

 

 

See Notes to Consolidated Financial Statements

 

7

 

 

GUARANTY FEDERAL BANCSHARES, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

SIX MONTHS ENDED JUNE 30, 2021 AND 2020 (UNAUDITED)

 
                 
   

6/30/2021

   

6/30/2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 4,732,198     $ 3,988,228  

Items not requiring (providing) cash:

               

Deferred income taxes

    412,231       (827,080 )

Depreciation and amortization

    976,139       1,014,343  

Provision for loan losses

    700,000       1,250,000  

Gain on sale of Small Business Administration loans

    (897,426 )     -  

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

    (2,181,998 )     (1,589,826 )

Loss on sale of foreclosed assets

    121,165       60,055  

Amortization of deferred income, premiums and discounts, net

    (14,356 )     1,956,425  

Amortization of intangible assets

    238,500       238,500  

Amortization of subordinated notes issuance cost

    22,722       -  

Stock award plan activity

    210,840       (152 )

Accretion of purchase accounting adjustments

    (90,200 )     (378,931 )

Origination of loans held for sale

    (78,660,334 )     (58,851,034 )

Proceeds from sale of loans held for sale

    86,276,158       53,660,668  

Increase in cash surrender value of bank owned life insurance

    (268,009 )     (302,215 )

Changes in:

               

Accrued interest receivable

    248,776       (1,358,629 )

Prepaid expenses and other assets

    281,566       1,602,652  

Accounts payable and accrued expenses

    (611,331 )     (428,207 )

Income taxes receivable/payable

    193,112       -  

Net cash provided by operating activities

    11,689,753       34,797  

CASH FLOWS FROM INVESTING ACTIVITIES

               

Net change in loans

    (62,579,686 )     (53,935,576 )

Proceeds from sale of loans

    6,242,522       -  

Principal payments on available-for-sale securities

    12,637,267       10,387,119  

Proceeds from maturities of available-for-sale securities

    765,189       2,852,256  

Purchase of premises and equipment

    (509,523 )     (330,551 )

Purchase of available-for-sale securities

    (57,049,387 )     (65,436,639 )

Proceeds from sale of available-for-sale securities

    10,951,171       18,437,885  

Purchase of bank owned life insurance

    (6,000,000 )     -  

Proceeds from maturities of interest-bearing deposits

    4,510,000       -  

Purchase of FHLB stock

    (196,800 )     (94,600 )

Capitalized costs on foreclosed assets held for sale

    (75,496 )     (154,120 )

Proceeds from sale of foreclosed assets held for sale

    285       -  

Net cash used in investing activities

    (91,304,458 )     (88,274,226 )

CASH FLOWS FROM FINANCING ACTIVITIES

               

Net increase in demand deposits, NOW accounts and savings accounts

    72,555,049       125,165,045  

Net decrease in certificates of deposit

    (17,555,001 )     (15,615,416 )

Proceeds from FHLB advances

    100,000,000       26,000,000  

Repayments of FHLB advances

    (100,000,000 )     (25,000,000 )

Proceeds from issuance of notes payable

    -       1,100,000  

Repayments of notes payable

    -       (1,000,000 )

Repayment of subordinated debentures

    (5,155,000 )     -  

Advances from borrowers for taxes and insurance

    286,348       238,567  

Cash dividends paid

    (1,312,604 )     (1,305,354 )

Treasury stock purchased

    -       (390,268 )

Net cash provided by financing activities

    48,818,792       109,192,574  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    (30,795,913 )     20,953,145  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

    148,422,908       92,671,909  

CASH AND CASH EQUIVALENTS, END OF PERIOD

  $ 117,626,995     $ 113,625,054  

 

 

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 of the financial position, results of operations and cash flows 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.

 

 

Note 3: 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 June 30, 2021

                               

Debt Securities:

                               

U. S. government agencies

  $ 7,778,042     $ 3,065     $ (129,769 )   $ 7,651,338  

Municipals

    69,456,838       3,177,660       (208,506 )     72,425,992  

Corporates

    44,572,400       664,824       (182,288 )     45,054,936  

Mortgage-backed securities - private label - commercial

    10,920,931       77,696       (38,078 )     10,960,549  

Mortgage-backed securities - private label - consumer

    8,741,671       206,638       (46,849 )     8,901,460  

Government sponsored asset-backed securities and SBA loan pools

    50,325,823       977,522       (280,627 )     51,022,718  
    $ 191,795,705     $ 5,107,405     $ (886,117 )   $ 196,016,993  

 

9

 
   

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 June 30, 2021:

 

   

Amortized Cost

   

Approximate

Fair Value

 

1-5 years

    1,500,000       1,495,291  

6-10 years

    44,449,609       44,946,468  

After 10 years

    75,857,671       78,690,507  

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

    10,920,931       10,960,549  

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

    8,741,671       8,901,460  

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

    50,325,823       51,022,718  
    $ 191,795,705     $ 196,016,993  

 

The book value of securities pledged as collateral, to secure public deposits and for other purposes, amounted to $17,508,124 and $8,294,321 as of June 30, 2021 and December 31, 2020, respectively. The approximate fair value of pledged securities amounted to $18,139,416 and $8,749,409 as of June 30, 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 $124,593 and $221,937 and gross losses of $57,933 and $58,745 for the six months ended June 30, 2021 and June 30, 2020, respectively, were realized from the sale of available-for-sale securities. The tax effect of these net gains and losses was $13,998 and $34,270 for the six months ended June 30, 2021 and June 30, 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.

 

10

 

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 June 30, 2021 and December 31, 2020, was $55,268,167 and $30,049,473 respectively, which is approximately 28% 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 June 30, 2020 and December 31, 2019.

 

As of June 30, 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

  $ 7,148,273     $ (129,769 )   $ -     $ -     $ 7,148,273     $ (129,769 )

Municipals

    9,210,932       (199,623 )     1,009,420       (8,883 )     10,220,352       (208,506 )

Corporates

    12,777,160       (142,896 )     1,962,656       (39,392 )     14,739,816       (182,288 )

Mortgage-backed securities - private label - commercial

    2,973,630       (30,050 )     1,485,585       (8,028 )     4,459,215       (38,078 )

Mortgage-backed securities - private label - consumer

    2,902,920       (46,849 )     -       -       2,902,920       (46,849 )

Government sponsored mortgage-backed securities and SBA loan pools

    15,797,591       (280,627 )     -       -       15,797,591       (280,627 )
    $ 50,810,506     $ (829,814 )   $ 4,457,661     $ (56,303 )   $ 55,268,167     $ (886,117 )

 

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 )

 

11

 
 

Note 4: Loans and Allowance for Loan Losses

 

Categories of loans at June 30, 2021 and December 31, 2020 include:

 

 

June 30,

 

December 31,

 
 

2021

 

2020

 

Real estate - residential mortgage:

           

One to four family units

$ 109,882,880   $ 115,799,200  

Multi-family

  89,595,438     90,028,775  

Real estate - construction

  98,843,988     70,847,330  

Real estate - commercial

  358,349,985     305,673,212  

Commercial loans

  130,258,396     144,326,350  

Consumer and other loans

  23,772,893     26,733,546  

Total loans

  810,703,580     753,408,413  

Less:

           

Allowance for loan losses

  (10,525,640 )   (9,617,024 )

Deferred loan fees/costs, net

  (1,411,140 )   (1,642,118 )

Net loans

$ 798,766,800   $ 742,149,271  

 

Classes of loans by aging at June 30, 2021 and December 31, 2020 were as follows:

 

As of June 30, 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

  $ -     $ 119     $ 1,213     $ 1,332     $ 108,551     $ 109,883     $ 200  

Multi-family

    -       -       -       -       89,595       89,595       -  

Real estate - construction

    -       65       2,052       2,117       96,727       98,844       -  

Real estate - commercial

    -       149       248       397       357,953       358,350       -  

Commercial loans

    13       -       1,639       1,652       128,606       130,258       -  

Consumer and other loans

    4       -       8       12       23,761       23,773       -  

Total

  $ 17     $ 333     $ 5,160     $ 5,510     $ 805,194     $ 810,704     $ 200  

 

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     $ -  

 

12

 

Nonaccruing loans are summarized as follows:

 

   

June 30,

   

December 31,

 
   

2021

   

2020

 

Real estate - residential mortgage:

               

One to four family units

  $ 1,503,495     $ 3,086,159  

Multi-family

    -       -  

Real estate - construction

    2,891,243       6,239,326  

Real estate - commercial

    3,538,482       3,932,241  

Commercial loans

    2,079,678       5,249,782  

Consumer and other loans

    103,537       121,090  

Total

  $ 10,116,435     $ 18,628,598  

 

The following tables present the activity in the allowance for loan losses based on portfolio segment for the three and six months ended June 30, 2021 and 2020:

 

Three months ended
June 30, 2021

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

Balance, beginning of period

  $ 1,374     $ 3,831     $ 1,426     $ 998     $ 1,257     $ 394     $ 608     $ 9,888  

Provision charged to expense

    278       618       (53 )     (31 )     1       (6 )     (507 )   $ 300  

Losses charged off

    -       (1 )     (26 )     -       -       (29 )     -     $ (56 )

Recoveries

    228       1       -       -       148       17       -     $ 394  

Balance, end of period

  $ 1,880     $ 4,449     $ 1,347     $ 967     $ 1,406     $ 376     $ 101     $ 10,526  

 

 

Six months ended
June 30, 2021

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

Balance, beginning of period

  $ 1,132     $ 3,624     $ 1,445     $ 1,058     $ 1,129     $ 571     $ 658     $ 9,617  

Provision charged to expense

    641       825       (76 )     (91 )     122       (164 )     (557 )   $ 700  

Losses charged off

    (121 )     (1 )     (26 )     -       -       (66 )     -     $ (214 )

Recoveries

    228       1       4       -       155       35       -     $ 423  

Balance, end of period

  $ 1,880     $ 4,449     $ 1,347     $ 967     $ 1,406     $ 376     $ 101     $ 10,526  

 

Three months ended
June 30, 2020

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

Balance, beginning of period

  $ 1,629     $ 2,577     $ 1,154     $ 755     $ 1,349     $ 449     $ 136     $ 8,049  

Provision charged to expense

    (60 )     421       385       39       (71 )     49       (13 )   $ 750  

Losses charged off

    -       -       -       -       -       (51 )     -     $ (51 )

Recoveries

    -       -       -       -       21       19       -     $ 40  

Balance, end of period

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

 

Six months ended
June 30, 2020

 

Construction

   

Commercial
Real Estate

   

One to four family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

Balance, beginning of period

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

Provision charged to expense

    (180 )     725       537       48       167       103       (150 )   $ 1,250  

Losses charged off

    -       -       -       -       (32 )     (113 )     -     $ (145 )

Recoveries

    -       6       1       -       35       33       -     $ 75  

Balance, end of period

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

 

13

 

The following tables present the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2021 and December 31, 2020:

 

As of June 30, 2021

 

Construction

   

Commercial
Real Estate

   

One to four

family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

Ending balance: individually evaluated for impairment

  $ 203     $ 90     $ 53     $ -     $ 64     $ 16     $ -     $ 426  

Ending balance: collectively evaluated for impairment

  $ 1,677     $ 4,359     $ 1,294     $ 967     $ 1,342     $ 360     $ 101     $ 10,100  

Ending balance: loans acquired with deteriorated credit quality

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

Loans:

                                                               

Ending balance: individually evaluated for impairment

  $ 2,891     $ 1,529     $ 1,485     $ -     $ 1,958     $ 192     $ -     $ 8,055  

Ending balance: collectively evaluated for impairment

  $ 95,953     $ 354,536     $ 108,398     $ 89,595     $ 128,189     $ 23,581     $ -     $ 800,253  

Ending balance: loans acquired with deteriorated credit quality

  $ -     $ 2,285     $ -     $ -     $ 111     $ -     $ -     $ 2,396  

 

As of December 31, 2020

 

Construction

   

Commercial
Real Estate

   

One to four

family

   

Multi-family

   

Commercial

   

Consumer
and Other

   

Unallocated

   

Total

 

Allowance for loan losses:

 

(In Thousands)

 

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.

 

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.

 

15

 

The following table summarizes the recorded investment in impaired loans at June 30, 2021 and December 31, 2020:

 

   

June 30, 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

  $ 1,376     $ 1,376     $ -     $ 2,780     $ 2,780     $ -  

Multi-family

    -       -       -       -       -       -  

Real estate - construction

    2,025       2,025       -       5,081       5,081       -  

Real estate - commercial

    3,298       3,298       -       3,419       3,419       -  

Commercial loans

    1,750       1,750       -       4,902       4,902       -  

Consumer and other loans

    95       95       -       100       100       -  

Loans with a specific valuation allowance

                                         

Real estate - residential mortgage:

                                               

One to four family units

  $ 109     $ 109     $ 53     $ 330     $ 330     $ 112  

Multi-family

    -       -       -       -       -       -  

Real estate - construction

    866       866       203       1,158       3,129       114  

Real estate - commercial

    516       516       90       801       801       117  

Commercial loans

    319       319       64       341       341       63  

Consumer and other loans

    97       97       16       102       102       15  

Total

                                               

Real estate - residential mortgage:

                                               

One to four family units

  $ 1,485     $ 1,485     $ 53     $ 3,110     $ 3,110     $ 112  

Multi-family

    -       -       -       -       -       -  

Real estate - construction

    2,891       2,891       203       6,239       8,210       114  

Real estate - commercial

    3,814       3,814       90       4,220       4,220       117  

Commercial loans

    2,069       2,069       64       5,243       5,243       63  

Consumer and other loans

    192       192       16       202       202       15  

Total

  $ 10,451     $ 10,451     $ 426     $ 19,014     $ 20,985     $ 421  

 

16

 

The following table summarizes average impaired loans and related interest recognized on impaired loans for the three and six months ended June 30, 2021 and 2020:

 

   

For the Three Months Ended

   

For the Three Months Ended

 
   

June 30, 2021

   

June 30, 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

  $ 2,065     $ -     $ 1,122     $ -  

Multi-family

    -       -       -       -  

Real estate - construction

    4,007       -       -       -  

Real estate - commercial

    3,334       2       3,247       -  

Commercial loans

    2,816       -       -       -  

Consumer and other loans

    102       3       112       5  

Loans with a specific valuation allowance

                         

Real estate - residential mortgage:

                               

One to four family units

  $ 144     $ -     $ 1,274     $ -  

Multi-family

    -       -       -       -  

Real estate - construction

    867