Notes to Consolidated Financial Statements
(unaudited)
(1) HMN Financial, Inc.
HMN Financial, Inc. (HMN or the Company) is a stock savings bank holding company that owns 100 percent of Home Federal Savings Bank (the Bank). The Bank has a community banking philosophy and operates retail banking and loan production facilities in Minnesota, Iowa and Wisconsin. The Bank has two wholly owned subsidiaries, Osterud Insurance Agency, Inc. (OIA), which does business as Home Federal Investment Services and offers financial planning products and services, and HFSB Property Holdings, LLC (HPH), which is currently inactive, but has acted in the past as an intermediary for the Bank in holding and operating certain foreclosed properties.
The consolidated financial statements included herein are for HMN, the Bank, OIA and HPH. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for the prior year have been reclassified to conform to the current year presentation.
(2) Basis of Preparation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of stockholders' equity and consolidated statements of cash flows in conformity with U.S. generally accepted accounting principles (GAAP). However, all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The results of operations for the six month period ended June 30, 2021 are not necessarily indicative of the results which may be expected for the entire year.
(3) New Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU, for public business entities that are filers with the Securities and Exchange Commission (SEC), were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods.
On November 26, 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses which delayed the implementation date of ASU 2016-13 for SEC smaller reporting companies, such as HMN, from the first quarter of 2020 to the first quarter of 2023. All entities may adopt the amendments in the ASU early as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company has not early adopted this ASU. Management has accumulated the charge off information necessary to calculate the appropriate life of loan loss percentages for the various loan categories, has identified several key metrics to help identify and project anticipated changes in the credit quality of the Bank’s loan portfolio upon enactment, and is in the process of evaluating the determination of potential qualitative reserve amounts and the impact that the adoption of this ASU will have on the Company’s consolidated financial statements when it is adopted in the first quarter of 2023.
On February 6, 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). The amendments in this ASU related to Leases (Topic 842) did not have any impact on the Company. The amendments in this ASU related to Topic 326 adds additional guidance related to the SEC’s expectations for the documentation of the measurement, review process and the systematic methodology used by entities to determine the current credit losses under FASB ASC Topic 326. Management is currently in the process of reviewing how the Company’s credit loss calculation and review processes will be impacted by the additional guidance of this ASU when ASC Topic 326 is adopted in the first quarter of 2023.
(4) Fair Value Measurements
ASC 820, Fair Value Measurements, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system consisting of three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access.
Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.
Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The following table summarizes the assets and liabilities of the Company for which fair values are determined on a recurring basis as of June 30, 2021 and December 31, 2020.
|
|
Carrying Value at June 30, 2021
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities available for sale
|
|
$
|
211,534
|
|
|
|
0
|
|
|
|
211,534
|
|
|
|
0
|
|
Equity securities
|
|
|
198
|
|
|
|
0
|
|
|
|
198
|
|
|
|
0
|
|
Mortgage loan commitments
|
|
|
186
|
|
|
|
0
|
|
|
|
186
|
|
|
|
0
|
|
Total
|
|
$
|
211,918
|
|
|
|
0
|
|
|
|
211,918
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2020
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Securities available for sale
|
|
$
|
148,090
|
|
|
|
0
|
|
|
|
148,090
|
|
|
|
0
|
|
Equity securities
|
|
|
149
|
|
|
|
0
|
|
|
|
149
|
|
|
|
0
|
|
Mortgage loan commitments
|
|
|
261
|
|
|
|
0
|
|
|
|
261
|
|
|
|
0
|
|
Total
|
|
$
|
148,500
|
|
|
|
0
|
|
|
|
148,500
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Levels 1, 2 or 3 during the three or six month periods ended June 30, 2021.
The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of the lower-of-cost-or-market accounting or write-downs of individual assets. The following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets or portfolios at June 30, 2021 and December 31, 2020.
|
|
Carrying Value at June 30, 2021
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Three Months Ended
June 30, 2021
Total Gains (Losses)
|
|
|
Six Months Ended
June 30, 2021
Total Gains (Losses)
|
|
Loans held for sale
|
|
$
|
7,380
|
|
|
|
0
|
|
|
|
7,380
|
|
|
|
0
|
|
|
|
137
|
|
|
|
24
|
|
Mortgage servicing rights, net
|
|
|
3,160
|
|
|
|
0
|
|
|
|
3,160
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Impaired loans
|
|
|
1,583
|
|
|
|
0
|
|
|
|
1,583
|
|
|
|
0
|
|
|
|
(59
|
)
|
|
|
(64
|
)
|
Total
|
|
$
|
12,123
|
|
|
|
0
|
|
|
|
12,123
|
|
|
|
0
|
|
|
|
78
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at December 31, 2020
|
|
|
|
|
|
(Dollars in thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Year Ended
December 31, 2020
Total Gains (Losses)
|
|
Loans held for sale
|
|
$
|
6,186
|
|
|
|
0
|
|
|
|
6,186
|
|
|
|
0
|
|
|
|
28
|
|
Mortgage servicing rights, net
|
|
|
3,043
|
|
|
|
0
|
|
|
|
3,043
|
|
|
|
0
|
|
|
|
0
|
|
Impaired loans
|
|
|
2,888
|
|
|
|
0
|
|
|
|
2,888
|
|
|
|
0
|
|
|
|
(76
|
)
|
Real estate, net
|
|
|
636
|
|
|
|
0
|
|
|
|
636
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
12,753
|
|
|
|
0
|
|
|
|
12,753
|
|
|
|
0
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) Fair Value of Financial Instruments
ASC 825, Disclosures about Fair Values of Financial Instruments requires interim reporting period disclosure of the estimated fair values of the Company’s financial instruments, including assets, liabilities and off-balance sheet items for which it is practicable to estimate fair value. The fair value estimates are made as of June 30, 2021 and December 31, 2020 based upon relevant market information, if available, and upon the characteristics of the financial instruments themselves. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.
The estimated fair value of the Company’s financial instruments as of June 30, 2021 and December 31, 2020 are shown below. Following the table, there is an explanation of the methods and assumptions used to estimate the fair value of each class of financial instruments.
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Contract
Amount
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Contract Amount
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
100,406
|
|
|
|
100,406
|
|
|
|
100,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,269
|
|
|
|
86,269
|
|
|
|
86,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
211,534
|
|
|
|
211,534
|
|
|
|
|
|
|
|
211,534
|
|
|
|
|
|
|
|
|
|
|
|
148,090
|
|
|
|
148,090
|
|
|
|
|
|
|
|
148,090
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
198
|
|
|
|
198
|
|
|
|
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
7,380
|
|
|
|
7,380
|
|
|
|
|
|
|
|
7,380
|
|
|
|
|
|
|
|
|
|
|
|
6,186
|
|
|
|
6,186
|
|
|
|
|
|
|
|
6,186
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
|
637,219
|
|
|
|
640,968
|
|
|
|
|
|
|
|
640,968
|
|
|
|
|
|
|
|
|
|
|
|
642,630
|
|
|
|
648,275
|
|
|
|
|
|
|
|
648,275
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
1,092
|
|
|
|
1,092
|
|
|
|
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
932
|
|
|
|
932
|
|
|
|
|
|
|
|
932
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
2,135
|
|
|
|
2,135
|
|
|
|
|
|
|
|
2,135
|
|
|
|
|
|
|
|
|
|
|
|
3,102
|
|
|
|
3,102
|
|
|
|
|
|
|
|
3,102
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
862,282
|
|
|
|
862,597
|
|
|
|
|
|
|
|
862,597
|
|
|
|
|
|
|
|
|
|
|
|
795,204
|
|
|
|
795,927
|
|
|
|
|
|
|
|
795,927
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
106
|
|
|
|
106
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
Off-balance sheet financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
186
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,513
|
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,330
|
|
Commitments to sell loans
|
|
|
(68
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,652
|
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,746
|
|
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates their fair value.
Securities Available for Sale
The fair values of securities were based upon quoted market prices.
Equity Securities
The fair values of equity securities were based upon quoted market prices.
Loans Held for Sale
The fair values of loans held for sale were based upon quoted market prices for loans with similar interest rates and terms to maturity.
Loans Receivable, net
The fair value of the loan portfolio, with the exception of the adjustable rate portfolio, was calculated by discounting the scheduled cash flows through the estimated maturity using anticipated prepayment speeds and using discount rates that reflect the credit and interest rate risk inherent in each loan portfolio. The fair value of the adjustable loan portfolio was estimated by grouping the loans with similar characteristics and comparing the characteristics of each group to the prices quoted for similar types of loans in the secondary market. The fair value disclosures for both the fixed and adjustable rate portfolios were adjusted to reflect the exit price amount anticipated to be received from the sale of the portfolio in an open market transaction.
Federal Home Loan Bank (FHLB) Stock
The carrying amount of FHLB stock approximates its fair value.
Accrued Interest Receivable
The carrying amount of accrued interest receivable approximates its fair value since it is short-term in nature and does not present unanticipated credit concerns.
Deposits
The fair value of demand deposits, savings accounts and money market account deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value disclosures for all of the deposits were adjusted to reflect the exit price amount anticipated to be received from the sale of the deposits in an open market transaction.
Accrued Interest Payable
The carrying amount of accrued interest payable approximates its fair value since it is short-term in nature.
Commitments to Extend Credit
The fair values of commitments to extend credit are estimated using the fees normally charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter parties.
Commitments to Sell Loans
The fair values of commitments to sell loans are estimated using the quoted market prices for loans with similar interest rates and terms to maturity.
(6) Other Comprehensive Income (Loss)
Other comprehensive income (loss) is defined as the change in equity during a period from transactions and other events from non-owner sources. Comprehensive income is the total of net income and other comprehensive income (loss), which for the Company is comprised of unrealized gains and losses on securities available for sale. The components of other comprehensive income (loss) and the related tax effects were as follows:
|
|
For the Three Months Ended June 30,
|
|
(Dollars in thousands)
|
|
2021
|
|
|
2020
|
|
Securities available for sale:
|
|
Before
Tax
|
|
|
Tax
Effect
|
|
|
Net of
Tax
|
|
|
Before
Tax
|
|
|
Tax
Effect
|
|
|
Net of
Tax
|
|
Gross unrealized gains arising during the period
|
|
$
|
586
|
|
|
|
165
|
|
|
|
421
|
|
|
|
311
|
|
|
|
87
|
|
|
|
224
|
|
Other comprehensive income
|
|
$
|
586
|
|
|
|
165
|
|
|
|
421
|
|
|
|
311
|
|
|
|
87
|
|
|
|
224
|
|
|
|
For the Six Months Ended June 30,
|
|
(Dollars in thousands)
|
|
2021
|
|
|
2020
|
|
Securities available for sale:
|
|
Before
Tax
|
|
|
Tax
Effect
|
|
|
Net of
Tax
|
|
|
Before
Tax
|
|
|
Tax
Effect
|
|
|
Net of
Tax
|
|
Gross unrealized (losses) gains arising during the period
|
|
$
|
(1,135
|
)
|
|
|
(315
|
)
|
|
|
(820
|
)
|
|
|
2,081
|
|
|
|
582
|
|
|
|
1,499
|
|
Other comprehensive (loss) income
|
|
$
|
(1,135
|
)
|
|
|
(315
|
)
|
|
|
(820
|
)
|
|
|
2,081
|
|
|
|
582
|
|
|
|
1,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) Securities Available For Sale
The following table shows the gross unrealized losses and fair value for the securities available for sale portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2021 and December 31, 2020.
|
|
Less Than Twelve Months
|
|
|
Twelve Months or More
|
|
|
Total
|
|
(Dollars in thousands)
|
|
# of
Investments
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
# of
Investments
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA)
|
|
|
11
|
|
|
$
|
50,861
|
|
|
|
(271
|
)
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
50,861
|
|
|
|
(271
|
)
|
Federal Home Loan Mortgage Corporation (FHLMC)
|
|
|
10
|
|
|
|
46,790
|
|
|
|
(173
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
46,790
|
|
|
|
(173
|
)
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
7
|
|
|
|
34,906
|
|
|
|
(90
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
34,906
|
|
|
|
(90
|
)
|
Corporate preferred stock
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
644
|
|
|
|
(56
|
)
|
|
|
644
|
|
|
|
(56
|
)
|
Total temporarily impaired securities
|
|
|
28
|
|
|
$
|
132,557
|
|
|
|
(534
|
)
|
|
|
1
|
|
|
$
|
644
|
|
|
|
(56
|
)
|
|
$
|
133,201
|
|
|
|
(590
|
)
|
|
|
Less Than Twelve Months
|
|
|
Twelve Months or More
|
|
|
Total
|
|
(Dollars in thousands)
|
|
# of
Investments
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
# of
Investments
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
|
1
|
|
|
$
|
4,956
|
|
|
|
(3
|
)
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
4,956
|
|
|
|
(3
|
)
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate preferred stock
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
630
|
|
|
|
(70
|
)
|
|
|
630
|
|
|
|
(70
|
)
|
Total temporarily impaired securities
|
|
|
1
|
|
|
$
|
4,956
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
$
|
630
|
|
|
|
(70
|
)
|
|
$
|
5,586
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the Company’s intent and ability to hold the investment for a period of time sufficient to recover the temporary loss. The unrealized losses on impaired securities other than the corporate preferred stock are the result of changes in interest rates. The unrealized losses reported for the corporate preferred stock at June 30, 2021 relates to a single trust preferred security that was issued by the holding company of a small community bank. As of June 30, 2021 all payments were current on the trust preferred security and the issuer’s subsidiary bank was considered to be “well capitalized” based on its most recent regulatory filing. Based on a review of the issuer, it was determined that the trust preferred security was not other-than-temporarily impaired at June 30, 2021 as the Company does not intend to sell and has the intent and ability to hold it for a period of time sufficient to recover the temporary loss. Management believes that the Company will receive all principal and interest payments contractually due on the security and that the decrease in the market value is primarily due to a lack of liquidity in the market for trust preferred securities. Management will continue to monitor the credit risk of the issuer and may be required to recognize other-than-temporary impairment charges on this security in future periods.
A summary of securities available for sale at June 30, 2021 and December 31, 2020 is as follows:
(Dollars in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
$
|
98,253
|
|
|
|
917
|
|
|
|
(271
|
)
|
|
|
98,899
|
|
FHLMC
|
|
|
66,889
|
|
|
|
207
|
|
|
|
(173
|
)
|
|
|
66,923
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
|
60
|
|
|
|
4
|
|
|
|
0
|
|
|
|
64
|
|
|
|
|
165,202
|
|
|
|
1,128
|
|
|
|
(444
|
)
|
|
|
165,886
|
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
44,990
|
|
|
|
104
|
|
|
|
(90
|
)
|
|
|
45,004
|
|
Corporate preferred stock
|
|
|
700
|
|
|
|
0
|
|
|
|
(56
|
)
|
|
|
644
|
|
|
|
|
45,690
|
|
|
|
104
|
|
|
|
(146
|
)
|
|
|
45,648
|
|
|
|
$
|
210,892
|
|
|
|
1,232
|
|
|
|
(590
|
)
|
|
|
211,534
|
|
(Dollars in thousands)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
$
|
68,699
|
|
|
|
1,313
|
|
|
|
(3
|
)
|
|
|
70,009
|
|
FHLMC
|
|
|
31,025
|
|
|
|
327
|
|
|
|
0
|
|
|
|
31,352
|
|
Collateralized mortgage obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA
|
|
|
97
|
|
|
|
6
|
|
|
|
0
|
|
|
|
103
|
|
|
|
|
99,821
|
|
|
|
1,646
|
|
|
|
(3
|
)
|
|
|
101,464
|
|
Other marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
|
45,029
|
|
|
|
204
|
|
|
|
0
|
|
|
|
45,233
|
|
Municipal obligations
|
|
|
725
|
|
|
|
1
|
|
|
|
0
|
|
|
|
726
|
|
Corporate obligations
|
|
|
37
|
|
|
|
0
|
|
|
|
0
|
|
|
|
37
|
|
Corporate preferred stock
|
|
|
700
|
|
|
|
0
|
|
|
|
(70
|
)
|
|
|
630
|
|
|
|
|
46,491
|
|
|
|
205
|
|
|
|
(70
|
)
|
|
|
46,626
|
|
|
|
$
|
146,312
|
|
|
|
1,851
|
|
|
|
(73
|
)
|
|
|
148,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates amortized cost and estimated fair value of securities available for sale at June 30, 2021 based upon contractual maturity adjusted for scheduled repayments of principal and projected prepayments of principal based upon current economic conditions and interest rates.
(Dollars in thousands)
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due less than one year
|
|
$
|
69,884
|
|
|
|
70,096
|
|
Due after one year through five years
|
|
|
117,826
|
|
|
|
118,219
|
|
Due after five years through ten years
|
|
|
22,403
|
|
|
|
22,495
|
|
Due after ten years
|
|
|
779
|
|
|
|
724
|
|
Total
|
|
$
|
210,892
|
|
|
|
211,534
|
|
|
|
|
|
|
|
|
|
|
The allocation of mortgage-backed securities in the table above is based upon the anticipated future cash flow of the securities using estimated mortgage prepayment speeds. The allocation of other marketable securities that have call features is based on the anticipated cash flows to the expected call date if it is anticipated that the security will be called, or to the maturity date if it is not anticipated to be called.
(8) Loans Receivable, Net
A summary of loans receivable at June 30, 2021 and December 31, 2020 is as follows:
(Dollars in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Single family
|
|
$
|
150,270
|
|
|
|
135,023
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
200,662
|
|
|
|
202,400
|
|
Other
|
|
|
176,949
|
|
|
|
178,304
|
|
|
|
|
377,611
|
|
|
|
380,704
|
|
Consumer
|
|
|
46,266
|
|
|
|
55,391
|
|
Commercial business
|
|
|
74,118
|
|
|
|
82,673
|
|
Total loans
|
|
|
648,265
|
|
|
|
653,791
|
|
Less:
|
|
|
|
|
|
|
|
|
Unamortized discounts
|
|
|
11
|
|
|
|
12
|
|
Net deferred loan fees
|
|
|
1,120
|
|
|
|
450
|
|
Allowance for loan losses
|
|
|
9,915
|
|
|
|
10,699
|
|
Total loans receivable, net
|
|
$
|
637,219
|
|
|
|
642,630
|
|
|
|
|
|
|
|
|
|
|
(9) Allowance for Loan Losses and Credit Quality Information
The allowance for loan losses is summarized as follows:
(Dollars in thousands)
|
|
Single
Family
|
|
|
Commercial
Real Estate
|
|
|
Consumer
|
|
|
Commercial
Business
|
|
|
Total
|
|
For the three months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
$
|
839
|
|
|
|
7,073
|
|
|
|
1,189
|
|
|
|
1,031
|
|
|
|
10,132
|
|
Provision for losses
|
|
|
90
|
|
|
|
(690
|
)
|
|
|
(166
|
)
|
|
|
(125
|
)
|
|
|
(891
|
)
|
Charge-offs
|
|
|
0
|
|
|
|
0
|
|
|
|
(11
|
)
|
|
|
0
|
|
|
|
(11
|
)
|
Recoveries
|
|
|
0
|
|
|
|
650
|
|
|
|
27
|
|
|
|
8
|
|
|
|
685
|
|
Balance, June 30, 2021
|
|
$
|
929
|
|
|
|
7,033
|
|
|
|
1,039
|
|
|
|
914
|
|
|
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
$
|
1,030
|
|
|
|
7,295
|
|
|
|
1,389
|
|
|
|
985
|
|
|
|
10,699
|
|
Provision for losses
|
|
|
(101
|
)
|
|
|
(912
|
)
|
|
|
(336
|
)
|
|
|
(118
|
)
|
|
|
(1,467
|
)
|
Charge-offs
|
|
|
0
|
|
|
|
0
|
|
|
|
(42
|
)
|
|
|
0
|
|
|
|
(42
|
)
|
Recoveries
|
|
|
0
|
|
|
|
650
|
|
|
|
28
|
|
|
|
47
|
|
|
|
725
|
|
Balance, June 30, 2021
|
|
$
|
929
|
|
|
|
7,033
|
|
|
|
1,039
|
|
|
|
914
|
|
|
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific allowance
|
|
$
|
29
|
|
|
|
95
|
|
|
|
100
|
|
|
|
14
|
|
|
|
238
|
|
General allowance
|
|
|
1,001
|
|
|
|
7,200
|
|
|
|
1,289
|
|
|
|
971
|
|
|
|
10,461
|
|
Balance, December 31, 2020
|
|
$
|
1,030
|
|
|
|
7,295
|
|
|
|
1,389
|
|
|
|
985
|
|
|
|
10,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific allowance
|
|
$
|
68
|
|
|
|
135
|
|
|
|
51
|
|
|
|
9
|
|
|
|
263
|
|
General allowance
|
|
|
861
|
|
|
|
6,898
|
|
|
|
988
|
|
|
|
905
|
|
|
|
9,652
|
|
Balance, June 30, 2021
|
|
$
|
929
|
|
|
|
7,033
|
|
|
|
1,039
|
|
|
|
914
|
|
|
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually reviewed for impairment
|
|
$
|
857
|
|
|
|
1,484
|
|
|
|
750
|
|
|
|
35
|
|
|
|
3,126
|
|
Collectively reviewed for impairment
|
|
|
134,166
|
|
|
|
379,220
|
|
|
|
54,641
|
|
|
|
82,638
|
|
|
|
650,665
|
|
Ending balance
|
|
$
|
135,023
|
|
|
|
380,704
|
|
|
|
55,391
|
|
|
|
82,673
|
|
|
|
653,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually reviewed for impairment
|
|
$
|
578
|
|
|
|
519
|
|
|
|
723
|
|
|
|
26
|
|
|
|
1,846
|
|
Collectively reviewed for impairment
|
|
|
149,692
|
|
|
|
377,092
|
|
|
|
45,543
|
|
|
|
74,092
|
|
|
|
646,419
|
|
Ending balance
|
|
$
|
150,270
|
|
|
|
377,611
|
|
|
|
46,266
|
|
|
|
74,118
|
|
|
|
648,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Single
Family
|
|
|
Commercial
Real Estate
|
|
|
Consumer
|
|
|
Commercial
Business
|
|
|
Total
|
|
For the three months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
$
|
937
|
|
|
|
5,539
|
|
|
|
1,583
|
|
|
|
977
|
|
|
|
9,036
|
|
Provision for losses
|
|
|
1
|
|
|
|
556
|
|
|
|
(101
|
)
|
|
|
(138
|
)
|
|
|
318
|
|
Charge-offs
|
|
|
0
|
|
|
|
(730
|
)
|
|
|
(34
|
)
|
|
|
0
|
|
|
|
(764
|
)
|
Recoveries
|
|
|
0
|
|
|
|
17
|
|
|
|
16
|
|
|
|
26
|
|
|
|
59
|
|
Balance, June 30, 2020
|
|
$
|
938
|
|
|
|
5,382
|
|
|
|
1,464
|
|
|
|
865
|
|
|
|
8,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
857
|
|
|
|
5,060
|
|
|
|
1,507
|
|
|
|
1,140
|
|
|
|
8,564
|
|
Provision for losses
|
|
|
81
|
|
|
|
1,035
|
|
|
|
(15
|
)
|
|
|
(323
|
)
|
|
|
778
|
|
Charge-offs
|
|
|
0
|
|
|
|
(730
|
)
|
|
|
(45
|
)
|
|
|
0
|
|
|
|
(775
|
)
|
Recoveries
|
|
|
0
|
|
|
|
17
|
|
|
|
17
|
|
|
|
48
|
|
|
|
82
|
|
Balance, June 30, 2020
|
|
$
|
938
|
|
|
|
5,382
|
|
|
|
1,464
|
|
|
|
865
|
|
|
|
8,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts of classified and unclassified loans at June 30, 2021 and December 31, 2020.
|
|
June 30, 2021
|
|
|
|
Classified
|
|
|
|
|
|
|
Unclassified
|
|
|
|
|
|
(Dollars in thousands)
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
|
Total
|
|
|
Total
Loans
|
|
Single family
|
|
$
|
990
|
|
|
|
1,570
|
|
|
|
27
|
|
|
|
42
|
|
|
|
2,629
|
|
|
|
147,641
|
|
|
|
150,270
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
8,669
|
|
|
|
1,569
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,238
|
|
|
|
190,424
|
|
|
|
200,662
|
|
Other
|
|
|
7,388
|
|
|
|
8,099
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,487
|
|
|
|
161,462
|
|
|
|
176,949
|
|
Consumer
|
|
|
0
|
|
|
|
653
|
|
|
|
57
|
|
|
|
13
|
|
|
|
723
|
|
|
|
45,543
|
|
|
|
46,266
|
|
Commercial business
|
|
|
2,890
|
|
|
|
1,522
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,412
|
|
|
|
69,706
|
|
|
|
74,118
|
|
|
|
$
|
19,937
|
|
|
|
13,413
|
|
|
|
84
|
|
|
|
55
|
|
|
|
33,489
|
|
|
|
614,776
|
|
|
|
648,265
|
|
|
|
December 31, 2020
|
|
|
|
Classified
|
|
|
|
|
|
|
Unclassified
|
|
|
|
|
|
(Dollars in thousands)
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
|
Total
|
|
|
Total
Loans
|
|
Single family
|
|
$
|
1,219
|
|
|
|
2,845
|
|
|
|
29
|
|
|
|
0
|
|
|
|
4,093
|
|
|
|
130,930
|
|
|
|
135,023
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
8,065
|
|
|
|
3,483
|
|
|
|
0
|
|
|
|
0
|
|
|
|
11,548
|
|
|
|
190,852
|
|
|
|
202,400
|
|
Other
|
|
|
8,774
|
|
|
|
9,750
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,524
|
|
|
|
159,780
|
|
|
|
178,304
|
|
Consumer
|
|
|
0
|
|
|
|
600
|
|
|
|
132
|
|
|
|
18
|
|
|
|
750
|
|
|
|
54,641
|
|
|
|
55,391
|
|
Commercial business
|
|
|
1,968
|
|
|
|
2,482
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,450
|
|
|
|
78,223
|
|
|
|
82,673
|
|
|
|
$
|
20,026
|
|
|
|
19,160
|
|
|
|
161
|
|
|
|
18
|
|
|
|
39,365
|
|
|
|
614,426
|
|
|
|
653,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified loans represent special mention, substandard (performing and non-performing) and non-performing loans categorized as doubtful and loss. Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. A loan classified as loss is essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet may not be warranted. Loans classified as substandard or doubtful require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible.
The aging of past due loans at June 30, 2021 and December 31, 2020 is summarized as follows:
(Dollars in thousands)
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days
or More
Past Due
|
|
|
Total
Past Due
|
|
|
Current
Loans
|
|
|
Total
Loans
|
|
|
Loans 90 Days
or More
Past Due and
Still Accruing
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
500
|
|
|
|
150
|
|
|
|
430
|
|
|
|
1,080
|
|
|
|
149,190
|
|
|
|
150,270
|
|
|
|
0
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
333
|
|
|
|
0
|
|
|
|
0
|
|
|
|
333
|
|
|
|
200,329
|
|
|
|
200,662
|
|
|
|
0
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
176,949
|
|
|
|
176,949
|
|
|
|
0
|
|
Consumer
|
|
|
329
|
|
|
|
64
|
|
|
|
291
|
|
|
|
684
|
|
|
|
45,582
|
|
|
|
46,266
|
|
|
|
0
|
|
Commercial business
|
|
|
25
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25
|
|
|
|
74,093
|
|
|
|
74,118
|
|
|
|
|
|
|
|
$
|
1,187
|
|
|
|
214
|
|
|
|
721
|
|
|
|
2,122
|
|
|
|
646,143
|
|
|
|
648,265
|
|
|
|
0
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
626
|
|
|
|
38
|
|
|
|
298
|
|
|
|
962
|
|
|
|
134,061
|
|
|
|
135,023
|
|
|
|
0
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
202,400
|
|
|
|
202,400
|
|
|
|
0
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
178,304
|
|
|
|
178,304
|
|
|
|
0
|
|
Consumer
|
|
|
458
|
|
|
|
66
|
|
|
|
279
|
|
|
|
803
|
|
|
|
54,588
|
|
|
|
55,391
|
|
|
|
0
|
|
Commercial business
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
82,673
|
|
|
|
82,673
|
|
|
|
0
|
|
|
|
$
|
1,084
|
|
|
|
104
|
|
|
|
577
|
|
|
|
1,765
|
|
|
|
652,026
|
|
|
|
653,791
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans include loans that are non-performing (non-accruing) and loans that have been modified in a troubled debt restructuring (TDR). The following table summarizes impaired loans and related allowances as of June 30, 2021 and December 31, 2020.
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
Loans with no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
423
|
|
|
|
442
|
|
|
|
0
|
|
|
|
740
|
|
|
|
759
|
|
|
|
0
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
156
|
|
|
|
156
|
|
|
|
0
|
|
|
|
932
|
|
|
|
1,582
|
|
|
|
0
|
|
Other
|
|
|
194
|
|
|
|
194
|
|
|
|
0
|
|
|
|
211
|
|
|
|
211
|
|
|
|
0
|
|
Consumer
|
|
|
628
|
|
|
|
628
|
|
|
|
0
|
|
|
|
574
|
|
|
|
574
|
|
|
|
0
|
|
Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
155
|
|
|
|
155
|
|
|
|
68
|
|
|
|
117
|
|
|
|
117
|
|
|
|
29
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
166
|
|
|
|
166
|
|
|
|
5
|
|
Other
|
|
|
169
|
|
|
|
169
|
|
|
|
135
|
|
|
|
175
|
|
|
|
175
|
|
|
|
90
|
|
Consumer
|
|
|
95
|
|
|
|
95
|
|
|
|
51
|
|
|
|
176
|
|
|
|
176
|
|
|
|
100
|
|
Commercial business
|
|
|
26
|
|
|
|
578
|
|
|
|
9
|
|
|
|
35
|
|
|
|
586
|
|
|
|
14
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
578
|
|
|
|
597
|
|
|
|
68
|
|
|
|
857
|
|
|
|
876
|
|
|
|
29
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
156
|
|
|
|
156
|
|
|
|
0
|
|
|
|
1,098
|
|
|
|
1,748
|
|
|
|
5
|
|
Other
|
|
|
363
|
|
|
|
363
|
|
|
|
135
|
|
|
|
386
|
|
|
|
386
|
|
|
|
90
|
|
Consumer
|
|
|
723
|
|
|
|
723
|
|
|
|
51
|
|
|
|
750
|
|
|
|
750
|
|
|
|
100
|
|
Commercial business
|
|
|
26
|
|
|
|
578
|
|
|
|
9
|
|
|
|
35
|
|
|
|
586
|
|
|
|
14
|
|
|
|
$
|
1,846
|
|
|
|
2,417
|
|
|
|
263
|
|
|
|
3,126
|
|
|
|
4,346
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2021 and 2020.
|
|
For the Three Months Ended June 30, 2021
|
|
|
For the Six Months Ended June 30, 2021
|
|
(Dollars in thousands)
|
|
Average Recorded
Investment
|
|
|
Interest Income
Recognized
|
|
|
Average Recorded
Investment
|
|
|
Interest Income
Recognized
|
|
Loans with no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
580
|
|
|
|
1
|
|
|
|
633
|
|
|
|
2
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
614
|
|
|
|
0
|
|
|
|
720
|
|
|
|
0
|
|
Other
|
|
|
196
|
|
|
|
0
|
|
|
|
201
|
|
|
|
0
|
|
Consumer
|
|
|
570
|
|
|
|
2
|
|
|
|
571
|
|
|
|
2
|
|
Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
135
|
|
|
|
0
|
|
|
|
129
|
|
|
|
0
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
0
|
|
|
|
0
|
|
|
|
55
|
|
|
|
0
|
|
Other
|
|
|
154
|
|
|
|
0
|
|
|
|
161
|
|
|
|
0
|
|
Consumer
|
|
|
122
|
|
|
|
0
|
|
|
|
140
|
|
|
|
1
|
|
Commercial business
|
|
|
32
|
|
|
|
0
|
|
|
|
33
|
|
|
|
1
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
715
|
|
|
|
1
|
|
|
|
762
|
|
|
|
2
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
614
|
|
|
|
0
|
|
|
|
775
|
|
|
|
0
|
|
Other
|
|
|
350
|
|
|
|
0
|
|
|
|
362
|
|
|
|
0
|
|
Consumer
|
|
|
692
|
|
|
|
2
|
|
|
|
711
|
|
|
|
3
|
|
Commercial business
|
|
|
32
|
|
|
|
0
|
|
|
|
33
|
|
|
|
1
|
|
|
|
$
|
2,403
|
|
|
|
3
|
|
|
|
2,643
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2020
|
|
|
For the Six Months Ended June 30, 2020
|
|
(Dollars in thousands)
|
|
Average Recorded
Investment
|
|
|
Interest Income
Recognized
|
|
|
Average Recorded
Investment
|
|
|
Interest Income
Recognized
|
|
Loans with no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
$
|
604
|
|
|
|
7
|
|
|
|
584
|
|
|
|
18
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
501
|
|
|
|
13
|
|
|
|
334
|
|
|
|
33
|
|
Other
|
|
|
480
|
|
|
|
0
|
|
|
|
320
|
|
|
|
2
|
|
Consumer
|
|
|
591
|
|
|
|
3
|
|
|
|
654
|
|
|
|
6
|
|
Commercial business
|
|
|
4
|
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
Loans with an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
271
|
|
|
|
0
|
|
|
|
324
|
|
|
|
0
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
177
|
|
|
|
0
|
|
|
|
179
|
|
|
|
0
|
|
Other
|
|
|
484
|
|
|
|
0
|
|
|
|
650
|
|
|
|
0
|
|
Consumer
|
|
|
185
|
|
|
|
1
|
|
|
|
188
|
|
|
|
3
|
|
Commercial business
|
|
|
93
|
|
|
|
1
|
|
|
|
307
|
|
|
|
1
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
875
|
|
|
|
7
|
|
|
|
908
|
|
|
|
18
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
678
|
|
|
|
13
|
|
|
|
513
|
|
|
|
33
|
|
Other
|
|
|
964
|
|
|
|
0
|
|
|
|
970
|
|
|
|
2
|
|
Consumer
|
|
|
776
|
|
|
|
4
|
|
|
|
842
|
|
|
|
9
|
|
Commercial business
|
|
|
97
|
|
|
|
1
|
|
|
|
310
|
|
|
|
1
|
|
|
|
$
|
3,390
|
|
|
|
25
|
|
|
|
3,543
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021 and December 31, 2020, non-accruing loans totaled $1.8 million and $2.7 million, respectively, for which the related allowance for loan losses was $0.3 million and $0.2 million, respectively. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accruing loans for which no specific allowance has been recorded, because management determined that the value of the collateral was sufficient to repay the loan, totaled $1.4 million and $2.1 million at June 30, 2021 and December 31, 2020, respectively. Non-accrual loans also include certain loans that have had terms modified in a TDR.
The non-accrual loans at June 30, 2021 and December 31, 2020 are summarized as follows:
(Dollars in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Single family
|
|
$
|
557
|
|
|
|
502
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
Real estate rental and leasing
|
|
|
156
|
|
|
|
1,098
|
|
Other
|
|
|
363
|
|
|
|
386
|
|
Consumer
|
|
|
669
|
|
|
|
689
|
|
Commercial business
|
|
|
8
|
|
|
|
9
|
|
|
|
$
|
1,753
|
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021 and December 31, 2020 there were loans included in loans receivable, net, with terms that had been modified in a TDR totaling $1.3 million and $1.5 million, respectively. Of the loans that were restructured as TDRs in the second quarter of 2021, none were classified but performing, and $0.1 million were non-performing at June 30, 2021. There were no loans that were restructured as TDRs in the second quarter of 2020.
The following table summarizes TDRs at June 30, 2021 and December 31, 2020.
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
(Dollars in thousands)
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Total
|
|
|
Accruing
|
|
|
Non-
Accruing
|
|
|
Total
|
|
Single family
|
|
$
|
22
|
|
|
|
249
|
|
|
|
271
|
|
|
|
355
|
|
|
|
257
|
|
|
|
612
|
|
Commercial real estate
|
|
|
0
|
|
|
|
363
|
|
|
|
363
|
|
|
|
0
|
|
|
|
211
|
|
|
|
211
|
|
Consumer
|
|
|
54
|
|
|
|
606
|
|
|
|
660
|
|
|
|
62
|
|
|
|
568
|
|
|
|
630
|
|
Commercial business
|
|
|
18
|
|
|
|
0
|
|
|
|
18
|
|
|
|
25
|
|
|
|
0
|
|
|
|
25
|
|
|
|
$
|
94
|
|
|
|
1,218
|
|
|
|
1,312
|
|
|
|
442
|
|
|
|
1,036
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021, the Bank had commitments to lend an additional $0.5 million to a borrower who has TDR and non-accrual loans. These additional funds are for the construction of single family homes with a maximum loan-to-value ratio of 75%. These loans are secured by the homes under construction. At December 31, 2020, there were commitments to lend additional funds of $1.1 million to this same borrower.
TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of real estate or other assets in full or partial satisfaction of the debt. Loan modifications are not reported as TDRs after twelve months if the loan was modified at a market rate of interest for comparable risk loans, and the loan is performing in accordance with the terms of the restructured agreement for the entire twelve month period. All loans classified as TDRs are considered to be impaired.
When a loan is modified as a TDR, there may be a direct, material impact on the loans within the consolidated balance sheets, as principal balances may be partially forgiven. The financial effects of TDRs are presented in the following table and represent the difference between the outstanding recorded balance pre-modification and post-modification, for the three and six month periods ending June 30, 2021 and 2020.
|
|
Three Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2021
|
|
(Dollars in thousands)
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
$
|
139
|
|
|
|
139
|
|
Consumer
|
|
|
1
|
|
|
|
93
|
|
|
|
94
|
|
|
|
1
|
|
|
|
93
|
|
|
|
94
|
|
Commercial business
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
14
|
|
|
|
14
|
|
Total
|
|
|
1
|
|
|
$
|
93
|
|
|
|
94
|
|
|
|
3
|
|
|
$
|
246
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
|
Six Months Ended
June 30, 2020
|
|
(Dollars in thousands)
|
|
Number of
Contracts
|
|
|
Pre-
modification
Outstanding
Recorded
Investment
|
|
|
Post-
modification
Outstanding
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Pre-
modification
Outstanding
Recorded
Investment
|
|
|
Post-
modification
Outstanding
Recorded
Investment
|
|
Troubled debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single family
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
$
|
94
|
|
|
|
101
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
293
|
|
|
|
293
|
|
Total
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
$
|
387
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no loans that were restructured in the twelve months preceding June 30, 2021 and 2020 that subsequently defaulted during the three and six months ended June 30, 2021 and 2020.
The Company considers a loan to have defaulted when it becomes 90 or more days past due under the modified terms, when it is placed in non-accrual status, when it becomes other real estate owned, or when it becomes non-compliant with some other material requirement of the modification agreement. Loans that were non-accrual prior to modification remain on non-accrual status for at least six months following modification. Non-accrual TDR loans that have performed according to the modified terms for six months may be returned to accrual status. Loans that were accruing prior to modification remain on accrual status after the modification as long as the loan continues to perform under the new terms.
TDRs are reviewed for impairment following the same methodology as other impaired loans. For loans that are collateral-dependent, the value of the collateral is reviewed and additional reserves may be added to specific reserves as needed. Loans that are not collateral-dependent may have additional reserves established if deemed necessary. The reserves for TDRs were $0.3 million, or 2.6%, of the total $9.9 million in loan loss reserves at June 30, 2021 and $0.1 million, or 0.9%, of the total $10.7 million in loan loss reserves at December 31, 2020.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and the Bank’s regulators issued the Interagency Statement on Loan Modification and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus on April 7, 2020. Section 4013 of the CARES Act temporarily allows the Bank to grant modifications of loans to borrowers that were impacted by the pandemic without classifying the modifications as TDRs if the accommodation is granted before December 31, 2021. In accordance with the regulatory guidance, the Bank granted accommodations on certain loans to borrowers who were negatively impacted by the COVID-19 pandemic. At June 30, 2021, the Bank had $33.5 million of loans that had been granted loan accommodations in accordance with Section 4013 of the CARES Act. These accommodations are in addition to the TDRs that are disclosed above. The accommodations granted included $29.2 million of loans that are required to make interest only payments for periods up to December 31, 2021 and $4.3 million of loans that had their loan amortization period increased. Of these loans, $5.7 million were classified but still accruing at June 30, 2021 and all of these loans were current with their agreed upon payments. The commercial credit area continues to communicate regularly with the borrowers that have been granted loan accommodations and monitors their activity closely. This information is used to analyze the performance of these loans and to anticipate any potential issues that these loans may develop so that risk ratings may be appropriately adjusted in a timely manner. It is anticipated that most of the remaining borrowers that have been granted accommodations will be in a position to resume making their regular loan payments at the end of the initial accommodation period. Other borrowers, particularly in the hospitality and restaurant industries, may need additional accommodations when their initial accommodation period ends as their operations may need more time to recover from the impact of the pandemic.
(10) Intangible Assets
The Company’s intangible assets consist of core deposit intangibles, goodwill and mortgage servicing rights. A summary of mortgage servicing rights activity is as follows:
(Dollars in thousands)
|
|
Six Months Ended
June 30, 2021
|
|
|
Twelve Months Ended
December 31, 2020
|
|
|
Six Months Ended
June 30, 2020
|
|
Balance, beginning of period
|
|
$
|
3,043
|
|
|
|
2,172
|
|
|
|
2,172
|
|
Originations
|
|
|
691
|
|
|
|
2,189
|
|
|
|
1,096
|
|
Amortization
|
|
|
(574
|
)
|
|
|
(1,318
|
)
|
|
|
(621
|
)
|
Balance, end of period
|
|
$
|
3,160
|
|
|
|
3,043
|
|
|
|
2,647
|
|
Fair value of mortgage servicing rights
|
|
$
|
4,316
|
|
|
|
3,378
|
|
|
|
2,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the loans sold where the Company continues to service the loans are serviced for FNMA under the individual loan sale program. The following is a summary of the risk characteristics of the loans being serviced for FNMA at June 30, 2021.
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
Loan
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
Principal
|
|
|
Interest
|
|
|
Remaining
|
|
|
Number
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Rate
|
|
|
Term (months)
|
|
|
of Loans
|
|
Original term 30 year fixed rate
|
|
$
|
407,078
|
|
|
|
3.50
|
%
|
|
|
312
|
|
|
|
2,629
|
|
Original term 15 year fixed rate
|
|
|
120,211
|
|
|
|
2.90
|
|
|
|
142
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for amortizing intangible assets was $0.6 million and $0.7 million for the six month periods ended June 30, 2021 and 2020, respectively. The gross carrying amount of intangible assets and the associated accumulated amortization at June 30, 2021 and December 31, 2020 is presented in the following tables.
|
|
June 30, 2021
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Unamortized
Amount
|
|
Mortgage servicing rights
|
|
$
|
6,015
|
|
|
|
(2,855
|
)
|
|
|
3,160
|
|
Core deposit intangible
|
|
|
574
|
|
|
|
(551
|
)
|
|
|
23
|
|
Goodwill
|
|
|
802
|
|
|
|
0
|
|
|
|
802
|
|
Total
|
|
$
|
7,391
|
|
|
|
(3,406
|
)
|
|
|
3,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Unamortized
Amount
|
|
Mortgage servicing rights
|
|
$
|
5,691
|
|
|
|
(2,648
|
)
|
|
|
3,043
|
|
Core deposit intangible
|
|
|
574
|
|
|
|
(517
|
)
|
|
|
57
|
|
Goodwill
|
|
|
802
|
|
|
|
0
|
|
|
|
802
|
|
Total
|
|
$
|
7,067
|
|
|
|
(3,165
|
)
|
|
|
3,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates the estimated future amortization expense for intangible assets.
(Dollars in thousands)
|
|
Mortgage
Servicing Rights
|
|
|
Core Deposit
Intangible
|
|
|
Total
Amortizing
Intangible Assets
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
338
|
|
|
|
13
|
|
|
|
351
|
|
2022
|
|
|
638
|
|
|
|
10
|
|
|
|
648
|
|
2023
|
|
|
597
|
|
|
|
0
|
|
|
|
597
|
|
2024
|
|
|
552
|
|
|
|
0
|
|
|
|
552
|
|
2025
|
|
|
471
|
|
|
|
0
|
|
|
|
471
|
|
Thereafter
|
|
|
564
|
|
|
|
0
|
|
|
|
564
|
|
Total
|
|
$
|
3,160
|
|
|
|
23
|
|
|
|
3,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No amortization expense relating to goodwill is recorded as GAAP does not allow goodwill to be amortized but requires that it be tested for impairment at least annually, or sooner, if there are indications that impairment may exist.
Projections of amortization are based on existing asset balances and the existing interest rate environment as of June 30, 2021. The Company's actual experiences may be significantly different depending upon changes in mortgage interest rates and other market conditions.
(11) Leases
The Company accounts for its leases in accordance with ASU 2016-02, Leases (Topic 842) and as of June 30, 2021 a $2.8 million right-of-use asset and an offsetting lease payment obligation liability were recorded on the consolidated balance sheet in other assets and other liabilities, respectively.
Operating lease right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental borrowing rate at the lease commencement date. Because the Company only has operating leases and the right-of-use asset is offset by a lease payment obligation liability, the lease payments are the only amount that is recorded in occupancy expense in the consolidated statements of comprehensive income.
The Company’s leases relate to office space and bank branches with remaining lease terms between fourteen and forty-six months. Certain leases contain extension options which typically range from three to ten years. Because these extension options are not considered reasonably certain of exercise, they are not included in the lease term.
The table below summarizes the Company’s net lease cost for the three and six months ended June 30, 2021.
(Dollars in thousands)
|
|
Three Months
Ended
June 30, 2021
|
|
|
Six Months
Ended
June 30, 2021
|
|
Operating lease cost
|
|
$
|
223
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes other information related to the Company’s operating leases.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
(Dollars in thousands)
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
223
|
|
|
|
223
|
|
|
|
449
|
|
|
|
445
|
|
Weighted-average remaining lease term – operating leases, in years
|
|
|
3.3
|
|
|
|
4.2
|
|
|
|
3.3
|
|
|
|
4.2
|
|
Weighted-average discount rate – operating leases
|
|
|
2.19
|
%
|
|
|
2.19
|
%
|
|
|
2.19
|
%
|
|
|
2.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarizes the maturities of remaining lease liabilities.
|
|
|
|
(Dollars in thousands)
|
|
June 30, 2021
|
|
2021
|
|
$
|
452
|
|
2022
|
|
|
932
|
|
2023
|
|
|
807
|
|
2024
|
|
|
729
|
|
2025
|
|
|
15
|
|
Total lease payments
|
|
|
2,935
|
|
Less: Interest
|
|
|
(107
|
)
|
Present value of lease liabilities
|
|
$
|
2,828
|
|
|
|
|
|
|
(12) Earnings per Common Share
The following table reconciles the weighted average shares outstanding and the earnings available to common shareholders used for basic and diluted earnings per common share.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(Dollars in thousands, except per share data)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Weighted average number of common shares outstanding used in basic earnings per common share calculation
|
|
|
4,492,502
|
|
|
|
4,618,555
|
|
|
|
4,526,434
|
|
|
|
4,622,231
|
|
Net dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards and options
|
|
|
34,394
|
|
|
|
25,664
|
|
|
|
32,983
|
|
|
|
26,691
|
|
Weighted average number of shares outstanding adjusted for effect of dilutive securities
|
|
|
4,526,896
|
|
|
|
4,644,219
|
|
|
|
4,559,417
|
|
|
|
4,648,922
|
|
Income available to common stockholders
|
|
$
|
4,528
|
|
|
|
2,691
|
|
|
|
7,946
|
|
|
|
4,076
|
|
Basic earnings per common share
|
|
$
|
1.01
|
|
|
|
0.58
|
|
|
|
1.76
|
|
|
|
0.88
|
|
Diluted earnings per common share
|
|
$
|
1.00
|
|
|
|
0.58
|
|
|
|
1.74
|
|
|
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) Regulatory Capital and Oversight
The Bank is subject to the Basel III regulatory capital requirements. The Basel III requirements, among other things, (i) apply a set of capital requirements to the Bank, including requirements relating to common equity as a component of core capital, (ii) implement a “capital conservation buffer” against risk and a higher minimum Tier 1 capital requirement, and (iii) set forth rules for calculating risk-weighted assets for purposes of such requirements. The rules also made corresponding revisions to the prompt corrective action framework and include capital ratios and buffer requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The Board of Governors of the Federal Reserve System amended its Small Bank Holding Company Policy Statement (Policy Statement), to exempt small bank holding companies with assets less than $3 billion from the above capital requirements. The Policy Statement was also expanded to include savings and loan holding companies that meet the Policy Statement’s qualitative requirements for exemption. The Company currently meets the qualitative exemption requirements, and therefore, is exempt from the above capital requirements.
Quantitative measures established by regulations to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table and defined in the regulation) of Common Equity Tier 1 capital to risk weighted assets, Tier 1 capital to adjusted total assets, Tier 1 capital to risk weighted assets and total capital to risk weighted assets.
The Bank’s average total assets for the quarter ended June 30, 2021 were $977.2 million, its adjusted total assets were $976.5 million, and its risk-weighted assets were $689.6 million. The following table presents the Bank’s capital amounts and ratios at June 30, 2021 for actual capital, required capital and excess capital, including ratios in order to qualify as being well capitalized under the prompt corrective actions regulations.
|
|
Actual
|
|
|
Required to be
Adequately Capitalized
|
|
|
Excess Capital
|
|
|
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Percent of
Assets
|
|
|
Amount
|
|
|
Percent of
Assets
|
|
|
Amount
|
|
|
Percent of
Assets
|
|
|
Amount
|
|
|
Percent of
Assets
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital
|
|
$
|
97,789
|
|
|
|
14.18
|
%
|
|
$
|
31,033
|
|
|
|
4.50
|
%
|
|
$
|
66,756
|
|
|
|
9.68
|
%
|
|
$
|
44,826
|
|
|
|
6.50
|
%
|
Tier 1 capital leverage
|
|
|
97,789
|
|
|
|
10.01
|
|
|
|
39,059
|
|
|
|
4.00
|
|
|
|
58,730
|
|
|
|
6.01
|
|
|
|
48,823
|
|
|
|
5.00
|
|
Tier 1 risk-based capital
|
|
|
97,789
|
|
|
|
14.18
|
|
|
|
41,378
|
|
|
|
6.00
|
|
|
|
56,411
|
|
|
|
8.18
|
|
|
|
55,171
|
|
|
|
8.00
|
|
Total risk-based capital
|
|
|
106,425
|
|
|
|
15.43
|
|
|
|
55,171
|
|
|
|
8.00
|
|
|
|
51,254
|
|
|
|
7.43
|
|
|
|
68,963
|
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank must maintain a capital conservation buffer of 2.50% composed of common equity Tier 1 capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. Management believes that, as of June 30, 2021, the Bank’s capital ratios were in excess of those quantitative capital ratio standards set forth under the current prompt corrective action regulations, including the capital conservation buffer described above. However, there can be no assurance that the Bank will continue to maintain such status in the future. The Office of the Comptroller of the Currency (OCC) has extensive discretion in its supervisory and enforcement activities, and can adjust the requirement to be “well-capitalized” in the future.
(14) Stockholders’ Equity
The Company was authorized to repurchase up to $1.8 million of its common stock under the existing board-approved share repurchase program at June 30, 2021. The Company did not declare any dividends on its common stock but did repurchase 108,000 shares of its common stock in the open market for $2.2 million under the share repurchase program during the second quarter of 2021. Subsequent to the end of the quarter, on July 27, 2021, the board approved an additional $4.2 million for the share repurchase program, increasing to $6.0 million the amount of its common stock authorized to be repurchased under the share repurchase program as of that date.
(15) Commitments and Contingencies
The Bank issues standby letters of credit which guarantee the performance of customers to third parties. The standby letters of credit issued and available at June 30, 2021 were approximately $5.0 million, expire over the next sixteen months and are collateralized primarily with commercial real estate mortgages. Since the conditions under which the Bank is required to fund the standby letters of credit may not materialize, the cash requirements are expected to be less than the total outstanding commitments.
From time to time, the Company is party to legal proceedings arising out of its lending and deposit operations. The Company is, and expects to become, engaged in foreclosure proceedings, collection actions and other litigation as part of its normal banking activities. Among the various current litigation matters, the Company is involved in a bankruptcy litigation claim where the bankruptcy trustee is attempting to recover $2.0 million related to the principal and interest payments made to the Bank prior to the bankruptcy filing of a former customer of the Bank.
The Company examines each legal matter, and, in those situations where it determines that a particular legal matter presents loss contingencies that are both probable and reasonably estimable, establishes an appropriate accrual. In many situations, the Company is not able to estimate reasonably possible losses due to the preliminary nature of the legal matter, as well as a variety of other factors and uncertainties. For those legal matters where the Company is able to estimate a range of reasonably possible losses, management currently estimates that the aggregate range of losses from all of the Company’s outstanding litigation is from $0 to $0.9 million in excess of the amounts accrued, if any. This estimated aggregate range is based on an assessment of the information currently available to the Company and the actual aggregate losses could be higher. However, the Company does not believe these losses are probable at this time. The Company reassesses all of its potential loss positions based on the available information each quarter and the estimated range of reasonably possible losses may change in the future. The Company typically vigorously pursues all available defenses related to litigation but may consider other alternatives, including settlement, in situations where there is an opportunity to resolve a legal matter on terms that are considered to be favorable to the Company when considering the continued expense and distraction of defending against any particular legal action.
Based on the Company’s current understanding of all of the outstanding legal matters, management does not believe that judgments or settlements arising from any pending or threatened litigation, individually or in the aggregate, would have a material adverse effect on the consolidated financial condition or results of operations. However, litigation is unpredictable and the actual results of litigation cannot be determined with any certainty. Therefore, the ultimate aggregate resolution of any, or all, of the current outstanding legal matters could have a material adverse effect on the Company’s results of operations in the future.
(16) Business Segments
The Bank has been identified as a reportable operating segment in accordance with the provisions of ASC 280. HMN, the holding company, did not meet the quantitative thresholds for a reportable segment and therefore is included in the “Other” category.
The Company evaluates performance and allocates resources based on the segment’s net income, return on average assets and return on average equity. Each corporation is managed separately with its own officers and board of directors.
The following table sets forth certain information about the reconciliations of reported profit and assets for each of the Company’s reportable segments.
(Dollars in thousands)
|
|
Home Federal
Savings Bank
|
|
|
Other
|
|
|
Eliminations
|
|
|
Consolidated
Total
|
|
At or for the six months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – external customers
|
|
$
|
15,983
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,983
|
|
Non-interest income – external customers
|
|
|
7,996
|
|
|
|
1
|
|
|
|
0
|
|
|
|
7,997
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
14
|
|
|
|
(14
|
)
|
|
|
0
|
|
Intersegment non-interest income
|
|
|
117
|
|
|
|
8,281
|
|
|
|
(8,398
|
)
|
|
|
0
|
|
Interest expense
|
|
|
877
|
|
|
|
0
|
|
|
|
(14
|
)
|
|
|
863
|
|
Provision for loan losses
|
|
|
(1,467
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,467
|
)
|
Non-interest expense
|
|
|
13,140
|
|
|
|
436
|
|
|
|
(117
|
)
|
|
|
13,459
|
|
Income tax expense
|
|
|
3,265
|
|
|
|
(86
|
)
|
|
|
0
|
|
|
|
3,179
|
|
Net income
|
|
|
8,281
|
|
|
|
7,946
|
|
|
|
(8,281
|
)
|
|
|
7,946
|
|
Total assets
|
|
|
981,023
|
|
|
|
107,421
|
|
|
|
(107,418
|
)
|
|
|
981,026
|
|
At or for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – external customers
|
|
|
15,727
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,727
|
|
Non-interest income – external customers
|
|
|
6,065
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,065
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
23
|
|
|
|
(23
|
)
|
|
|
0
|
|
Intersegment non-interest income
|
|
|
117
|
|
|
|
4,358
|
|
|
|
(4,475
|
)
|
|
|
0
|
|
Interest expense
|
|
|
1,660
|
|
|
|
0
|
|
|
|
(23
|
)
|
|
|
1,637
|
|
Provision for loan losses
|
|
|
778
|
|
|
|
0
|
|
|
|
0
|
|
|
|
778
|
|
Non-interest expense
|
|
|
13,403
|
|
|
|
368
|
|
|
|
(117
|
)
|
|
|
13,654
|
|
Income tax expense
|
|
|
1,710
|
|
|
|
(63
|
)
|
|
|
0
|
|
|
|
1,647
|
|
Net income
|
|
|
4,358
|
|
|
|
4,076
|
|
|
|
(4,358
|
)
|
|
|
4,076
|
|
Total assets
|
|
|
862,046
|
|
|
|
98,247
|
|
|
|
(97,510
|
)
|
|
|
862,783
|
|
At or for the quarter ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – external customers
|
|
$
|
8,094
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,094
|
|
Non-interest income – external customers
|
|
|
4,742
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,742
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
0
|
|
Intersegment non-interest income
|
|
|
59
|
|
|
|
4,687
|
|
|
|
(4,746
|
)
|
|
|
0
|
|
Interest expense
|
|
|
416
|
|
|
|
0
|
|
|
|
(6
|
)
|
|
|
410
|
|
Provision for loan losses
|
|
|
(891
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(891
|
)
|
Non-interest expense
|
|
|
6,831
|
|
|
|
208
|
|
|
|
(59
|
)
|
|
|
6,980
|
|
Income tax expense
|
|
|
1,852
|
|
|
|
(43
|
)
|
|
|
0
|
|
|
|
1,809
|
|
Net income
|
|
|
4,687
|
|
|
|
4,528
|
|
|
|
(4,687
|
)
|
|
|
4,528
|
|
Total assets
|
|
|
981,023
|
|
|
|
107,421
|
|
|
|
(107,418
|
)
|
|
|
981,026
|
|
At or for the quarter ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – external customers
|
|
$
|
7,883
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,883
|
|
Non-interest income – external customers
|
|
|
3,594
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,594
|
|
Intersegment interest income
|
|
|
0
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
0
|
|
Intersegment non-interest income
|
|
|
58
|
|
|
|
2,834
|
|
|
|
(2,892
|
)
|
|
|
0
|
|
Interest expense
|
|
|
753
|
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
745
|
|
Provision for loan losses
|
|
|
318
|
|
|
|
0
|
|
|
|
0
|
|
|
|
318
|
|
Non-interest expense
|
|
|
6,529
|
|
|
|
182
|
|
|
|
(58
|
)
|
|
|
6,653
|
|
Income tax expense
|
|
|
1,101
|
|
|
|
(31
|
)
|
|
|
0
|
|
|
|
1,070
|
|
Net income
|
|
|
2,834
|
|
|
|
2,691
|
|
|
|
(2,834
|
)
|
|
|
2,691
|
|
Total assets
|
|
|
862,046
|
|
|
|
98,247
|
|
|
|
(97,510
|
)
|
|
|
862,783
|
|
Item 2: