10-Q 1 ehb-20200630x10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

          Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020

OR

          Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-56071

Eureka Homestead Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland

83-4051300

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

1922 Veterans Memorial Boulevard

Metairie, Louisiana

70005

(Address of Principal Executive Offices)

(Zip Code)

(504) 834-0242

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

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

YES      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 for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO 

As of August 14, 2020, 1,429,676 shares of the Company’s common stock, par value $0.01 per share, were issued and outstanding.


Eureka Homestead Bancorp, Inc.

Form 10-Q

Index

    

    

Page

Part I. Financial Information

Item 1.

Consolidated Financial Statements

Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019 (audited)

3

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

4

Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2020 and 2019 (unaudited)

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited)

7

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

Item 4.

Controls and Procedures

33

Part II. Other Information

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults upon Senior Securities

33

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

34

Signature Page

35


Part I. – Financial Information

Item 1.

Consolidated Financial Statements

EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2020 AND DECEMBER 31, 2019 (Unaudited)

(in thousands)

June 30, 

December 31, 

    

2020

    

2019

 

ASSETS

Cash and Cash Equivalents

$

12,911

$

11,875

Interest-Bearing Deposits in Banks

 

8,740

 

1,740

Investment Securities

 

4,576

 

5,320

Loans Receivable, Net

 

70,868

 

78,785

Loans Held-for-Sale

 

801

 

1,637

Accrued Interest Receivable

 

470

 

321

Federal Home Loan Bank Stock

 

1,434

 

1,418

Premises and Equipment, Net

 

683

 

704

Cash Surrender Value of Life Insurance

 

4,091

 

4,044

Deferred Tax Asset

 

 

5

Prepaid Expenses and Other Assets

 

271

 

155

Total Assets

$

104,845

$

106,004

LIABILITIES AND SHAREHOLDERS' EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits

$

56,367

$

58,045

Advances from Federal Home Loan Bank

 

22,614

 

21,581

Advance Payments by Borrowers for Taxes and Insurance

 

868

 

1,425

Deferred Tax Liability

11

Accrued Expenses and Other Liabilities

 

661

 

669

Total Liabilities

 

80,521

 

81,720

Commitments and Contingencies (Note 7)

 

  

 

  

Shareholders' Equity:

 

  

 

  

Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued

Common Stock, $0.01 par value, 9,000,000 shares authorized, 1,429,676 shares issued and outstanding on June 30, 2020 and December 31, 2019

14

14

Additional Paid-in Capital

13,111

13,112

Unallocated Common Stock Held by:

Employee Stock Ownership Plan (ESOP)

(1,075)

(1,098)

Retained Earnings

 

12,231

 

12,274

Accumulated Other Comprehensive Income (Loss)

 

43

 

(18)

Total Shareholders' Equity

 

24,324

 

24,284

Total Liabilities and Shareholders' Equity

$

104,845

$

106,004

The accompanying notes are an integral part of these financial statements.

3


EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited)

(in thousands except for Earnings Per Share )

Three Months Ended June 30

Six Months Ended June 30

    

2020

    

2019

    

2020

    

2019

Interest Income:

 

  

 

  

  

 

  

Loans Receivable

$

725

$

878

$

1,526

$

1,756

Investment Securities

 

15

 

41

 

47

 

78

Interest-Bearing Deposits in Banks

 

17

 

19

 

63

 

36

Total Interest Income

 

757

 

938

 

1,636

 

1,870

Interest Expense:

 

  

 

  

 

  

 

  

Deposits

 

261

 

330

 

553

 

611

Advances from Federal Home Loan Bank

 

160

 

166

 

317

 

352

Total Interest Expense

 

421

 

496

 

870

 

963

Net Interest Income

 

336

 

442

 

766

 

907

Provision (Credit) for Loan Losses

 

 

 

 

(9)

Net Interest Income After Provision (Credit) for Loan Losses

 

336

 

442

 

766

 

916

Non-Interest Income:

 

  

 

  

 

  

 

  

Service Charges and Other Income

 

21

 

22

 

33

 

43

Fees on Loans Sold

 

153

 

105

 

338

 

172

Income from Life Insurance

 

23

 

24

 

47

 

47

Total Non-Interest Income

 

197

 

151

 

418

 

262

Non-Interest Expenses:

 

  

 

  

 

  

 

  

Salaries and Employee Benefits

 

378

 

352

 

803

 

687

Occupancy Expense

 

50

 

74

 

102

 

135

FDIC Deposit Insurance Premium and Examination Fees

 

17

 

17

 

32

 

36

Data Processing

 

29

 

31

 

56

 

60

Accounting and Consulting

 

59

 

21

 

109

 

48

Insurance

 

20

 

19

 

41

 

37

Legal fees

21

1

32

1

Other

 

56

 

54

 

114

 

102

Total Non-Interest Expenses

 

630

 

569

 

1,289

 

1,106

(Loss) Income Before Income Tax (Benefit) Expense

 

(97)

 

24

 

(105)

 

72

Income Tax (Benefit) Expense

 

(62)

 

 

(62)

 

5

Net (Loss) Income

$

(35)

$

24

$

(43)

$

67

The accompanying notes are an integral part of these financial statements.

4


EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited)

(in thousands)

Three Months Ended June 30, 

Six Months Ended June 30

    

2020

    

2019

    

2020

    

2019

Net (Loss) Income

$

(35)

$

24

$

(43)

$

67

Other Comprehensive Income:

 

  

 

  

 

  

 

  

Unrealized Gains on Investment Securities

 

17

 

74

 

77

 

117

Income Tax Effect

 

(4)

 

(15)

 

(16)

 

(24)

Other Comprehensive Income, Net of Income Taxes

 

13

 

59

 

61

 

93

Comprehensive (Loss) Income

$

(22)

$

83

$

18

$

160

The accompanying notes are an integral part of these financial statements.

5


EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited)

(in thousands)

Accumulated

Additional

Unallocated

Other

Common

Paid-in

ESOP

Retained

Comprehensive

    

Stock

    

Capital

    

Shares

    

Earnings

    

Income/(Loss)

    

Total

Balance, January 1, 2019

$

$

$

$

12,335

$

(96)

$

12,239

Net Income

 

 

 

 

67

 

 

67

Other Comprehensive Income

 

 

 

 

 

93

 

93

Balance, June 30, 2019

$

$

$

$

12,402

$

(3)

$

12,399

Balance, January 1, 2020

$

14

$

13,112

$

(1,098)

$

12,274

$

(18)

$

24,284

ESOP shares earned

(1)

23

22

Net Loss

 

 

 

 

(43)

 

 

(43)

Other Comprehensive Income

 

 

 

 

 

61

 

61

Balance, June 30, 2020

$

14

$

13,111

$

(1,075)

$

12,231

$

43

$

24,324

The accompanying notes are an integral part of these financial statements.

6


EUREKA HOMESTEAD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 (Unaudited)

(in thousands)

    

Six Months Ended June 30

    

2020

    

2019

Cash Flows from Operating Activities:

 

  

 

  

Net (Loss) Income

$

(43)

$

67

Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Operating Activities:

 

  

 

  

Cash (Used in) Provided by Operating Activities:

Provision (Credit) for Loan Losses

 

 

(9)

Depreciation Expense

 

28

 

41

Amortization of FHLB Advance Prepayment Penalty

 

33

 

36

Provision for Deferred Income Taxes

 

 

23

Net Amortization of Premium/Discount on Mortgage-Backed Securities

 

1

 

10

Stock Dividend on Federal Home Loan Bank Stock

 

(16)

 

(21)

Non-cash Compensation for ESOP

22

Net Decrease in Loans Held-for-Sale

 

836

 

333

Changes in Assets and Liabilities:

 

  

 

  

(Increase) in Accrued Interest Receivable

 

(149)

 

(15)

(Increase) in CSV of Life Insurance

 

(47)

 

(47)

(Increase) in Prepaid Expenses and Other Assets

 

(116)

 

(723)

(Decrease) in Accrued Expenses and Other Liabilities

 

(8)

 

(24)

Net Cash Provided by (Used in) Operating Activities

 

541

 

(329)

Cash Flows from Investing Activities:

 

  

 

  

Net Decrease in Loans

 

7,917

 

1,146

Proceeds from Maturities of Interest-Bearing Deposits in Banks

3,735

Purchases of Interest-Bearing Deposits in Banks

 

(10,735)

 

Purchases of Investment Securities

 

 

(1,991)

Proceeds from Sales, Calls and Principal Repayments of Investment Securities

 

820

 

577

Purchases of Premises and Equipment

 

(7)

 

(12)

Net Cash Provided by (Used in) Investing Activities

 

1,730

 

(280)

Cash Flows from Financing Activities:

 

  

 

  

Net (Decrease) Increase in Deposits

 

(1,678)

 

3,139

Net Increase in Escrow from Stock Conversion

12,309

Advances from Federal Home Loan Bank

 

4,000

 

3,000

Payments on Advances from Federal Home Loan Bank

 

(3,000)

 

(6,000)

Net (Decrease) in Advance Payments by Borrowers for Taxes and Insurance

 

(557)

 

(345)

Net Cash (Used in) Provided by Financing Activities

 

(1,235)

 

12,103

Net Increase in Cash and Cash Equivalents

 

1,036

 

11,494

Cash and Cash Equivalents at Beginning of Period

 

11,875

 

3,090

Cash and Cash Equivalents at End of Period

$

12,911

$

14,584

Supplemental Disclosures for Cash Flow Information:

 

  

 

  

Cash Paid for:

 

  

 

  

Interest

$

917

$

943

Supplemental Schedule for Noncash Investing and Financing Activities:

 

  

 

  

Change in the Unrealized Gain/Loss on Investment Securities

$

77

$

117

The accompanying notes are an integral part of these financial statements.

7


Eureka Homestead Bancorp, Inc.

Form 10-Q

EUREKA HOMESTEAD BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020 (Unaudited)

Note 1 – Basis of Presentation -

The accompanying unaudited consolidated financial statements of Eureka Homestead Bancorp, Inc. (the “Company”) were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, comprehensive income, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States of America.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month and six month periods ended June 30, 2020 are not necessarily indicative of the results which may be expected for the entire year. These statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”). Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Annual Report.

In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Note 2 Recent Accounting Pronouncements -

Emerging Growth Company Status

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), Conforming Amendments Related to Leases. This ASU amends the codification regarding leases in order to increase transparency and comparability. The ASU requires companies to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the leased asset for the lease term. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.

8


In September 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held to maturity securities), including certain off-balance sheet financial instruments (e.g., commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The ASU also amends the current available-for-sale security impairment model for debt securities whereby credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. For an emerging growth company, the amendments in this update, as amended through more recent related ASUs, are effective for fiscal years beginning after December 15, 2022, and interim periods within fiscal years beginning after December 15, 2023. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently planning for the implementation of this accounting standard. It is too early to assess the impact this ASU will have on the Company’s Consolidated Financial Statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For an emerging growth company, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is currently assessing the amendments but does not anticipate they will have a material impact on the Company’s Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods with those fiscal years, beginning after December 15, 2020, with early adopting permitted. The Company is currently assessing the impact of the adoption of this standard on the Company’s consolidated financial position.

Note 3 – Earnings Per Share -

Basic earnings per share (“EPS”) represents income (loss) available to common shareholders divided by the weighted average number of common shares outstanding; no dilution for any potentially convertible shares is included in the calculation. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

Earnings (loss) per common share were computed based on the following:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(in thousands, except per share data)

    

2020

2020

Numerator:

Net (loss) available to common shareholders

$

(35)

$

(43)

Denominator:

 

 

Common shares outstanding (Total issued, less unallocated ESOP shares)

 

1,322

 

1,322

Basic (loss) per common share

$

(0.03)

$

(0.03)

9


Note 4 – Investment Securities -

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

Gross

Gross

June 30, 2020:

Amortized

Unrealized

Unrealized

Fair

(in thousands)

    

Cost

    

Gains

    

(Losses)

    

Value

Mortgage-Backed Securities:

 

  

 

  

 

  

 

  

FHLMC

$

2,127

$

65

$

$

2,192

SBA 7a Pools

 

2,395

 

1

 

(12)

 

2,384

Total Investment Securities Available-for-Sale

$

4,522

$

66

$

(12)

$

4,576

Gross

Gross

December 31, 2019:

Amortized

Unrealized

Unrealized

Fair

(in thousands)

    

Cost

    

Gains

    

(Losses)

    

Value

Mortgage-Backed Securities:

 

  

 

  

 

  

 

  

FHLMC

$

2,664

$

$

(19)

$

2,645

SBA 7a Pools

 

2,678

 

5

 

(8)

 

2,675

Total Investment Securities Available-for-Sale

$

5,342

$

5

$

(27)

$

5,320

All investment securities held on June 30, 2020 and December 31, 2019, were government-sponsored mortgage-backed or SBA pool securities.

The amortized cost and fair values of the investment securities available-for-sale at June 30, 2020, by contractual maturity, are shown below. For mortgage-backed securities and SBA 7a pools, expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available-for-Sale

June 30, 2020

Amortized

Fair

(in thousands)

    

Cost

    

Value

Amounts Maturing:

 

  

 

  

After One Year through Five Years

$

9

$

9

After Five Years through Ten Years

 

1,457

 

1,445

After Ten Years

 

3,056

 

3,122

$

4,522

$

4,576

No investment securities were pledged to secure advances from the FHLB at June 30, 2020 and December 31, 2019.

Gross unrealized losses in investment securities at June 30, 2020 and December 31, 2019, existing for continuous periods of less than 12 months and for continuous periods of 12 months or more, are as follows:

June 30, 2020

(in thousands)

Less Than 12 Months

12 Months or More

Totals

Security

Unrealized

Unrealized

Unrealized

Description

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

Mortgage-Backed

 

  

 

  

 

  

 

  

 

  

 

  

FHLMC

$

$

$

9

$

$

9

$

SBA 7a Pools

 

 

 

1,445

 

(12)

 

1,445

 

(12)

$

$

$

1,454

$

(12)

$

1,454

$

(12)

10


December 31, 2019

(in thousands)

Less Than 12 Months

12 Months or More

Totals

Security

Unrealized

Unrealized

Unrealized

Description

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

    

Fair Value

    

(Losses)

Mortgage-Backed

 

  

 

  

 

  

 

  

 

  

 

  

FHLMC

$

655

$

(4)

$

1,990

$

(15)

$

2,645

$

(19)

SBA 7a Pools

 

 

 

1,692

 

(8)

 

1,692

 

(8)

$

655

$

(4)

$

3,682

$

(23)

$

4,337

$

(27)

Management evaluates securities for other-than temporary impairment on a periodic and regular basis, as well as when economic or market concerns warrant such evaluation. No declines at June 30, 2020 and December 31, 2019, were deemed to be other-than-temporary.

In analyzing an issuer’s financial condition, management considers whether the federal government or its agencies issued the securities, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuer’s financial statements.

Note 5 – Loans Receivable and the Allowance for Loan Losses -

Loans receivable at June 30, 2020 and December 31, 2019 are summarized as follows:

June 30, 

December 31, 

(in thousands)

    

2020

    

2019

Mortgage Loans

 

  

 

  

1-4 Family

$

66,186

$

73,591

Multifamily

 

3,204

 

3,567

Commercial real estate

 

1,086

 

1,117

Consumer Loans

 

214

 

209

 

70,690

 

78,484

Plus (Less):

 

  

 

  

Unamortized Loan Fees/Costs

 

1,028

 

1,151

Allowance for Loan Losses

 

(850)

 

(850)

Net Loans Receivable

$

70,868

$

78,785

The performing mortgage loans are pledged, under a blanket lien, as collateral securing advances from the FHLB at June 30, 2020 and December 31, 2019.

Management evaluates the allowance for loan losses to assess the risk of loss in the loan portfolio and to determine the adequacy of the allowance for loan losses. For purposes of this evaluation, loans are aggregated into pools based on various characteristics. Some of those characteristics include payment status, concentrations, and loan to collateral value and the financial status of borrowers. The allowance allocated to each of these pools is based on historical charge-off rates, adjusted for changes in the credit risk characteristics within these pools, as determined from current information and analyses. In determining the appropriate level of the allowance, management also ensures that the overall allowance appropriately reflects current macroeconomic conditions, industry exposure and a margin for the imprecision inherent in most estimates of expected credit losses. In addition to these factors, management also considers the following for each segment of the loan portfolio when determining the allowance:

Residential mortgages - This category consists of loans secured by first and junior liens on residential real estate. The performance of these loans may be adversely affected by unemployment rates, local residential real estate market conditions and the interest rate environment.

Commercial real estate - This category consists of loans primarily secured by office buildings, and retail shopping facilities. The performance of commercial real estate loans may be adversely affected by conditions specific to the

11


relevant industry, the real estate market for the property type and geographic region where the property or borrower is located.

Construction and land - This category consists of loans to finance the ground-up construction and/or improvement of construction of residential and commercial properties and loans secured by land. The performance of construction and land loans is generally dependent upon the successful completion of improvements and/or land development for the end user, the sale of the property to a third party, or a secondary source of cash flow from the owners. The successful completion of planned improvements and development maybe adversely affected by changes in the estimated property value upon completion of construction, projected costs and other conditions leading to project delays.

Multi-family residential - This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. The performance of multi-family loans is generally dependent on the receipt of rental income from the tenants who occupy the subject property. The occupancy rate of the subject property and the ability of the tenants to pay rent may be adversely affected by the location of the subject property and local economic conditions.

Consumer - This category consists of loans to individuals for household, family and other personal use. The performance of these loans may be adversely affected by national and local economic conditions, unemployment rates and other factors affecting the borrower's income available to service the debt. All of our consumer loans are secured by our customers’ savings accounts and/or certificates of deposit.

As a result of the uncertainties inherent in the estimation process, management’s estimate of loan losses and the related allowance could change in the near term.

Based on management’s periodic evaluation of the allowance for loan losses, a provision for loan losses is charged to operations if additions to the allowance are required. Actual loan charge-offs are deducted from the allowance and subsequent recoveries of previously charged-off loans are added to the allowance.

The following tables set forth, as of June 30, 2020 and December 31, 2019, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

12


Allowance for Loan Losses and Recorded Investment in Loans Receivable
June 30, 2020 (in thousands)

Mortgage-

Mortgage-

Mortgage-

Commercial

    

1-4 Family

    

Multifamily

    

Real Estate

    

Consumer

    

Total

Allowance for Loan Losses:

 

 

  

 

  

 

  

 

  

Beginning Balance

$

812

$

27

$

11

$

$

850

Charge-Offs

 

 

 

 

 

Recoveries

 

 

 

 

 

Provision

 

(11)

 

7

 

4

 

 

Ending Balance

$

801

$

34

$

15

$

$

850

Ending Balance:

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

Collectively Evaluated for Impairment

$

801

$

34

$

15

$

$

850

Loans Receivable:

 

  

 

  

 

  

 

  

Ending Balance

$

66,186

$

3,204

$

1,086

$

214

$

70,690

Ending Balance:

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

Collectively Evaluated for Impairment

$

66,186

$

3,204

$

1,086

$

214

$

70,690

The allowance for loan losses for Mortgage 1-4 Family Loans of $801,000 includes an unallocated portion of $390,000 as of June 30, 2020.

Allowance for Loan Losses and Recorded Investment in Loans Receivable
December 31, 2019 (in thousands)

    

    

    

    

    

Mortgage-

    

    

    

    

Mortgage-

Mortgage-

Commercial

1-4 Family

Multifamily

Real Estate

Consumer

Total

Allowance for Loan Losses:

Beginning Balance

$

807

$

31

$

12

$

$

850

Charge-Offs

 

 

 

 

 

Recoveries

 

9

 

 

 

 

9

Provision

 

(4)

 

(4)

 

(1)

 

 

(9)

Ending Balance

$

812

$

27

$

11

$

$

850

Ending Balance:

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

Collectively Evaluated for Impairment

$

812

$

27

$

11

$

$

850

Loans Receivable:

 

  

 

  

 

  

 

  

Ending Balance

$

73,591

$

3,567

$

1,117

$

209

$

78,484

Ending Balance:

 

  

 

  

 

  

 

  

 

  

Individually Evaluated for Impairment

$

$

$

$

$

Collectively Evaluated for Impairment

$

73,591

$

3,567

$

1,117

$

209

$

78,484

The allowance for loan losses for Mortgage 1-4 Family Loans of $812,000 includes an unallocated portion of $437,000 as of December 31, 2019.

Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.

13


Loan Grades / Classification

The primary purpose of grading loans is to assess credit quality and assist in identifying potential problem loans. Every loan in the portfolio is assigned a loan grade based on quality and level of risk. Loan grades are updated as events occur that bear on the collectability of the loan, such as change in payment flow or status of the obligor or collateral. Changes in loan grades are reported to the Board Loan Committee.

Each credit reviewed is assigned a loan grade based on the following system:

Loan Grade 1Pass – Good

Loans with no identified problems and do not require more than normal attention. The repayment source is well defined and the borrower/guarantor exhibits no inability of repaying the loan as agreed. The financial information is acceptable and the loan meets credit and policy requirements and exhibits no unusual elements of risk. The collateral is acceptable and adequate.

Loan Grade 2Pass – Fair

These are performing owner-occupied loans that exhibit diminished borrower capacity, such as sufficiently-aged Troubled Debt Restructurings or loans that are frequently delinquent more than 30 days but less than 60 days. Also included are performing investor loans with a good payment record but lack updated financial information but are judged from alternate sources to have satisfactory cash flows and a sufficiently strong guarantor.

Loan Grade 3Watch

Owner-occupied loans that are well-secured but are occasionally delinquent more than 60 days but less than 90. Also included are performing investor loans lacking required current financial information or that demonstrate diminished guarantor capacity and an estimated stressed debt service coverage ratio of less than 1.20.

Loan Grade 4Special Mention (For investment loans only.)

Investment loans that have potential or identified weaknesses that deserve management’s close attention. If left uncorrected, these may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. These loans are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification. Default is not imminent.

Adverse Classifications

Loan Grade 5Substandard

A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledge, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

Loan Grade 6Doubtful

A loan that has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

14


Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at June 30, 2020 (in thousands)

    

    

    

Special

    

    

    

Pass

Watch

Mention

Substandard

Doubtful

Total

Mortgage Loans:

 

  

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

65,536

$

31

$

55

$

564

$

$

66,186

Multifamily

 

3,204

 

 

 

 

 

3,204

Commercial real estate

 

1,086

 

 

 

 

 

1,086

Non-Mortgage Loans:

 

 

 

 

 

  

 

  

Consumer

 

214

 

 

 

 

 

214

Total

$

70,040

$

31

$

55

$

564

$

$

70,690

Credit Quality Indicators - Credit Risk Profile Based on Loan Grades at December 31, 2019 (in thousands)

    

    

    

Special

    

    

    

Pass

Watch

Mention

Substandard

Doubtful

Total

Mortgage Loans:

 

  

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

72,937

$

87

$

$

567

$

$

73,591

Multifamily

 

3,567

 

 

 

 

 

3,567

Commercial real estate

 

1,117

 

 

 

 

 

1,117

Non-Mortgage Loans:

 

 

 

 

 

  

 

  

Consumer

 

209

 

 

 

 

 

209

Total

$

77,830

$

87

$

$

567

$

$

78,484

At June 30, 2020 and December 31, 2019, loan balances outstanding on non-accrual status amounted to $0 and $0, respectively. The Company considers loans more than 90 days past due and on nonaccrual as nonperforming loans.

At June 30, 2020 and December 31, 2019, the credit quality indicators (performing and nonperforming loans), disaggregated by class of loan, are as follows:

Credit Quality Indicators - Credit Risk Profile Based on Payment Activity at June 30, 2020 (in thousands)

    

    

Non-

    

Performing

Performing

Total

Mortgage Loans:

 

  

 

  

 

  

1 to 4 Family

$

66,186

$

$

66,186

Multifamily

 

3,204

 

 

3,204

Commercial real estate

 

1,086

 

 

1,086

Non-Mortgage Loans:

 

 

  

 

  

Consumer

 

214

 

 

214

Total

$

70,690

$

$

70,690

Credit Quality Indicators - Credit Risk Profile Based on Payment Activity at December 31, 2019 (in thousands)

    

    

Non-

    

Performing

Performing

Total

Mortgage Loans:

 

  

 

  

 

  

1 to 4 Family

$

73,591

$

$

73,591

Multifamily

 

3,567

 

 

3,567

Commercial real estate

 

1,117

 

 

1,117

Non-Mortgage Loans:

 

 

  

 

  

Consumer

 

209

 

 

209

Total

$

78,484

$

$

78,484

15


The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of June 30, 2020 and December 31, 2019. There were no loans over 90 days past due and still accruing as of June 30, 2020 and December 31, 2019.

Aged Analysis of Past Due Loans Receivable at June 30, 2020 (in thousands)

    

30-59

    

60-89 

    

90 Days or

    

    

    

Total

Days

Days

Greater  

Total

Loans

Past Due

Past Due

Past Due

Past Due

Current

Receivable

Mortgage Loans:

 

 

  

 

  

 

  

 

  

 

  

1 to 4 Family

$

$

$

$

$

66,186

$

66,186

Multifamily