0001437749-21-018253.txt : 20210803 0001437749-21-018253.hdr.sgml : 20210803 20210803110739 ACCESSION NUMBER: 0001437749-21-018253 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 82 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210803 DATE AS OF CHANGE: 20210803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMN FINANCIAL INC CENTRAL INDEX KEY: 0000921183 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 411777397 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24100 FILM NUMBER: 211138486 BUSINESS ADDRESS: STREET 1: 1016 CIVIC CENTER DRIVE NORTHWEST CITY: ROCHESTER STATE: MN ZIP: 55901 BUSINESS PHONE: 5075351200 MAIL ADDRESS: STREET 1: 1016 CIVIC CENTER DRIVE NW CITY: ROCHESTER STATE: MN ZIP: 55901 10-Q 1 hmnf20210630_10q.htm FORM 10-Q hmnf20210630_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from _________ to _________

 

Commission File Number 0-24100

 

HMN FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-1777397

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

   

1016 Civic Center Drive N.W., Rochester, MN

 

55901

(Address of Principal Executive Offices)

 

(Zip Code)

   

Registrant's Telephone Number, Including Area Code:

 

(507) 535-1200

 

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock

HMNF

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes ☒         No ☐

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 checkmark 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 Exchange Act). Yes No ☒

 

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

 

Class

 

Outstanding at July 28, 2021

Common stock, $0.01 par value

 

4,644,575

 

 

 

HMN FINANCIAL, INC.

TABLE OF CONTENTS

 

PART I  FINANCIAL INFORMATION  
   

Page

Item 1:

Financial Statements

3

     
 

Consolidated Balance Sheets at June 30, 2021 and December 31, 2020

3

     
 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020

4

     
 

Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020

5

     
 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

6

     
 

Notes to Consolidated Financial Statements

7

     

Item 2:

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

24

     

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

36

     

Item 4:

Controls and Procedures

36

     

PART II  OTHER INFORMATION

     

Item 1:

Legal Proceedings

37

     

Item 1A:

Risk Factors

37

     

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

37

     

Item 3:

Defaults Upon Senior Securities

37

     

Item 4:

Mine Safety Disclosures

37

     

Item 5:

Other Information

37

     

Item 6:

Exhibits

38

     

Signatures

39

 

 

 

PART I FINANCIAL INFORMATION

Item 1: Financial Statements

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

  

June 30,

  

December 31,

 

(Dollars in thousands)

 

2021

  

2020

 
  

(unaudited)

     

Assets

        

Cash and cash equivalents

 $100,406   86,269 

Securities available for sale:

        

Mortgage-backed and related securities (amortized cost $165,202 and $99,821)

  165,886   101,464 

Other marketable securities (amortized cost $45,690 and $46,491)

  45,648   46,626 
   211,534   148,090 
         

Loans held for sale

  7,380   6,186 

Loans receivable, net

  637,219   642,630 

Accrued interest receivable

  2,135   3,102 

Mortgage servicing rights, net

  3,160   3,043 

Premises and equipment, net

  9,871   10,133 

Goodwill

  802   802 

Core deposit intangible

  23   57 

Prepaid expenses and other assets

  6,154   7,241 

Deferred tax asset, net

  2,342   2,027 

Total assets

 $981,026   909,580 
         
         

Liabilities and Stockholders Equity

        

Deposits

 $862,282   795,204 

Accrued interest payable

  106   140 

Customer escrows

  2,382   1,998 

Accrued expenses and other liabilities

  8,298   8,986 

Total liabilities

  873,068   806,328 

Commitments and contingencies

          

Stockholders’ equity:

        

Serial-preferred stock: ($.01 par value) authorized 500,000 shares; issued 0

  0   0 

Common stock ($.01 par value): Authorized 16,000,000 shares; issued 9,128,662

  91   91 

Additional paid-in capital

  40,484   40,480 

Retained earnings, subject to certain restrictions

  125,795   117,849 

Accumulated other comprehensive income

  462   1,282 

Unearned employee stock ownership plan shares

  (1,353)  (1,450)

Treasury stock, at cost 4,484,087 and 4,359,552 shares

  (57,521)  (55,000)

Total stockholders’ equity

  107,958   103,252 

Total liabilities and stockholders’ equity

 $981,026   909,580 

 


 

See accompanying notes to consolidated financial statements.

 

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(Dollars in thousands, except per share data)

 

2021

   

2020

   

2021

   

2020

 

Interest income:

                               

Loans receivable

  $ 7,557       7,427       14,917       14,667  

Securities available for sale:

                               

Mortgage-backed and related

    440       265       831       554  

Other marketable

    62       171       169       383  

Other

    35       20       66       123  

Total interest income

    8,094       7,883       15,983       15,727  
                                 

Interest expense:

                               

Deposits

    410       745       863       1,637  

Total interest expense

    410       745       863       1,637  

Net interest income

    7,684       7,138       15,120       14,090  

Provision for loan losses

    (891 )     318       (1,467 )     778  

Net interest income after provision for loan losses

    8,575       6,820       16,587       13,312  
                                 

Non-interest income:

                               

Fees and service charges

    783       669       1,522       1,383  

Loan servicing fees

    384       297       779       629  

Gain on sales of loans

    1,665       2,364       3,438       3,498  

Other

    1,910       264       2,258       555  

Total non-interest income

    4,742       3,594       7,997       6,065  
                                 

Non-interest expense:

                               

Compensation and benefits

    4,096       3,799       7,917       7,846  

Occupancy and equipment

    1,104       1,111       2,211       2,234  

Data processing

    368       321       715       629  

Professional services

    283       447       486       934  

Other

    1,129       975       2,130       2,011  

Total non-interest expense

    6,980       6,653       13,459       13,654  

Income before income tax expense

    6,337       3,761       11,125       5,723  

Income tax expense

    1,809       1,070       3,179       1,647  

Net income

    4,528       2,691       7,946       4,076  

Other comprehensive income (loss), net of tax

    421       224       (820 )     1,499  

Comprehensive income available to common stockholders

  $ 4,949       2,915       7,126       5,575  

Basic earnings per share

  $ 1.01       0.58       1.76       0.88  

Diluted earnings per share

  $ 1.00       0.58       1.74       0.88  
                                 

 

See accompanying notes to consolidated financial statements.

 

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
For the Three and Six Months Ended June 30, 2021 and 2020

(unaudited)

 

                                   

Unearned

                 
                           

Accumulated

   

Employee

                 
           

Additional

           

Other

   

Stock

           

Total

 
   

Common

   

Paid-In

   

Retained

   

Comprehensive

   

Ownership

   

Treasury

   

Stockholders’

 

(Dollars in thousands)

 

Stock

   

Capital

   

Earnings

   

Income

   

Plan Shares

   

Stock

   

Equity

 

Balance, March 31, 2021

  $ 91       40,405       121,267       41       (1,401 )     (55,339 )     105,064  

Net income

                    4,528                               4,528  

Other comprehensive income

                            421                       421  

Stock repurchases

                                          (2,213 )     (2,213 )

Restricted stock awards

            (38 )                             38       0  

Stock awards withheld for tax withholding

                                            (7 )     (7 )

Amortization of restricted stock awards

            61                                       61  

Earned employee stock ownership plan shares

            56                       48               104  

Balance, June 30, 2021

  $ 91       40,484       125,795       462       (1,353 )     (57,521 )     107,958  
                                                         

Balance, December 31, 2020

  $ 91       40,480       117,849       1,282       (1,450 )     (55,000 )     103,252  

Net income

                    7,946                               7,946  

Other comprehensive loss

                            (820 )                     (820 )

Stock repurchases

                                            (2,736 )     (2,736 )

Restricted stock awards

            (222 )                             222       0  

Stock awards withheld for tax withholding

                                            (7 )     (7 )

Amortization of restricted stock awards

            121                                       121  

Earned employee stock ownership plan shares

            105                       97               202  

Balance, June 30, 2021

  $ 91       40,484       125,795       462       (1,353 )     (57,521 )     107,958  
                                                         

 

 

                                   

Unearned

                 
                           

Accumulated

   

Employee

                 
           

Additional

           

Other

   

Stock

           

Total

 
   

Common

   

Paid-In

   

Retained

   

Comprehensive

   

Ownership

   

Treasury

   

Stockholders’

 

(Dollars in thousands)

 

Stock

   

Capital

   

Earnings

   

Income

   

Plan Shares

   

Stock

   

Equity

 

Balance, March 31, 2020

  $ 91       40,347       108,932       1,321       (1,595 )     (54,061 )     95,035  

Net income

                    2,691                               2,691  

Other comprehensive income

                            224                       224  

Restricted stock awards

            (151 )                             151       0  

Amortization of restricted stock awards

            84                                       84  

Earned employee stock ownership plan shares

            32                       49               81  

Balance, June 30, 2020

  $ 91       40,312       111,623       1,545       (1,546 )     (53,910 )     98,115  
                                                         

Balance, December 31, 2019

  $ 91       40,365       107,547       46       (1,643 )     (53,758 )     92,648  

Net income

                    4,076                               4,076  

Other comprehensive income

                            1,499                       1,499  

Stock repurchases

                                            (360 )     (360 )

Restricted stock awards

            (268 )                             268       0  

Stock awards withheld for tax withholding

                                            (60 )     (60 )

Amortization of restricted stock awards

            130                                       130  

Earned employee stock ownership plan shares

            85                       97               182  

Balance, June 30, 2020

  $ 91       40,312       111,623       1,545       (1,546 )     (53,910 )     98,115  
                                                         

 

See accompanying notes to consolidated financial statements.

 

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

 

   

Six Months Ended June 30,

 

(Dollars in thousands)

 

2021

   

2020

 

Cash flows from operating activities:

               

Net income

  $ 7,946       4,076  

Adjustments to reconcile net income to cash provided by operating activities:

               

Provision for loan losses

    (1,467 )     778  

Depreciation

    507       570  

Amortization of premiums, net

    425       58  

Amortization of deferred loan fees

    (1,327 )     (170 )

Amortization of core deposit intangible

    34       49  

Amortization of other purchased fair value adjustments

    (15 )     (19 )

Amortization of mortgage servicing rights

    574       621  

Capitalized mortgage servicing rights

    (691 )     (1,096 )

(Gains) losses recognized on equity securities, net

    (49 )     39  

Gains on sale of premises

    (15 )     0  

(Gain) loss on sales of real estate

    (1,492 )     2  

Gain on sales of loans

    (3,438 )     (3,498 )

Proceeds from sale of loans held for sale

    95,028       120,978  

Disbursements on loans held for sale

    (87,885 )     (117,307 )

Amortization of restricted stock awards

    121       130  

Amortization of unearned Employee Stock Ownership Plan shares

    97       97  

Earned Employee Stock Ownership Plan shares priced above original cost

    105       85  

Decrease (increase) in accrued interest receivable

    967       (1,129 )

Decrease in accrued interest payable

    (34 )     (149 )

Decrease in other assets

    584       1,230  

(Decrease) increase in other liabilities

    (711 )     1,467  

Other, net

    5       4  

Net cash provided by operating activities

    9,269       6,816  

Cash flows from investing activities:

               

Principal collected on securities available for sale

    16,534       6,047  

Proceeds collected on maturities of securities available for sale

    25,762       30,875  

Purchases of securities available for sale

    (107,299 )     (25,102 )

Purchase of Federal Home Loan Bank Stock

    (159 )     (79 )

Proceeds from sales of real estate

    2,128       34  

Net decrease (increase) in loans receivable

    3,413       (74,754 )

Proceeds from sale of premises

    16       0  

Purchases of premises and equipment

    (246 )     (303 )

Net cash used by investing activities

    (59,851 )     (63,282 )

Cash flows from financing activities:

               

Increase in deposits

    67,078       78,889  

Purchase of treasury stock

    (2,736 )     (360 )

Stock awards withheld for tax withholding

    (7 )     (60 )

Increase (decrease) in customer escrows

    384       (592 )

Net cash provided by financing activities

    64,719       77,877  

Increase in cash and cash equivalents

    14,137       21,411  

Cash and cash equivalents, beginning of period

    86,269       44,399  

Cash and cash equivalents, end of period

  $ 100,406       65,810  

Supplemental cash flow disclosures:

               

Cash paid for interest

  $ 897       1,786  

Cash paid for income taxes

    3,301       1,240  

Supplemental noncash flow disclosures:

               

Loans transferred to loans held for sale

    4,806       1,987  

Transfer of loans to real estate

    0       139  
                 

 

See accompanying notes to consolidated financial statements.

 

 

HMN FINANCIAL, INC. AND SUBSIDIARIES

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)